UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


___________________





FORM
10-K




x
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008





OR





o
            TRANSITION
      REPORT UNDER 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
              (State
      or other jurisdiction of incorporation or organization)
            34-1454529
              (I.R.S.
      Employer Identification No.)990
      Highland Drive, Suite 206, Solana Beach, California
              (Address
      of principal executive offices)
            92075
              (Zip
      Code)





Registrant's
telephone number, including are code:  (858) 720-9900





Securities
registered pursuant to Section 12(b) of the Act:





Title
      of each class
            Name
      of each exchange on which registered
              NONE





Securities
registered pursuant to Section 12(g) of the Act:





Common Stock, $.001 par
value





(Title
of Class)


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act


Yes o
    Nox





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. Yes x   Noo





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 filing requirements for the past
90 days.  Yes x     Noo





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K  o





Indicate
by check mark 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
      file     oNon-accelerated
      filer     o(Do not
      check if a smaller reporting company)
            
            Smaller reporting
      company     x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).    Yes o
   No x





The
aggregate market value of the registrant’s approximate 22,000,000 shares of
common stock held by non-affiliates computed by reference to the closing sales
price of such common equity (i.e. $0.06) as of the last business day of the
registrant’s most recently completed second fiscal quarter (June 30, 2008) was
$1,320,000.





The
number of shares outstanding of the registrant’s common stock at April 1, 2009
was 31,437,387.











INDEX








PageCAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING INFORMATION
            1PART
      I
            
            1ITEM
      1.
            BUSINESS
            1ITEM
      1A.
            RISK
      FACTORS
            6ITEM
      2.
            PROPERTIES
            13ITEM
      3.
            LEGAL
      PROCEEDINGS
            14ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
            16PART
      IIITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
      ISSUER PURCHASES OF EQUITY SECURITIES
            16ITEM
      6.
            SELECTED
      FINANCIAL INFORMATION
            16ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            16ITEM
      7A
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            20ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
            20ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
            21ITEM
      9A(T).
            CONTROLS
      AND PROCEDURES
            21ITEM
      9B.
            OTHER
      INFORMATION
            22PART
      IIIITEM 10.
            DIRECTORS,
      EXECUTIVE OFFICERS  AND CORPORATE GOVERNANCE
            23ITEM
      11.
            EXECUTIVE
      COMPENSATION
            27ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
            35ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE
            36ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            38PART
      IVITEM
      15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
            38













CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION




This
Annual Report on Form 10-K, 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 ability to comply or continue to comply with governmental
      regulations; and




·
            statements
      regarding our estimated future costs and
  expenses.




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




PART
I




As used
in this Annual Report on Form 10-K, “we,” “us,” “our,” “Surge “ and our
“company” refer to Surge Global Energy, Inc. (“Surge”), and our wholly owned
subsidiaries, including Surge Energy Resources, Inc., Peace Oil Corp., 1294697
Alberta Ltd.,  and Cold Flow ULC, unless the context otherwise
requires.




ITEM
      1.
            BUSINESS




General
Overview




Surge
Global Energy, Inc. is a Delaware corporation dually traded on the OTC Bulletin
Board and the Pink Sheets 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.




We are an
oil and gas exploration and development company. Our primary objective is to
identify, acquire and develop working interests in oil and gas projects. We
intend to develop oil and gas properties and explore for oil and gas, focusing
mainly in the United States and Canada. We will engage in oil and gas
exploration, drilling of new and development wells, and acquiring and/or leasing
producing properties as the most prudent ways to generate income and increase
shareholder values to the extent that our limited cash resources will permit us
to accomplish this. Our strategic initiative is to pursue potential high rate of
return projects with limited risk and explore ways to maximize values from our
investments in Andora Energy Corporation, North Peace Energy Corp., 11 Good
Energy, Inc. and our investment in an oil and gas property in Wyoming as
described below.




Corporate
History




We were
incorporated as The Havana Group, Inc. on November 25, 1997 under the laws of
the state of Delaware. Our initial business was the sale of pipes and tobacco
products and we completed our initial public offering in May 1998. On October
13, 2004, Surge’s name was changed from The Havana Group, Inc to Surge Global
Energy, Inc. and the symbol was changed to “SRGG”.





On
December 31, 2003, our pipe and tobacco inventory was liquidated and the
tangible and intangible assets related to that business were sold
off.  In December 2004, we completed the restructuring of our balance
sheet and the cancellation of outstanding Preferred A and Preferred B
shares and indebtedness related to the discontinued tobacco and pipe
business.





1




From 2005 through 2008,we engaged in a series of acquisition,
divestiture and capital transactions in an effort to expand our business and
provide the basis for long-term shareholder returns from oil and gas exploration
and development.  Because our operations from 2005 forward have not
generated any revenue, we have used our equity and the value of interests in
other entities that we have controlled from time to time,
to develop business opportunities we believed would be
advantageous.  Our management has also undergone a number of changes
during this period.





In 2008,
we began the process of acquiring via lease oil and gas properties for drilling
and development. Three properties were leased, one of which has not yet been
drilled, the second was drilled with unsuccessful results, and the third
property in Wyoming was completed (i.e. ready to produce commercial
quantities of oil and gas) in mid-April 2009.




Because
we are an exploration stage company, the strategic transactions together with
handling management and board changes and issues and certain litigation have
occupied most of our efforts over the last three years.  For a
description of certain legal proceedings, see “Item 3.”




Oil
and Gas Drilling Activities





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 oil & gas well drilled on 40 acres of land in Park County,
Wyoming. This well has been tested and management is satisfied that the
estimated initial flow rate of natural gas and barrels of oil per day can be
produced in sufficient commercial quantity for production of this site to be
commercially viable and for us to recoup or initial investment. However,
Management’s estimates are based on one well at this site. Therefore,
Management’s estimates and determination that this property is commercially
viable is subject to a substantial chance of error. We can provide no assurances
that the amount of natural gas and barrels of oil per day that are actually
recovered from this site will be brought to the surface and sold in sufficient
commercial quantities for us to profitably operate this property. 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.
 
 Surge
Energy Resources owns a 35% working interest until payout, and a 21% working
interest thereafter, in the Qualmay #12-42 well. Surge agreed to pay 35% of the
estimated $1,670,560 drilling and completion costs, in return for a 35% working
interest until payout, and a 21% working interest thereafter.  Current
cost estimates indicate that the well cost $1,400,000 to drill and complete, of
which Surge Resources paid a net total of about $490,000.  In
addition, Surge Energy Resources owns the right to participate in three to five
additional wells on 520 acres of adjoining land by paying 35% of the cost of the
wells in return for a 35% working interest until payout and a 21% working
interest thereafter.


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 5,100,000 shares of its
common stock to former Signet officers, directors and certain shareholders, and
transferred shares of Signet to Deep Well and NAOL.  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
5.61% of the fully diluted shares of Andora.  Currently Surge owns a
total of 3,429,140 shares in Andora of which 2,349,321 are held in escrow
pursuant to an agreement with Andora regarding litigation with Dynamo Energy
Corp. See Legal Proceedings for further details.




We
retained our equity interest in Andora in 2008 without any changes in the number
of shares owned or any valuation changes. Andora is a privately owned oil and
gas company of which 53.3% is owned and controlled by Pan Orient Energy Corp., a
Canadian energy company listed on the TSX Venture Exchange.  For a
more detailed description of this series of transactions, see Note B to our
Consolidated Financial Statements, “Investment in Andora.”





Peace
Oil Corp. and North Peace Energy Corp.





On March
2, 2007, Cold Flow Energy ULC (“Cold Flow”), a Canadian subsidiary of our
1294697 Alberta Ltd. subsidiary (also a Canadian company, formed in order to
facilitate the transaction at the advice of Canadian tax counsel), acquired all
of the outstanding shares of Peace Oil Corp (“Peace Oil”), another Canadian
company.  Cold Flow paid consideration valued at CDN$16,620,000 in
cash, promissory notes and exchangeable shares of Cold Flow preferred stock (the
“Exchangeable Shares”).




At that
time, each Exchangeable Share could be exchanged for two shares of our common
stock for five years from the closing subject to certain redemption rights of
Surge.  We also issued a warrant to purchase 1,000,000 shares of our
common stock to 1304146 Alberta Ltd. at an exercise price of $1.00 per share
subject to certain contingencies.  Peace Oil was an oil and gas
exploration and development company, and at the time held an undivided 30%
working interest in 135 square miles (86,400 acres) of oil sands leases in the
Red Earth area of Alberta, Canada (the “Red Earth Leases”).






2





On June
28, 2007, the Company and Peace Oil sold certain assets of Peace Oil 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 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 (the “North Peace
Transaction”).  We are utilizing and intend to utilize the proceeds
from such sale to continue our current and future operations in the oil and gas
business.  None of Peace Oil (since sold), Cold Flow or 1294697
Alberta Ltd. has any ongoing business operations at this time.




In
December 2007, we determined that we had incurred Canadian tax liability
estimated at $5.281 million as June 30, 2007 related to these transactions and
as a result restated our June 30, 2007 and September 30, 2007 financial
reports.   In June, 2008, we sold our Peace Oil Corp subsidiary
and thereby mitigated that tax liability at a cost of approximately $1,573,000,
which amount has been included in the financial statements as an expense of sale
of Peace Oil Corp. See “Risk Factors.”





In June
and July 2008, the Company exchanged a total of 584,929 North Peace Energy
shares for all of the outstanding Cold Flow Exchangeable shares and 3,689,617
common shares of the Company, leaving a balance of North Peace shares owned from
the North Peace transaction at 1,739,129 shares, or 3.1% of North Peace as of
December 31, 2008.  As of December 31, 2008, the ten day weighted
average closing price of the common stock of North Peace Energy Corp.
(NPE) listed on the TSX Venture Exchange was $0.25. For financial statement
purposes the Company recorded a realized loss of $621,378 and a net unrealized
loss on the investment in NPE shares which are held as securities
available-for-sale of $1,048,291 for the year ended December 31,
2008.





As a
result of these transactions and other open market purchases, the Company now
owns 1,739,129 shares (a 3.16% interest) in North Peace (NPE.V).  For
a more detailed description of this series of transactions, see Note C to our
Consolidated Financial Statements, “Investment in Peace Oil.”




11
Good Energy, Inc. Investment





On
September 29, 2008, we made an initial investment in the biofuels sector with 11
Good Energy, Inc., a developer of G2 Diesel, a next generation biodiesel. The
Convertible Note bears interest at 8% per annum and is due and payable on
June 30, 2009. The Note is convertible at a 15% discount to 11 Good Energy’s
next equity financing. In the event of conversion, an equal number of warrants
will be issued, exercisable at the conversion price through June 30,
2010.





Frederick
C. Berndt, the CEO of 11 Good Energy and a former director of Surge, transferred
to Surge 500,000 shares of restricted common stock from his personal holdings of
11 Good Energy, and Surge agreed to issue to Mr. Berndt a stock purchase warrant
to purchase 1,000,000 shares of restricted Surge common stock at an exercise
price of seventy-five cents ($0.75) per Surge share through December 31,
2009.  Mr. Berndt also agreed to secure Surge’s Note with a lien on
certain real property owned by him. At June 30, 2009, the date the Note is due,
the Company has the option of converting the Note or requesting payment of all
accrued interest and principal. Currently, the Company does not intend on
converting the Note but rather demand payment in full. In the event of default,
the Company intends on utilizing its security lien to obtain all amounts
due.





11 Good
Energy is a development stage company which has developed a proprietary
manufacturing process to produce and ultimately market the next generation of
bio-diesel fuel, which produces less harmful emission and is more
environmentally friendly than existing diesel or bio-diesel fuel products
currently on the market. 11 Good Energy owns an operating plant in Ohio which at
full capacity has the ability to produce 13,500,000 gallons of annual bio-diesel
production. 11 Good Energy is currently seeking to raise additional financing to
refurbish the plant and to make it compliant with state and local
regulations.  We can provide no assurances that 11 Good Energy will
raise sufficient funds to carryout its business plans and to timely make payment
on our convertible note when it becomes due and payable on June 30,
2009.  See “Risk Factors.”





Santa
Rosa Dome Project, Mendoza Province, Argentina




On March
18, 2008, we entered into a Purchase and Sale Agreement, with Oromin
Exploration, Irie Isle Limited; Cynthia Holdings Ltd. (“Cynthia”); and Chet
Idziszek, pursuant to which the Company sold its 17.52% interest in
Cynthia.  Cynthia owns a certain parcel of land in the eastern
half of the Cuyana Basin in the Province of Mendoza, Argentina known as the
Santa Rosa Dome Prospect.  We received six hundred thousand U.S.
Dollars (US$600,000) in cash and the return of One Million (1,000,000) shares of
the Company’s common stock previously issued for the Company’s purchase of its
interest in Cynthia and after this transaction we owned no interest in this
property.








3




Working
Capital Activities




The
purchase of Peace Oil Corp in 2007 required additional financing by the Company.
On November 28, 2006, we entered into a Securities Purchase Agreements (the
“Securities Purchase Agreements”) with each of Gemini Master Fund, Ltd.
(“Gemini”) and Mark C. Fritz, pursuant to which we sold 2,000,000 shares of our
common stock at a purchase price of $0.45 per share to Gemini and 1,000,000
shares of our common stock at a purchase price of $0.45 per share to Mr. Fritz,
currently a director of the Company.





Pursuant
to the Securities Purchase Agreements, we also issued to Gemini a warrant to
purchase 2,000,000 shares, and to Mr. Fritz a warrant to purchase 1,000,000
shares, of our common stock at an exercise price of $0.60 per share and with a
term of five years, and a warrant to purchase 2,000,000 shares of our common
stock to Gemini, and a warrant to purchase 1,000,000 shares to Mr. Fritz, at an
exercise price of $0.50 per share with a term of six months. We also entered
into Registration Rights Agreements with each of Gemini and Mr. Fritz (the
“Registration Rights Agreements”) pursuant to which we agreed to file a
registration statement to cover the resale of the shares of common stock and the
shares underlying the warrants issued under the Securities Purchase Agreements
within 30 days of the Registration Rights Agreements and to cause such
registration statement to be declared effective by the SEC within 120 days of
the date of the Registration Rights Agreements.




Effective
as of April 19, 2007, we entered into an Exchange Agreement with Gemini under
which Gemini exchanged its rights and interests under the Securities Purchase
Agreement for a Convertible Note in the principal amount of $1,150,000 and other
consideration. We did not enter into a similar agreement with Mr.
Fritz.  The Convertible Note was retired in full by a payment of
$1,380,000 on November 1, 2007. The 2,000,000 of the Gemini warrants remain
outstanding.




We were
unable to file and obtain an effective registration statement with regard to the
shares issued to Mr. Fritz, who is presently a director or the Company. We filed
a registration statement in 2007 with regard to such shares but cancelled it in
2008 as Mr. Fritz’s shares could then be registered under Rule
144.  As a result, for a period of time we incurred liquidated
damages, equal to 2% of such net proceeds described above, assessed on a monthly
basis and we paid liquidated damage penalties to Mr. Fritz.




In
December 2006, we received notification from the Division of Securities of the
Ohio Department of Commerce that the sale of shares to Mr. Fritz in this
offering may not be exempt from Ohio’s securities laws, which assertion the
Company has denied. At that time, Mr. Fritz received a rescission offer from
Granite Financial without the Company’s knowledge or consent and Mr. Fritz
subsequently commenced an arbitration proceeding against Granite to compel
their offer of rescission. After a hearing in July, 2008, Mr. Fritz’s claims for
rescission were denied. Granite Financial then asserted a claim against the
Company for reimbursement of their legal fees.





After
filing suit against the Company in Ohio, which case was dismissed for lack of
jurisdiction, in March 2009 Granite Financial filed a similar suit in San Diego,
California and obtained a writ of attachment for approximately $247,900 in legal
fees incurred in the arbitration proceeding initiated by Mr. Fritz in Ohio.
See “Item 3 Legal Proceedings” below.





In March
2008, the Company sold its 17.52% in Cynthia Holdings, Ltd for $600,000 and a
return of 1,000,000 shares of the Company’s common stock.





On June
27, 2008, Cold Flow Energy ULC, a wholly subsidiary, entered into a
definitive agreement with a privately owned Canadian corporation (“Purchaser”),
pursuant to which Cold Flow sold all issued and outstanding common and preferred
shares of Peace Oil Corp.  Cold Flow Energy ULC indemnified the
Purchaser for any tax liabilities in excess of $CDN4,175,042 and all other
liabilities arising prior to the date of sale. As part of the sale, Cold Flow
Energy ULC paid the Purchaser $1,340,987 and the Purchaser effectively assumed
all tax liabilities of Peace Oil Corp. arising as a result of the purchase of
common and preferred shares.





During
2008, the Company invested approximately $1,600,000 in oil and gas properties
which had not generated any income through December 31, 2008.





Management
and Board Changes




On March
26, 2007, Daniel Schreiber resigned from our Board and on the same day Robert B.
Fields was appointed to our Board. On July 24, 2007, Dr. Kenneth Druck resigned
from our Board. On September 7, 2007, Dale Fisher joined our Board.




On
February 6, 2008, David Perez, our then Chief Executive Officer (“CEO”),
resigned from his position as CEO.  Mr. Perez continued to serve as a
member of our Board until February 11, 2008, on which date he resigned as a
member of the Board.  On February 11, 2008, the Board appointed John
Stiska as CEO of Surge.  On February 11, 2008, Richard Collato, Thomas Page
and Robert B. Fields resigned and on the same day, Barry Nussbaum, E. Jamie
Schloss, Jeffrey Bernstein and Charles Sage were appointed to our
Board.  Mark Fritz was appointed to our Board on February 12,
2008.




On
February 15, 2008, William Greene, our then Chief Financial Officer, resigned
from his position as Chief Financial Officer. While the Company searches for his
replacement, E. Jamie Schloss is serving as interim Chief Financial
Officer. In addition, Mr. Greene acted as a consultant to Surge in part of
2008.






4





On
February 19, 2008, the Board appointed Mr. Schloss as CEO to replace Mr.
Stiska.




Kenneth
D. Polin was elected to our Board on March 18, 2008.





On June
17, 2008, the Company (Surge Global Energy, Inc.) and its wholly owned indirect
subsidiary, Cold Flow, entered into a series of six agreements with two
non-affiliated parties and three affiliated parties, one of which, Dale Fisher,
was then a Director of the Company.  In the aggregate, the Company
cancelled all outstanding Cold Flow Energy ULC’s Exchangeable Preferred shares
and repurchased the equivalent of 13,620,490 Surge common shares. The purchase
price was paid for by the exchange of 584,929 shares of North Peace Energy
shares valued at $1.63 per North Peace share, or $953,434 in total.




As a
result of these purchases, the total shares potentially outstanding of the
Company’s common stock, had the Exchangeable shares been fully converted, were
reduced to 31,437,387 shares from 45,567,877 fully diluted shares (a decrease of
29.9 %) after all the shares acquired are cancelled.




On July
12, 2008, Dale Fisher resigned from the Board and was replaced by Edwin Korhonen
on July 14, 2008.




During
the last three 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 detail in the Note to the Consolidated
Financial Statements “Related Party Transactions.”





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.








Government
and Environmental Regulation




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.




Our
operations will be subject to extensive and developing federal, state and local
laws and regulations in the US and Canada relating to environmental, health and
safety matters; petroleum; chemical products and materials; and waste
management. Permits, registrations or other authorizations are required for the
operation of certain of our facilities and for our oil and gas exploration and
production activities. These permits, registrations or authorizations are
subject to revocation, modification and renewal. Governmental authorities have
the power to enforce compliance with these regulatory requirements, the
provisions of required permits, registrations or other
authorizations, lease conditions, and violators are subject to civil and
criminal penalties, including fines, injunctions or both. Failure to obtain or
maintain a required permit may also result in the imposition of civil and
criminal penalties. Third parties may have the right to sue to enforce
compliance.




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 US and
Canada.






5




Number
of Total Employees and Number of Full-time Employees




From our
inception through the period ended December 31, 2008, we have relied on the
services of outside consultants for services in addition to three (3) full -time
employees. In order for us to attract and retain quality personnel, we
anticipate we will have to offer competitive salaries to future employees. As we
continue to expand, we may incur additional costs for personnel and consultants.
This projected increase in personnel is dependent upon our generating revenues
and obtaining sources of financing. There is no guarantee that we will be
successful in raising the funds required or generating revenues sufficient to
fund the projected increase in the number of employees. None of our employees
are covered by collective bargaining agreements, and we believe our relations
with our employees are favorable.






ITEM
      1A.
            RISK
      FACTORS




An
investment in our common stock is speculative and involves a high degree of risk
and uncertainty. You should carefully consider the risks described below,
together with the other information contained in our reports filed with the SEC,
including the consolidated financial statements and notes thereto of our
company, before deciding to invest in our common stock. The risks described
below are not the only ones facing our company. Additional risks not presently
known to us or that we presently consider immaterial may also adversely affect
our company. If any of the following risks occur, our business, financial
condition and results of operations and the value of our common stock could be
materially and adversely affected







RISKS
RELATED TO OUR COMPANY




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





We have a
history of net losses and expect that our operating expenses will continue 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. We are involved in
various litigations, the outcome and legal expense of which could adversely
affect our operations and cash resources. We plan to attempt to obtain our
future funding that we will need to drill wells on leases owned, to lease
additional properties and to otherwise finance our operations through debt and
equity markets or joint venture agreements with third parties; however, we can
provide no assurances that we will be able to obtain additional funding (and/or
joint venture partners willing to fund specific exploration projects) when it is
required or that it will be available to us on commercially acceptable terms, if
at all.  If we fail to obtain the financing that we need when it is
required, we may have to forego or delay potentially valuable opportunities to
acquire new oil and gas properties or default on 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 and may adversely affect our ability to remain a going concern on a
long term basis. See “Item 7.”





Our
Wyoming property may not produce oil and gas in commercial quantities sufficient
to be profitable.





In June,
2008, we began acquiring oil and gas properties for drilling and exploration.
One of these properties was a deep gas well named the Qualmay #12-42 well, a
7,200 foot deep well oil & gas well drilled on 40 acres of land in Park
County, Wyoming. This well has been tested and management is satisfied that the
estimated initial flow rate of natural gas and barrels of oil per day can be
produced in sufficient commercial quantity for production of this site to be
commercially viable and for us to recoup our initial investment. However,
Management’s estimates are based on initial results for this well. Therefore,
Management’s estimates and determination that this property is commercially
viable is subject to a substantial chance of error. We can provide no assurances
that the amount of natural gas and barrels of oil per day that are actually
recovered from this site will be brought to the surface and sold in sufficient
commercial quantities for us to profitably operate this property. See “Item 1 –
Oil and Gas Drilling Activities.”





We
are and may continue to be involved in litigation and other
disputes.





Our
business and operations may subject us to claims, litigation and other
proceedings brought by private parties and governmental authorities. We are
currently involved in a contract dispute with Dynamo Energy Corporation, a
Canadian corporation (“Dynamo”), in connection with an alleged breach of
contract; Granite Financial Corp., whose principal Daniel Schreiber is a former
director, and David Perez, our former CEO.  See Item 3 “Legal
Proceedings” and Subsequent Events for a discussion of these
disputes.  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 we were to
prevail, any litigation could be costly and time-consuming and would divert the
attention of our management and key personnel from our business operations,
which adversely affect our financial condition, results of operations or cash
flows.







6





Further,
approximately $247,900 of our limited cash resources has been seized and placed
in protected trust until the conclusion of a legal proceeding. This action has
adversely affected our available cash resources to obtain additional oil and gas
properties for exploration and our ability to finance our existing
operations.




We
loaned $275,000 to 11 Good Energy, a developer of bio-diesel pursuant to a
convertible note and we may not obtain our investment back without incurring
substantial legal costs and delays.





On
September 11, 2008, we made a $275,000 investment in 11 Good Energy, Inc. We
were issued a convertible note which bears interest at the rate of 8% per annum
and is due and payable on June 30, 2009. Simultaneously in a separate
transaction, the Chief Executive Officer of 11 Good Energy secured our
promissory note with a lien on certain real property owned by him. As described
in “Item 1 – 11 Good Energy, Inc. Investment,” 11 Good Energy is seeking to
raise additional financing for its operations. We can provide no assurances that
11 Good Energy will raise sufficient funds to carryout its business plans and to
timely make payment on our convertible note when it becomes due and payable on
June 30, 2009. In the absence of timely payment, we may incur substantial legal
costs to collect our loan from 11 Good Energy or to foreclose on the real estate
which secures the loan. Any delay in obtaining the repayment of our funds after
June 30, 2009 may severely impact our cash liquidity needs and our ability to
pay our obligations as they become due.





We
have a history of net operating losses.




We have a
history of net operating losses and we will need to generate substantial
revenues to achieve profitability. In the short term we must realize value from
our existing assets or generate earnings from our oil and gas
activities.  We may not be able to generate revenue either in the
short term or the longer term.  Even if we do achieve profitability,
we cannot assure you that we will be able to sustain or increase profitability
on a quarterly or annual basis in the future. There can be no assurance that
future operations will be profitable. Revenues and profits, if any, will depend
upon various factors, including whether we will be able to continue expansion of
our operations and sell or finance existing assets. We may not achieve our
business objectives and the failure to achieve such goals would have an adverse
impact on us.  Our future performance is dependent upon our ability to
identify, acquire and implement the strategy to develop oil properties for
production or resale which may delay shareholder return on investment for
years.




We
may not be able to acquire other profitable oil and gas interests.




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




We are an exploration stage company
implementing a new business plan.




In
January 2005, as a result of the disposal of our tobacco wholesale business in
December 2004, and the restructuring of our management and ownership, we began
implementing plans to establish an oil and gas exploration business. As a
result, we are an exploration stage enterprise, as defined by Statement of
Financial Accounting Standards No. 7 (“SFAS7”). We are an exploration stage
company with only a limited operating history upon which to base an evaluation
of our current business and future prospects, and we have just begun to
implement our business plan. Since our inception and the inception of our
exploration stage on January 1, 2005, we have suffered recurring losses from
operations and have been dependent on new investment to sustain our operations.
During the years ended December 31, 2008 we reported net income of $607,835 and
comprehensive income after unrealized losses on available for sale securities
and foreign currency adjustments of $80,771. In 2007, we reported a net losses
$11,343,620 and $12,412,358, respectively. We cannot give any assurances that we
can achieve profits from operations. For the period from inception of
exploration stage through December 31, 2008, the Company has accumulated losses
of $36,388,996.





We
do not presently control any of our operations.




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




7




·
            the
      operator might initiate exploration or development on a faster or slower
      pace than we prefer;




·
            the
      operator might propose to drill more wells or build more facilities on a
      project than we have funds for or that we deem appropriate, which could
      mean that we are unable to participate in the project or share in the
      revenues generated by the project even though we paid our share of
      exploration costs;




·
            we
      could have our working interest ownership in the related lands and
      petroleum reserves reduced as a result of our failure to participate in
      development expenditures;




·
            the
      operator might not earn a sufficient working interest based on required
      drilling activity which could impair the carrying value of the
      asset;




·
            the
      operator might obtain additional financing which may further dilute our
      interest in the property as well as trigger additional asset impairment;
      and




·
            if
      an operator refuses to initiate a project, we might be unable to pursue
      the project.




Any of
these events could materially reduce the value of our properties.





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




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





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




The
reserve, geological and engineering data information that we use in evaluating
oil and gas prospects is based on estimates involving a great deal of
uncertainty. Different engineers may make different estimates of reserves and
cash flows based on the same available data. Reserve estimates depend in large
part upon the reliability of available geologic and engineering data, which is
inherently imprecise. Geologic and engineering data are used to determine the
probability that a reservoir of oil and gas exists at a particular location, and
whether oil and/or gas and natural gas are recoverable from a reservoir.
Recoverability is ultimately subject to the accuracy of data including, but not
limited to, geological characteristics of the reservoir, structure, reservoir
fluid properties, the size and boundaries of the drainage area, reservoir
pressure, and the anticipated rate of pressure depletion. The evaluation of
these and other factors is based upon available seismic data, computer modeling,
well tests and information obtained from production of oil and gas from adjacent
or similar properties, but the probability of the existence and recoverability
of reserves is less than 100% and actual recoveries of proved reserves can
differ from estimates.




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




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




·
            availability
      and cost of capital both by the company and our planned majority
      partners;




·
            receipt
      of additional seismic data or the reprocessing of existing
      data;




·
            current
      and projected oil or natural gas
prices;




·
            reserve
      results could be less than our anticipated recovery rate
      range;




·
            the
      costs and availability of drilling rigs and other equipment, supplies and
      personnel necessary to conduct these
operations;






8




·
            success
      or failure of activities in similar
areas;




·
            changes
      in the estimates of the costs to complete the
  projects;




·
            changes
      in the estimates of potential production
levels;




·
            our
      ability to attract other industry partners to acquire a portion of the
      working interest to reduce costs and exposure to
  risks;




·
            decisions
      of our joint working interest owners and partners;
  and




·
            market
      prices for our oil field assets could change and could vary when the
      development efforts and subsequent oil field values
  accrue.





We will
continue to gather data about our projects and it is possible that additional
information will cause us to alter our schedule or determine that a project
should not be pursued at all. You should understand that our plans regarding our
projects might change.





Reserve
estimates also require numerous assumptions relating to operating conditions and
economic factors, including the price at which recovered oil and gas can be
sold, the costs of recovery, assumptions concerning future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
prevailing environmental conditions associated with drilling and production
sites, availability of enhanced recovery techniques, ability to transport oil
and gas to markets and governmental and other regulatory factors, such as taxes
and environmental laws. A negative change in any one or more of these factors
could result in quantities of oil and gas previously estimated as proved
reserves becoming uneconomic. For example, a decline in the market price of oil
or gas to an amount that is less than the cost of recovery of such oil or gas in
a particular location could make production commercially impracticable. The risk
that a decline in price could have that effect is magnified in the case of
reserves requiring sophisticated or expensive production enhancement technology
and equipment, such as some types of heavy oil. Each of these factors, by having
an impact on the cost of recovery and the rate of production, will also affect
the present value of future net cash flows from estimated reserves.





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




The
business of exploring for and producing gas involves a substantial risk of
investment loss. Drilling wells involves the risk that the wells may be
unproductive or that, although productive, that the wells may not produce oil in
economic quantities. Other hazards, such as unusual or unexpected geological
formations, pressures, fires, blowouts, loss of circulation of drilling fluids
or other conditions may substantially delay or prevent completion of any well.
Adverse weather conditions can also hinder drilling operations. A productive
well may become uneconomic due to pressure depletion, water encroachment,
mechanical difficulties and other reasons which impair or prevent the production
of oil and gas from the well.





There can
be no assurance that oil and gas will be produced from the properties in which
we have interests. In addition, the marketability of any oil and gas that we
acquire or discover may be influenced by numerous factors beyond our control.
These factors include the proximity and capacity of oil and gas pipelines and
processing equipment, market fluctuations of prices, taxes, royalties, land
tenure, allowable production and environmental protection. We cannot predict how
these factors may affect our business.




In
addition, the success of our business is dependent upon the efforts of various
third parties that we do not control. We rely upon various companies to assist
us in identifying desirable oil prospects to acquire and to provide us with
technical assistance and services. We also rely upon the services of geologists,
geophysicists, chemists, engineers and other scientists to explore and analyze
oil prospects to determine a method in which the oil prospects may be developed
in a cost-effective manner. In addition, we rely upon the owners and operators
of oil drilling equipment to drill and develop our prospects to production or to
attract the interest of larger oil field companies. Although we have developed
relationships with a number of third-party service providers, we cannot assure
that we will be able to continue to rely on such persons. If any of these
relationships with third-party service providers are terminated or are
unavailable on commercially acceptable terms, we may not be able to execute our
business plan.





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




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






9




Essential
equipment might not be available.




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





Pipeline
capacity may be inadequate.




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





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




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





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




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





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




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





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




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





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




Our
business operations are presently managed by one key employee, E. Jamie Schloss,
our Chief Executive Officer, and our interim Chief Financial Officer. The loss
of the services of such employee could seriously impair our business operations.
We do not have key man life insurance on any of our executives or
employees.







10




RISKS
RELATED TO OUR INDUSTRY




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




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





The
oil and gas industry is highly competitive.




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




Oil
and gas operations involve various hazardous risks.




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




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




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





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




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







11








RISKS
RELATED TO OUR STOCK




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




Our
executive officers, directors, and principal stockholders who hold 5% or more of
the outstanding common stock and their affiliates beneficially owned
approximately 20,270,000 shares as of December 31 2008, in the aggregate
including warrants, stock options and voting rights exercisable with 60 days,
approximately 48% of our fully diluted common stock.  These
stockholders will be able to exercise significant control over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. This could delay or prevent an outside
party from acquiring or merging with us even if our other stockholders wanted it
to occur.





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




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




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





Our
stock price can be extremely volatile.




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




We do not expect to pay
dividends.




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




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




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




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




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




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






12




·
            the
      broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.




In order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must:




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




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




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




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




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





Our stock price can be extremely
volatile.




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




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







ITEM
      2.
            PROPERTIES




Our
principal executive offices are presently located at 990 Highland Drive, Suite
206, Solana Beach, California 92075. In March, 2008 Surge executed a six
month lease at a monthly rental of $825 per month for office space at this
address in Suite 110-V, which represented approximately 366 square feet of
rentable space.  On May 6, 2008, the Company cancelled its prior
six-month lease at 990 Highland Drive and entered into a new lease for a larger
space (Suite #206) in the same building. The new lease is a three-year lease
commencing May 6, 2008, The annual rentals are $25,740 for the period from May
6, 2008 to May 5, 2009, $26,676 for the period from May 6, 2009 to May 5, 2010,
and $27,612 for the period from May 6, 2010 to May 5, 2011 for
approximately 2,000 feet of space.





Our Cold
Flow subsidiary entered into a lease on July 18, 2006 which terminates on April
30, 2009 with a monthly base rent of approximately $200 per
month. Our facilities are in good condition for their intended use as offices
and are sufficient to meet our present needs.





We
commenced oil and gas exploration activities in February 2005. However, (1) we
did not engage in any production activities during the fiscal years ended
December 31, 2008 and 2007, nor did we have any proved reserves at the end of
such periods, and thus, were not required to provide any of the production data
required by Statement of Financial Accounting Standards No. 69 (“SFAS
69”),  (2) we did not engage in any drilling activities during the
fiscal years ended December 31, 2007 and 2006 applicable to SFAS 69). We did
commence drilling activities in 2008 but none of the properties were proved as
of December 31, 2008.






13




Undeveloped
acreage is considered to be those lease acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil or natural gas, regardless of whether or not that acreage
contains proved reserves, but does not include undrilled acreage held by
production under the terms of a lease. As is customary in the oil and gas
industry, we can generally retain our interest in undeveloped acreage by
drilling activity that establishes commercial production sufficient to maintain
the leases or by paying delay rentals during the remaining primary term of such
a lease.





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 & gas well drilled on 40 acres of land in Park County,
Wyoming. This well has been tested and management is satisfied that the
estimated initial flow rate of natural gas and barrels of oil per day can be
produced in sufficient commercial quantity for production of this site to be
commercially viable and for us to recoup or initial investment. However,
Management’s estimates are based on one well at this site. Therefore,
Management’s estimates and determination that this property is commercially
viable is subject to a substantial chance of error. We can provide no assurances
that the amount of natural gas and barrels of oil per day that are actually
recovered from this site will be brought to the surface and sold in sufficient
commercial quantities for us to profitably operate this property. 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.





Surge
Energy Resources owns a 35% working interest until payout, and a 21% working
interest thereafter, in the Qualmay #12-42 well. Surge agreed to pay 35% of the
estimated $1,670,560 drilling and completion costs, in return for a 35% working
interest until payout, and a 21% working interest thereafter.  Current
cost estimates indicate that the well cost $1,400,000 to drill and complete, of
which Surge Resources paid a net total of $490,000.  In addition,
Surge Energy Resources owns the right to participate in three to five additional
wells on 520 acres of adjoining land by paying 35% of the cost of the wells in
return for a 35% working interest until payout and a 21% working interest
thereafter.





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.








ITEM
      3.
            LEGAL
      PROCEEDINGS




From time
to time, we receive claims of and become subject to commercial litigation
related to the conduct of our business. The uncertainty of litigation increases
these risks. In connection with such litigation, we may be subject to
significant damages or equitable remedies relating to the operation of our
business and incur legal fees. Any such litigation may materially harm our
business, results of operations and financial condition. Litigation can involve
complex factual and legal questions, and its outcome is
frequently uncertain. Although it is not possible at this early stage to
predict the likely outcome of this action, an adverse result could have a
material adverse effect on us. Any claim that is successfully asserted against
us could result in significant damage claims and other losses. Even if we were
to prevail, any litigation could be costly and time-consuming and would divert
the attention of our management and key personnel from our business operations,
which adversely affects our financial condition, results of operations or cash
flows. All litigation matters described herein are ongoing except as otherwise
noted.





The
Company is currently involved in a contract dispute with Dynamo Energy
Corporation, a Canadian corporation (“Dynamo”), in connection with an alleged
breach of contract. Our Board of Directors previously determined that the
proposed agreement with Dynamo had not been authorized by the Board and had
never been formalized into a binding legal agreement.





The
Company made an offer of settlement in 2006, which was not
accepted.  Dynamo notified us that it believes that agreement is
valid, and on November 15, 2006, Dynamo filed a First Amended Complaint in the
Superior Court of San Diego County against us, Frederick
Berndt, our former V.P. and Director and E. Jamie Schloss, our former Chief
Financial Officer and Director. On November 7, 2007, the Court
dismissed the case on the grounds that the Court is not a convenient forum in
which to try the case and also (i) granted Dynamo's motion to file a Second
Amended Complaint in California, which it has not done so to date, and
(ii) determined that the Court does not have personal jurisdiction over
Signet, Frederick Berndt and E. Jamie Schloss and dismissed them from the
lawsuit.  The Court entered Dynamo’s dismissal request without
prejudice.





On
January 8, 2008, Dynamo re-filed a similar case in the Court of Queen’s Bench of
Alberta, the Judicial District of Calgary, against the Company and its former
Chief Executive Officer, David Perez. The Company has continued to deny
liability in this matter but will incur legal fees, some of which may be covered
by insurance, in future periods. The Company has filed a motion in Alberta for
Dynamo to post a security bond for costs of approximately $400,000, which
matter is expected to be heard in April, 2009.








14





One of
our current directors, Mr. Mark Fritz, commenced a legal action in 2007 in Ohio
against Granite Financial Group, whose owner is a former director, Daniel
Schreiber, to rescind the purchase of shares issued by the Company. Granite
Financial received financial compensation from the Company in conjunction with
the sale of these securities and was not licensed to sell securities in Ohio.
The Fritz complaint did not name the Company specifically but Granite Financial
has asserted a claim against the Company for indemnity in the Fritz matter in
San Diego Superior Court, which claim for indemnity the Company has denied. See
below.





Additionally, the
Division of Securities of the Ohio Department of Commerce notified us in 2007
that securities we issued to Mr. Fritz, currently a director, in one or more
private placements may have been issued without an applicable exemption from
Ohio’s securities laws. Since 2007, the Company has had no communications with
the Ohio Division of Securities or Mr. Fritz in this matter .





In the
fourth quarter of 2007, David Perez, former Chief Executive Officer and former
Board Chairman, received reimbursement of legal fees for lawsuits in which he
and former director Daniel Schreiber were defendants before Mr. Perez’s
resignation in February, 2008. Mr. Perez has claimed additional amounts from the
Company as indemnification in connection with lawsuits involving a shareholder
of the Company, Mr. Jack Zemer.  Mr. Schreiber has also claimed
indemnification is owed to him in connection with the same lawsuits, which
claims were rejected by the Company.  The payment of Mr. Perez’s legal
fees was reviewed by the preceding Board of Directors based on incomplete
information supplied by Mr. Perez.





Additionally,
upon Mr. Perez resignation from the Company as Chief Executive Officer on
February 6, 2008, he claimed that his resignation was for “Good Reason” as
defined in his employment agreement and therefore he is owed the severance
provided for in his employment agreement, in excess of one million dollars
including legal fees.  The Company disputes that Mr. Perez resigned
for “Good Reason,” denies that he is owed such severance. See Subsequent Events
for further discussion of the Perez lawsuit.





In April
2008, the Company was sued in San Diego County  (Case No
37-2008-00081736-CU-CL-CTL) for dishonoring a check issued to Schwartz
Semerdjian Haile Ballard & McCauley LLP in the amount of $64,947 plus
related damages for legal fees of Daniel Schreiber, a former director, as
outlined above. The Company denies liability on this claim and will seek to
recover any funds attributable to this claim from other parties. This matter is
scheduled for trial in late April, 2009.





On June
23, 2008, a complaint was filed against Registrant in Superior Court of San
Diego, California (Case # 37-2008-00086302-CU-BC-CTL) by its former Chief
Operating Officer, David Perez, alleging Breach of Contract and seeking
Declaratory Relief. The claims are for breach of an Indemnity Agreement and
breach of Surge's Bylaws with respect to advancement and reimbursement of legal
fees and expenses incurred by Mr. Perez in conjunction with the abovementioned
Jack Zemer lawsuit, in which lawsuit the Company was not a named party, damages
and attorney fees. Mr. Perez reserved his right to seek any and all claims he
has against the Company under the arbitration clause of his employment agreement
to seek recovery for any claims Mr. Perez has against the Company pursuant to
said agreement.  The Company intends on vigorously defending this
complaint.  This matter has been transferred to a binding arbitration
proceeding and the Company is engaged in discussions to resolve this matter
without further legal proceedings.





On August
1, 2008, the Company filed counterclaims seeking monetary damages against Mr.
Perez and Daniel Schreiber, a former director and Granite Financial Group, a
company owned by Mr. Schreiber, alleging (i) breach of fiduciary duty, (ii)
breach of his employment agreement, (iii) fraudulent and intentional misconduct
in conscious disregard of the Company’s rights, (iv) conspiracy with other
parties to wrongfully obtain the Company’s assets for themselves and each of
them, and (v) seeking injunctive relief with respect to certain securities held
by Mr. Perez.





On August
12, 2008, Granite Financial Group, LLC (“Granite”) and Daniel Schreiber (the
“Plaintiffs”) filed suit against the Company in the Court of Common Pleas in
Cuyahoga County, Ohio (Case # CV 08 66750) alleging breach of contract, claim
for indemnity and declaratory relief. This claim arises from an arbitration
proceeding in Ohio regarding claims made by Mark Fritz, currently a Director of
Surge, against Granite regarding the sale of securities. Granite is seeking
reimbursement for legal fees and related costs in that matter. On October 20,
2008, the Company filed a Motion to Dismiss in Ohio this complaint on the basis
that the Plaintiff’s Complaint did not have personal jurisdiction, which motion
was granted. Subsequently, on January 27, 2009, the Plaintiff refiled this
complaint in San Diego County California alleging essentially the same claims,
which matter is pending and in which discovery has not yet
commenced.  The Company intends on vigorously defending this
complaint.





On March
6, 2009, the Plaintiff’s attorneys filed a writ of attachment to secure
$247,904.69 on Surge’s bank accounts. A hearing on this matter was held and the
writ was granted. Currently, the monies claimed in the writ have been
transferred into a trust account held by Plaintiff’s counsel until the claims
are fully litigated.





On March
12, 2009, the Company filed an answer and a cross complaint in this matter in
San Diego Superior Court alleging claims for breach of contract and equitable
indemnity.





The loss
of the use of these cash assets to the Company is expected to significantly
impact our cash resources and our ability to fund our oil and gas exploration
operations. In turn, this will effect our ability to meet our obligations as
they come due without additional financing, liquidation of other company assets
(which may possibly be at values below of our stated book values), or a
reduction in expenses and accrued liabilities.





15




On April
9, 2009, as of March 31, 2009, the Company entered in to a total settlement and
release of all claims agreement with its former CEO and Board Chairman, David
Perez. The terms of the settlement are that the Company will issue a promissory
note for $225,000, payable in 14 equal installments and one final payment of
$6,100. The note will bear interest at 5% per annum. In return, the Company will
cancel accrued liabilities of $445,952 as of December 31, 2008 and receive
252,361 Andora shares in Mr. Perez’s possession.




ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS




There was
no matter submitted during the fourth quarter of the fiscal year covered by this
report to a vote of security holders, through the solicitation of proxies or
otherwise.








PART
II




ITEM
      5.
            MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
      OF EQUITY SECURITIES




Market
for Common Stock




Our
common stock is quoted dually on the OTC Bulletin Board and the Pink Sheets
under the trading symbol “SRGG.” The following table sets forth the high and low
bid prices for our common stock for the periods indicated. Such quotations are
taken from information provided by “Yahoo! Finance” and reflect inter-dealer
prices, without retail mark-up, mark-down or commissions, and may not
necessarily represent actual transactions.





Quarter
      Ended
            High
            LowMarch
      31, 2007
            $0.71
            $0.36June
      30, 2007
            $0.56
            $0.28September
      30, 2007
            $0.41
            $0.13December
      31, 2007
            $0.19
            $0.08March
      31, 2008
            $0.16
            $0.08June
      30, 2008
            $0.05
            $0.10September
      30, 2008
            $0.17
            $0.05December
      31, 2008
            $0.18
            $0.05




American
Stock Transfer (38 Maiden Lane, New York, NY 10038) is the registrar and
transfer agent for our common shares. As of April 1, 2009, we had 31,437,837
shares of common stock outstanding and approximately 1,200 stockholders of
record.




Dividend
Policy




We have
never declared or paid dividends on our common stock, and we do not anticipate
that we will do so in the foreseeable future. We intend to retain future
earnings, if any, for use in our operations and the expansion of our
business.






ITEM
      6.
            SELECTED
      FINANCIAL DATA


Not
Applicable.








ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




The
following discussion of our financial condition, changes in financial condition
and results of operations for the fiscal years ended December 31, 2008 and
December 31, 2007, should be read in conjunction with the audited annual
financial statements and the notes thereto. 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 has
not generated any revenues 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, although we have and have had interests in Canadian
companies.






16





Overview




For the
year ended December 31, 2008 we had comprehensive net income of $527,000 versus
a comprehensive loss in 2007 of $12,412,000, an improvement of $12,939,000. In
2008, we had net income after taxes of $608,000 versus a loss of $11,344,000 in
2007. Included in 2008 results was a reversal of an income tax accrual made in
2007 of $4,848,000. In both 2008 and 2007, we engaged in a number of strategic
and capital transactions in an attempt to expand our business.  These
are described in detail in the “Notes to the Consolidated Financial Statements”
and are briefly summarized above in “Item 1 Business.”  Equity
transactions and removal of a prior year’s tax liability helped provide
increased shareholders equity in 2008. There can be no assurance that we will be
able to raise additional working capital or complete other financings in the
future.




In
February 2008, we engaged new management team and new board members were
elected.  In 2009, our financial focus will be on reducing operating
expenses, realizing value from our remaining assets in order to position Surge
to take advantage of opportunities to expand its business and stabilize
operations, and attempting to raise capital of at least $1,000,000 to continue
expanding operations in the oil and gas business and to meet our cash liquidity
needs as they arise.




Results
of Operations




For the
year ended December 31, 2008, we had comprehensive net income of $527,000 versus
a comprehensive loss in 2007 of $12,412,000, an improvement of $12,939,000. We
had net income after taxes of $608,000 in 2008 versus a loss of $11,343,000 in
2007, an improvement of $11,951,000.





The
Company had no operating revenues in the years ended December 31, 2008 and 2007;
however, we had a gain of $658,000 from the sale of investments in 2008, with no
comparable gain in 2007. We also had a realized impairment of oil and gas
investments of $1,008,000 versus a realized impairment on investments of
$1,921,000 in 2007 related to the decline in the market value of its North Peace
Energy stock.





Total
operating and related expenses for the year ended December 31, 2008 compared to
2007 decreased by $2,555,000 to $2,268,000 from $4,824,000 in the prior period.
Included within the $2,109,000 expense decrease in 2008 is a reduction of
$1,059,000 of non-cash employee compensation costs, a decrease of 397,000 in
payroll related costs, a decrease of $159,000 in selling, general and
administrative (SG&A) expenses, and $1,518,000 in decreased legal and audit
expenses. In 2008, operating expenses included an oil and gas impairment of
$580,000, with no comparable charge in 2007. The decrease in non-cash
compensation cost of $1,059,000 in 2008 was the result of lower option and
warrant expenses arising from a lower stock price and lower volatility
assumptions for vested stock options during 2008.  Depreciation and
amortization decreased $2,000 from $9,000 in 2007 to $7,000 in
2008.





Net
financing income in 2008 was $57,000 versus interest expense of $1,425,000 in
2007, an improvement of $1,482,000 in net interest costs. The financing expense
in 2007 was largely a non cash charge due to the beneficial conversion feature
related to notes payable.





Other
differences between 2008 and 2007 include an equity loss from affiliates in 2007
of $1,057,000 with no comparable charge in 2008, and impairment of oil and gas
investments of $1,008,000 in 2008 versus $1,921,000 in 2007, a decrease of
$913,000.





In 2007,
we had a gain on the sale of Peace Oil Corp. of $3,098,000 and related income
tax expense of $4,848,000 which together created a net loss of $1,749,000 in
2007 on this transaction. In 2008, we were able to reduce our tax liability by
selling Peace to a third party and as a result incurred a net gain of $3,275,000
after expenses incurred in conjunction with the sale of Peace Oil Corp. The gain
consisted of a reversal of the prior year’s accrual of $4,848,000 less expenses
of sale of $1,573,000.





Liquidity
and Capital Resources





As of
December 31, 2008, we had cash and cash equivalents of $657,000 versus cash of
$5,095,000 at December 31, 2007, a reduction of $4,438,000.  This
decrease was comprised of a net cash used in operating activities of $1,469,000,
cash used in investing activities of $2,866,000, cash flow used in financing
activities of $28,000, and the net effect of exchange rate changes on cash and
cash equivalents of  $75,000.





Our net
working capital position at December 31, 2008 was $702,000 versus working
capital deficit of $1,056,000 at December 31, 2007, a change of $1,758,000.
Current assets declined by $3,764,000 caused primarily by a reduction in cash of
$4,438,000, the reclassification of marketable securities from non-current to
current in the amount of ($577,000), the purchase of a note receivable for
($138,000) and a reduction in prepaid expenses of $41,000. Current liabilities
decreased by $5,521,000, caused primarily by eliminating the $5,281,000
income tax liability accrued at December 31, 2007, and a decrease in accounts
payable and accrued liabilities of $241,000.








17




The net
cash flow deficit from operating activities of $1,023,000 consisted primarily of
a reduction of operating expenses of ($2,268,000), net interest income of
$57,000, net gains of $2,819,000, adjusted by other non-cash charges of
($3,274,000) in the net gain from the Peace Oil transaction, net of tax,
($657,000) in the gain on sale of marketable securities, $290,000 in net
employee compensation expense arising from stock options and warrants
issued to employees, directors and consultants, $105,000 in loss on redemption
of preferred shares, $580,000 of impairment of oil and gas properties,
$1,008,000 of impairment of marketable securities, $12,000 in depreciation,
amortization and the write-off of equipment, $42,000 increase in current assets
and $263,000 increase in current liabilities.





The net
cash flow used in investing activities of $2,866,000 was primarily due to
$1,597,000 paid in conjunction with capital expenditures for oil and gas
properties, $4,000 for fixed asset additions, $1,533,000 expenses paid in
conjunction with the sale of Peace Oil, $138,000 in our note receivable from 11
Good Energy, $194,000 on the investment and sale of NPE stock, and ($600,000)
cash received from the sale of the Cynthia Holdings, Ltd. Interest.





The net
cash flow used in financing activities of $28,000 consists of the Company
receiving ($6,000) in proceeds from option exercises and spending $34,000 on the
repurchase of Surge common stock.





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. We are involved in
various litigations, the outcome and legal expense of which could adversely
affect our operations and cash resources. We plan to attempt to obtain our
future funding that we will need to drill wells on leases owned, to lease
additional properties and to otherwise finance our operations through debt and
equity markets or joint venture agreements with third parties; however, we can
provide no assurances that we will be able to obtain additional funding (and/or
joint venture partners willing to fund specific exploration projects) when it is
required or that it will be available to us on commercially acceptable terms, if
at all.  If we fail to obtain the financing that we need when it is
required, we may have to forego or delay potentially valuable opportunities to
acquire new oil and gas properties or default on 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 and may adversely affect our ability to remain a going concern on a
long term basis. See “Risk Factors” under “Item 1.A.”





Product
Research and Development





We do not
anticipate performing research and development for any products during the next
twelve months.





Acquisition
or Disposition of Plant and Equipment





On March
18, 2008, we entered into a Purchase and Sale Agreement, with Oromin, Irie Isle
Limited; Cynthia Holdings Ltd. (“Cynthia”); and Chet Idziszek, pursuant to which
the Company sold its 17.52% interest in Cynthia.  Cynthia owns a
certain parcel of land in the eastern half of the Cuyana Basin in the
Province of Mendoza, Argentina.  We received $600,000 in cash and the
return of 1,000,000 shares of the Company’s stock previously issued for the
Company’s purchase of its interest in Cynthia.





Number
of Employees





From our
inception through the period ended December 31, 2008, we have relied on the
services of outside consultants for services and have three (3) full-time
employees. In order for us to attract and retain quality personnel, we
anticipate we will have to offer competitive salaries to future employees. As of
March 31, 2009, we have three (3) full-time employees and we anticipate no
increase in our employment base during the next 12 months.





As we
continue to expand oil and gas operations, 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.





None of
our employees are covered by collective bargaining agreements, and we believe
our relations with our employees are favorable.






18





Inflation





Management
believes that inflation has not had a material effect on our
operations.





Off
Balance Sheet Arrangements





We do not
maintain off-balance sheet arrangements nor do we participate in non-exchange
traded contracts requiring fair value accounting treatment.




Critical
Accounting Policies and Estimates





Our
discussion and analysis of our financial condition and results of operation are
based upon consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The following summarizes several of our critical accounting policies.
See a complete list of significant accounting policies in Note A to the
Consolidated Financial Statements.





Oil
and Gas Properties





We follow
the full cost accounting method to account for the costs incurred in the
acquisition, exploration, development and production of oil and gas reserves.
All costs, including internal costs, directly related to acquisition,
exploration and development activities, are capitalized as oil and gas property
costs.   The capitalized costs of oil and gas properties,
excluding unevaluated or unproven properties, are amortized using a
unit-of-production method based on estimated proved recoverable oil and gas
reserves. Amortization of unevaluated property costs begins when the properties
become proved or their values become impaired. Impairment of unevaluated
prospects is assessed based on management’s intention with regard to future
exploration and development of individually significant properties and our
ability to obtain funds to finance such exploration and development. We
anticipate our unevaluated property costs to remain as unevaluated for no longer
than two years.





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.





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





Investment
in unconsolidated subsidiary





Investee
entities that the Company can exercise significant influence, but not control,
are accounted for under the equity method of accounting. Whether the Company
exercises significant influence with respect to an investee depends on an
evaluation of several factors, among others, representation of the company’s
board of directors and ownership level, generally 20% to 50% interest in the
voting securities of the company including voting rights associated with the
Company’s holdings in common, preferred and other convertible instruments in the
company. Under the equity method of accounting, the Company’s share of the
earnings or losses of these companies is included in the equity income (loss)
section of the consolidated statements of operations.  Evidence of a
loss in value might include, but would not necessarily be limited to, absence of
an ability to recover the carrying amount of the investment or inability of the
investee to sustain an earnings capacity that would justify the carrying amount
of the investment.





Impairment
of Long-Lived Assets





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 undiscounted 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.











19








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.





New
Accounting Pronouncements





In July
2006, the FASB issued FASB Interpretation (“FIN”) No. 48 - Accounting for
Uncertainty in Income Taxes – An Interpretation of FASB Statement No.
109.  FIN 48 prescribes detailed guidance for the financial statement
recognition, measurement, and disclosure of uncertain tax positions recognized
in an enterprise’s financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes.  Tax positions must meet a
more-likely-than-not recognition threshold at the effective date to be
recognized upon the adoption of FIN 48 and in subsequent periods.  We
adopted FIN 48 effective January 1, 2007.  The impact of the adoption
of FIN 48 did not have a material effect on our financial position, results of
operations, or cash flows.





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements”.  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements.  This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007.  We implemented SFAS No. 157 effective January 1,
2008, and it did not have a significant impact on our financial position,
results of operations, and cash flows.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – including an amendment of FASB
statement No. 115.” This Statement permits all entities to choose, at specified
election dates, to measure eligible items at fair value (the “fair value
option”). A business entity shall report unrealized gains and losses on items
for which the fair value option has been elected in earnings (or another
performance indicator if the business entity does not report earnings) at each
subsequent reporting date. Upfront costs and fees related to items for which the
fair value option is elected shall be recognized in earnings as incurred and not
deferred. If an entity elects the fair value option for a held-to-maturity or
available-for-sale security in conjunction with the adoption of this Statement,
that security shall be reported as a trading security under Statement 115, but
the accounting for a transfer to the trading category under paragraph 15(b) of
Statement 115 does not apply. Electing the fair value option for an existing
held-to-maturity security will not call into question the intention of an entity
to hold other debt securities to maturity in the future. We implemented SFAS No.
159 effective January 1, 2008, and it did not have a significant impact on our
financial position, results of operations, and cash flows.





In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”.  This
standard will significantly change the accounting and reporting related to
noncontrolling interests in a consolidated subsidiary. After adoption, any
noncontrolling interests will be classified as shareowner’s equity, a change
from its current classification between liabilities and shareowner’s equity. Any
earnings attributable to minority interests will be included in net earnings.
Purchases and sales of minority interests will be reported in equity, deferring,
perhaps permanently, recognition of the economic gain or loss on partial
dispositions.  This statement is effective as of the first fiscal year
that begins after December 15, 2008.





In
December 2007, the FASB issued SFAS 141R, Business Combinations, This standard
will significantly change the accounting for business combinations both during
the period of the acquisition and in subsequent periods.  This
statement is effective as of the first fiscal year that begins after December
15, 2008.





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





ITEM
      7A.
            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
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY
DATA







20
 
  
 
  
 
 SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 DECEMBER
31, 2008 AND 2007
 
 
   
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 Page
      NoReports
      of Independent Registered Public Accounting Firms
              
              F-2
      ~ F-3Consolidated
      Balance Sheets at December 31, 2008 and 2007
              
              F-4Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Years
      Ended December 31, 2008 and 2007, and for the period fromJanuary
      1, 2005 (inception of exploration stage) through December 31,
      2008
              
              F-5Consolidated
      Statements of Stockholders' (Deficit) Equity for the period from
      January 1, 2005 (inception of exploration stage) through December 31,
      2008
              
              F-6
      ~ F-9Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and 2007,
      and for the period from January 1, 2005 (inception of
      exploration stage) through December 31, 2008
              
              F-10
      ~ F-12Notes
      to Consolidated Financial Statements
              
              F-13
      ~ F-26
   F-1
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  To the
Board of Directors
 Surge
Global Energy, Inc.
 (An
Exploration Stage Company)
 Solana
Beach, California
 
 
 We have
audited the accompanying consolidated balance sheet of Surge Global Energy, Inc.
as of December 31, 2008 and the related consolidated statements of operations,
comprehensive income (loss), stockholders’ equity, and cash flows for
the  year then ended, and for the period January 1, 2005 (inception of
exploration stage) through December 31, 2008.  These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based upon
our audit.  The financial statements for the period from January
1, 2005 (inception of exploration stage) through December 31, 2007 were audited
by other auditors and our opinion, insofar as it relates to cumulative
amounts included for such prior periods, is based solely on the reports
of such other auditors.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States of America).  Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
our audit provides a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of December 31, 2008, and the results of its operations and its cash flows for
the year then ended, and for the period January 1, 2005 (inception of
exploration stage) through December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.
 
 /s/ GBH CPAs,
PC
 
 GBH CPAs,
PC
 www.gbhcpas.com
 Houston,
Texas
 
 April 14,
2009
 
 
 F-2
 
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  To the
Board of Directors
 Surge
Global Energy, Inc.
 Solana
Beach, California
 
 
 We have
audited the accompanying consolidated balance sheet of Surge Global Energy, Inc.
(the “Company”), as of December 31, 2007 and the related consolidated statements
of losses, stockholders’ (deficiency) equity, and cash flows for the year then
ended, and for the period January 1, 2005 (inception of exploration stage)
through December 31, 2007. These financial statements are the responsibility of
the company’s management. Our responsibility is to express an opinion on these
financial statements based upon our audit.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of December 31, 2007, and the results of its operations and its cash flows for
the year then ended, and for the period January 1, 2005 (inception of
exploration stage) through December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America.
 
 
 /s/
      RBSM LLPRBSM
      LLPMcLean,
      Virginia
                April
      14, 2008
              Certified
      Public Accountants
  
 F-3
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 CONSOLIDATED
BALANCE SHEETS
  December
      31,2008
                
                
                2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                656,843
                
                
                $
                5,095,191Convertible
      note receivable, net of discount of $137,500 and $ -0-,
      respectively
                
                
                137,500
                
                
                
                -Investments
      in marketable securities
                
                
                577,585
                
                
                
                -Prepaid
      expenses
                
                
                242,700
                
                
                
                283,516Total
      current assets
                
                
                1,614,628
                
                
                
                5,378,707Property
      and equipment, net of accumulated depreciation
                  of
      $20,968 and $15,646, respectively.
                
                
                13,007
                
                
                
                20,810Oil
      and gas properties, using full cost accounting – unproved
                
                
                1,016,199
                
                
                
                -Investment
      in North Peace Energy
                
                
                -
                
                
                
                3,170,833Investment
      in Andora Energy
                
                
                3,540,639
                
                
                
                3,540,639Total
      assets
                
                $
                6,184,473
                
                
                $
                12,110,989LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable and accrued liabilities
                
                $
                912,923
                
                
                $
                1,153,536Income
      tax payable
                
                
                -
                
                
                
                5,280,789Total
      current liabilities
                
                
                912,923
                
                
                
                6,434,325Redeemable
      Preferred Shares
                
                
                -
                
                
                
                5,930,156Commitments
      and contingencies
                
                
                -
                
                
                
                -Stockholders'
      equity (deficit):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 and 1 share issued and outstanding,
      respectively
                
                
                -
                
                
                
                -Common
      stock, par value $0.001 per share; 200,000,000 shares authorized;
      31,437,387 and  36,470,337 shares issued and outstanding,
      respectively
                
                
                31,437
                
                
                
                36,470Additional
      paid-in capital
                
                
                53,966,622
                
                
                
                48,963,611Accumulated
      other comprehensive income
                
                
                (995,909
                )
                
                
                (915,138
                )Accumulated
      deficit
                
                
                (12,337,512
                )
                
                
                (12,337,512
                )Deficit
      from inception of exploration stage
                
                
                (35,393,088
                )
                
                
                (36,000,923
                )Total
      stockholders' equity (deficit)
                
                
                5,271,550
                
                
                
                (253,492
                )Total
      liabilities and stockholders' equity (deficit)
                
                $
                6,184,473
                
                
                $
                12,110,989
 
 See
accompanying footnotes to consolidated financial statements
  
 F-4
 
 SURGE GLOBAL ENERGY,
      INC.(AN EXPLORATION
      STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  (LOSS)
  For
      the periodfrom
      January 1,2005
      (inceptionof
      explorationstage)
      throughFor
      the Year Ended December 31,
                
                
                December
      31,2008
                
                
                2007
                
                
                2008Operating
      expenses:Selling,
      general and administrative expenses
                
                $
                1,680,255
                
                
                $
                4,814,095
                
                
                $
                23,585,197Depreciation
      and amortization
                
                
                7,238
                
                
                
                9,197
                
                
                
                464,093Oil
      and gas property impairment
                
                
                580,397
                
                
                
                -
                
                
                
                6,901,413Total
      operating expenses
                
                
                2,267,890
                
                
                
                4,823,292
                
                
                
                30,950,703Loss
      from operations
                
                
                (2,267,890
                )
                
                
                (4,823,292
                )
                
                
                (30,950,703
                )Equity
      in losses from affiliates
                
                
                -
                
                
                
                (1,056,578
                )
                
                
                (2,099,663
                )Loss
      on redemption of preferred shares
                
                
                (105,376
                )
                
                
                -
                
                
                
                (105,376
                )Gain
      on sale of investments
                
                
                657,638
                
                
                
                -
                
                
                
                657,638Impairment
      of marketable securities
                
                
                (1,008,121
                )
                
                
                (1,921,015
                )
                
                
                (2,929,136
                )Warrants
      issued in connection with Peace Oil acquisition
                
                
                -
                
                
                
                (368,000
                ) ))
                
                
                (368,000
                )Revaluation
      loss net of warrant liability
                
                
                -
                
                
                
                -
                
                
                
                (431,261
                )Interest
      income (expense), net
                
                
                57,055
                
                
                
                (1,425,311
                )
                
                
                (4,370,788
                )Gain
      (loss) on disposition of Peace Oil property and Peace Oil
      Corp.
                
                
                (1,573,449
                )
                
                
                3,098,554
                
                
                
                1,525,105Loss
      from continuing operations, before income taxes and minority
      interest
                
                
                (4,240,143
                )
                
                
                (6,495,642
                )
                
                
                (39,072,184
                )Benefit
      (provision) for income taxes
                
                
                4,847,978
                
                
                
                (4,847,978
                )
                
                
                -Income
      (loss) before minority interest
                
                
                607,835
                
                
                
                (11,343,620
                )
                
                
                (39,072,184
                )Loss
      applicable to minority interest
                
                
                -
                
                
                
                -
                
                
                
                3,679,096Net
      income (loss)
                
                $
                607,835
                
                
                $
                (11,343,620
                )
                
                $
                (35,393,088
                )Other
      comprehensive income (loss):Unrealized
      loss on available for sale securities
                
                
                (980,270
                )
                
                
                -
                
                
                
                (980,270
                )Foreign
      currency translation adjustment
                
                
                899,499
                
                
                
                (1,068,738
                )
                
                
                (15,639
                )Comprehensive
      income (loss)
                
                $
                527,064
                
                
                $
                (12,412,358
                )
                
                $
                (36,388,997
                )Income
      (loss) per common share - basic and diluted
                
                $
                0.02
                
                
                $
                (0.37
                )
                
                $
                (1.26
                )Weighted
      average shares outstanding -  basic and
    diluted
                
                
                33,555,151
                
                
                
                30,659,776
                
                
                
                28,004,780
 
 See
accompanying footnotes to consolidated financial statements
 
 F-5
 
 SURGE
      GLOBAL ENERGY, INC.(AN EXPLORATION
      STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITYFOR
      THE PERIOD FROM JANUARY 1, 2005 (INCEPTION OF EXPLORATION
      STAGE)
                THROUGH
      DECEMBER 31, 2008
  Preferred
      Stock
                            
                            Common
      Stock
                            
                            Additional
                              Paid-in
                            
                            Deferred
                            
                            Common
      Stock
                            
                            Accumulated
      Other Comprehensive
                            
                            Accumulated
      Deficit During Exploration
                            
                            AccumulatedShares
                            
                            Amount
                            
                            Shares
                            
                            Amount
                            
                            Capital
                            
                            Compensation
                            
                            Subscription
                            
                            Income
                            
                            Stage
                            
                            Deficit
                            
                            TotalBalance
      atJanuary
      1, 2005
                            -
                            
                            $
                            -
                            
                            23,367,097
                            
                            $
                            23,367
                            
                            $
                            18,996,881
                            
                            $
                            (7,020,985
                            )
                            $
                            -
                            
                            $
                            -
                            
                            $
                            -
                            
                            $
                            (12,337,511
                            )
                            $
                            (338,248
                            )Issuance
      of common stock in February 2005 in exchange for stock options exercised
      at $0.25 per share
                            -
                            
                            
                            -
                            
                            100,000
                            
                            
                            100
                            
                            
                            24,900
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            25,000Issuance
      of common stock in August 2005 in exchange for cash, net of costs and fees
      at $1.00 per share
                            -
                            
                            
                            -
                            
                            300,000
                            
                            
                            300
                            
                            
                            299,700
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            300,000Issuance
      of common stock in August 2005 in exchange for conversion of convertible
      notes payable at $1.00 per share
                            -
                            
                            
                            -
                            
                            1,675,000
                            
                            
                            1,675
                            
                            
                            1,673,325
                            
                            
                            -
                            
                            
                            35,000
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            1,710,000Issuance
      of common stock in October 2005 in exchange for convertible notes
      converted in August 2005
                            -
                            
                            
                            -
                            
                            35,000
                            
                            
                            35
                            
                            
                            34,965
                            
                            
                            -
                            
                            
                            (35,000
                            )
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -Issuance
      of common stock in November 2005 in exchange for cash, net of costs and
      fees at $1.00 per share
                            -
                            
                            
                            -
                            
                            800,000
                            
                            
                            800
                            
                            
                            799,200
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            800,000Beneficial
      conversion feature in connection with issuance of convertible notes
      payable
                            -
                            
                            
                            -
                            
                            -
                            
                            
                            -
                            
                            
                            1,022,492
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            1,022,492Value
      of warrants attached to convertible notes payable
                            -
                            
                            
                            -
                            
                            -
                            
                            
                            -
                            
                            
                            629,192
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            629,192Foreign
      currency translation adjustment
                            -
                            
                            
                            -
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            
                            
                            
                            (185,414
                            )
                            
                            -
                            
                            
                            -
                            
                            
                            (185,414
                            )Amortization
      of deferred compensation
                            -
                            
                            
                            -
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            3,039,038
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            3,039,038Valuation
      of warrant liabilities in connection with private
placement
                            -
                            
                            
                            -
                            
                            -
                            
                            
                            -
                            
                            
                            (2,245,100
                            )
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            (2,245,100
                            )Other
      stock options awards granted pursuant to employment
    agreement
                            -
                            
                            
                            -
                            
                            -
                            
                            
                            -
                            
                            
                            202,418
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            202,418Increase
      in value of investment in Signet Energy, Inc.
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            6,890,785
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            6,890,785Net
      loss
                            -
                            
                            
                            -
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            (8,731,209
                            )
                            
                            -
                            
                            
                            (8,731,209
                            )Balance
      atDecember
      31, 2005
                            -
                            
                            $
                            -
                            
                            26,277,097
                            
                            $
                            26,277
                            
                            $
                            28,328,758
                            
                            $
                            (3,981,947
                            )
                            $
                            -
                            
                            $
                            (185,414
                            )
                            $
                            (8,731,209
                            )
                            $
                            (12,337,511
                            )
                            $
                            3,118,954
  See
accompanying notes to consolidated financial information
 
 F-6
  SURGE
      GLOBAL ENERGY, INC.(AN EXPLORATION
      STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
    (Continued)FOR
      THE PERIOD FROM JANUARY 1, 2005 (INCEPTION OF EXPLORATION
      STAGE)
                THROUGH
      DECEMBER 31, 2008
  Preferred
      Stock
                    
                    Common
      Stock
                    
                    Additional
                      Paid-in
                    
                    Deferred
                    
                    Common
      Stock
                    
                    Accumulated
      Other Comprehensive
                    
                    Accumulated
      Deficit during Exploration
                    
                    AccumulatedShares
                    
                    Amount
                    
                    Shares
                    
                    Amount
                    
                    Capital
                    
                    Compensation
                    
                    Subscription
                    
                    Income
                    
                    Stage
                    
                    Deficit
                    
                    TotalBalance
      atDecember
      31, 2005
                    
                    
                    -
                    
                    $
                    -
                    
                    
                    26,277,097
                    
                    $
                    26,277
                    
                    $
                    28,328,758
                    
                    $
                    (3,981,947
                    )
                    $
                    -
                    
                    $
                    (185,414
                    )
                    $
                    (8,731,209
                    )
                    $
                    (12,337,511
                    )
                    $
                    3,118,954Reversal
      of unamortized deferred compensation upon adoption of SFAS
      123R
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (3,981,947
                    )
                    
                    3,981,947
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Issuance
      of common stock in April 2006 in exchange for cash, net of costs and fees
      at $1.50 per share
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,200,000
                    
                    
                    1,200
                    
                    
                    1,798,800
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,800,000Shares
      returned and cancelled in June 2006 related to the acquisition of Phillips
      & King International Inc. during August 2000
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (450,000
                    )
                    
                    (450
                    )
                    
                    450
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Issuance
      of common stock in June 2006 in exchange for convertible notes in
      subsidiary
                    
                    
                    -
                    
                    
                    -
                    
                    
                    160,000
                    
                    
                    160
                    
                    
                    178,456
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    178,616Issuance
      of common stock in July 2006 in exchange for stock options exercised at
      $0.25 per share
                    
                    
                    -
                    
                    
                    -
                    
                    
                    400,000
                    
                    
                    400
                    
                    
                    99,600
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    100,000Issuance
      of common stock in November 2006 in exchange for cash, net of costs and
      fees at $0.45 per share
                    
                    
                    -
                    
                    
                    -
                    
                    
                    3,000,000
                    
                    
                    3,000
                    
                    
                    1,347,000
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,350,000Conversion of
      warrant liability upon registration of warrants in May
      2006
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    3,787,861
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    3,787,861Valuation
      of warrant liabilities in connection with private placement
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (3,420,900
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (3,420,900
                    )Gain
      on investment
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    4,147,556
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    4,147,556Conversion
      to equity method
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    3,133,622
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    3,133,622Employee
      stock option expense
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    4,138,639
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    4,138,639Other
      stock options awards granted pursuant to employment
    agreement
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    640,491
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    640,491Foreign
      currency translation adjustment
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    
                    
                    -
                    
                    
                    -
                    
                    
                    339,014
                    
                    
                    -
                    
                    
                    -
                    
                    
                    339,014Net
      loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (15,926,093
                    )
                    
                    
                    
                    
                    (15,926,093
                    )
  See
accompanying notes to consolidated financial information
  
 F-7
  SURGE
      GLOBAL ENERGY, INC.(AN EXPLORATION
      STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
    (Continued)FOR
      THE PERIOD FROM JANUARY 1, 2005 (INCEPTION OF EXPLORATION
      STAGE)
                THROUGH
      DECEMBER 31, 2008
   Preferred
      Stock
                        
                        
                        Common
      Stock
                        
                        
                        Additional
      Paid-in
                        
                        
                        Deferred
                        
                        
                        Common
      Stock
                        
                        
                        Accumulated
                          Other
      Comprehensive
                        
                        
                        Accumulated
      Deficit during Exploration
                        
                        
                        AccumulatedShares
                        
                        
                        Amount
                        
                        
                        Shares
                        
                        
                        Amount
                        
                        
                        Capital
                        
                        
                        Compensation
                        
                        
                        Subscription
                        
                        
                        Income
                        
                        
                        Stage
                        
                        
                        Deficit
                        
                        
                        TotalBalance
      atDecember
      31, 2006
                        
                        
                        -
                        
                        $
                        -
                        
                        
                        30,587,097
                        
                        $
                        30,587
                        
                        $
                        40,198,386
                        
                        $
                        -
                        
                        $
                        -
                        
                        $
                        153,600
                        
                        $
                        (24,657,302
                        )
                        $
                        (12,337,511
                        )
                        $
                        3,387,760Issuance
      of common stock in January 2007 in exchange for stock options exercised at
      $0.24 per share
                        
                        
                        -
                        
                        
                        -
                        
                        
                        383,333
                        
                        
                        383
                        
                        
                        91,483
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        91,866Employee
      stock option expense
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,348,943
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,348,943Reclass
      warrant liability to APIC per EITF 00-19-2
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        2,309,400
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        2,309,400Gemini
      note conversion
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (2,000,000
                        )
                        
                        (2,000
                        )
                        
                        (898,000
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (900,000
                        )Peace
      Oil acquisition warrants
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        368,000
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        368,000Beneficial
      conversion feature in connection with issuance of convertible notes
      payable
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,076,575
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,076,575Exchange
      of Redeemable Preferred Shares into common stock
                        
                        
                        
                        
                        
                        
                        
                        
                        7,499,907
                        
                        
                        7,500
                        
                        
                        4,468,824
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        4,476,324Foreign
      currency translation adjustment
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (1,068,738
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        (1,068,738
                        )Net
      loss
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (11,343,620
                        )
                        
                        -
                        
                        
                        (11,343,620
                        )Balance
      atDecember
      31, 2007
                        
                        
                        -
                        
                        $
                        -
                        
                        
                        36,470,337
                        
                        $
                        36,470
                        
                        $
                        48,963,611
                        
                        $
                        -
                        
                        $
                        -
                        
                        $
                        (915,138
                        )
                        $
                        (36,000,922
                        )
                        $
                        (12,337,511
                        )
                        $
                        (253,492
                        )
  See
accompanying notes to consolidated financial information
  
 F-8
 SURGE
      GLOBAL ENERGY, INC.(AN EXPLORATION
      STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
    (Continued)FOR
      THE PERIOD FROM JANUARY 1, 2005 (INCEPTION OF EXPLORATION
      STAGE)
                    THROUGH
      DECEMBER 31, 2008
  Preferred
      Stock
                                        
                                        
                                        Common
      Stock
                                        
                                        
                                        Additional
      Paid-in
                                        
                                        
                                        Deferred
                                        
                                        
                                        Common
      Stock
                                        
                                        
                                        Accumulated
      Other Comprehensive
                                        
                                        
                                        Accumulated
      Deficit during Exploration
                                        
                                        
                                        AccumulatedShares
                                        
                                        
                                        Amount
                                        
                                        
                                        Shares
                                        
                                        
                                        Amount
                                        
                                        
                                        Capital
                                        
                                        
                                        Compensation
                                        
                                        
                                        Subscription
                                        
                                        
                                        Income
                                        
                                        
                                        Stage
                                        
                                        
                                        Deficit
                                        
                                        
                                        TotalBalance
      atDecember
      31, 2007
                                        
                                        
                                        -
                                        
                                        $
                                        -
                                        
                                        
                                        36,470,337
                                        
                                        $
                                        36,470
                                        
                                        $
                                        48,963,611
                                        
                                        $
                                        -
                                        
                                        $
                                        -
                                        
                                        $
                                        (915,138
                                        )
                                        $
                                        (36,000,922
                                        )
                                        $
                                        (12,337,511
                                        )
                                        $
                                        (253,492
                                        )Employee
      stock option expense
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        265,691
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        265,691Stock
      compensation expense - Warrants
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        24,506
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        24,506Retirement
      of stock on sale of Cynthia Holdings, Ltd
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        (1,000,000
                                        )
                                        
                                        (1,000
                                        )
                                        
                                        1,000
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -Options
      exercised
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        150,000
                                        
                                        
                                        150
                                        
                                        
                                        5,700
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        5,850Purchase and
      cancelation of stock
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        (993,333
                                        )
                                        
                                        (993
                                        )
                                        
                                        (67,940
                                        )
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        (68,933
                                        )Purchase
      and cancellation of stock from prior Cold Flow
shareholders
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        (3,189,617
                                        )
                                        
                                        (3,190
                                        )
                                        
                                        4,774,054
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        4,770,864Unrealized
      loss on available for sale securities
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        (980,270
                                        )
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        (980,270
                                        )Foreign
      currency translation adjustment
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        899,499
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        899,499Net
      income
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        -
                                        
                                        
                                        607,835
                                        
                                        
                                        -
                                        
                                        
                                        607,835Balance
      atDecember
      31, 2008
                                        
                                        
                                        -
                                        
                                        $
                                        -
                                        
                                        
                                        31,437,387
                                        
                                        $
                                        31,437
                                        
                                        $
                                        53,966,622
                                        
                                        $
                                        -
                                        
                                        $
                                        -
                                        
                                        $
                                        (995,909
                                        )
                                        $
                                        (35,393,088
                                        )
                                        $
                                        (12,337,512
                                        )
                                        $
                                        5,271,550
  See
accompanying notes to consolidated financial
information
  F-9
 
 SURGE
      GLOBAL ENERGY, INC.(AN EXPLORATION
      STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF CASH FLOWS
   For
      the Year Ended December 31
              
              
              For
      the period
                        from January
      1,
                        2005
      (inception
                        of
      exploration
                        stage)
      through
                        December
      31,2008
              
              
              2007
              
              
              2008Cash
      flows from operating activities:Net
      Income (Loss)
              
              $
              607,835
              
              
              $
              (11,343,620
              )
              
              $
              (35,393,088
              )Minority
      interest
              
              
              -
              
              
              
              -
              
              
              
              (3,679,096)Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Share
      of affiliate loss
              
              
              -
              
              
              
              1,056,578
              
              
              
              2,099,663Depreciation
      and amortization
              
              
              7,238
              
              
              
              9,057
              
              
              
              463,953Write-off
      of property and equipment
              
              
              4,984
              
              
              
              -
              
              
              
              4,984Impairment
      of oil and gas properties
              
              
              580,397
              
              
              
              1,921,015
              
              
              
              8,822,428Gain
      (loss) on sale of Peace Oil property and Peace Oil Corp., net of
      liabilities
              
              
              1,573,449
              
              
              
              (3,098,554)
              
              
              
              (1,525,105)Amortization/write-off
      of debt discount-beneficial conversion feature of convertible
      debenture
              
              
              -
              
              
              
              -
              
              
              
              1,022,492Amortization
      of discount attributable to warrants
              
              
              -
              
              
              
              -
              
              
              
              629,192Impairment
      of marketable securities
              
              
              1,008,121
              
              
              
              -
              
              
              
              1,008,121Interest
      on Gemini
              
              
              -
              
              
              
              230,000
              
              
              
              230,000Gain/loss
      on revaluation of warrant liability
              
              
              -
              
              
              
              -
              
              
              
              431,261Gain
      on sale of marketable securities
              
              
              (657,638)
              
              
              
              -
              
              
              
              (657,638)Loss
      on redemption of preferred shares
              
              
              105,376
              
              
              
              -
              
              
              
              105,376Beneficial
      conversion feature in connection with issuance of convertible notes
      payable
              
              
              -
              
              
              
              1,076,575
              
              
              
              1,076,575Founders
      stock
              
              
              -
              
              
              
              -
              
              
              
              4,265,640Debt
      discount
              
              
              -
              
              
              
              -
              
              
              
              1,010,679Non
      cash compensation
              
              
              265,691
              
              
              
              1,348,943
              
              
              
              6,596,181Amortization
      of deferred compensation costs
              
              
              -
              
              
              
              -
              
              
              
              3,039,038Warrant
      expense
              
              
              24,506
              
              
              
              368,000
              
              
              
              392,506Change
      in operating assets and liabilities:Other
      receivable
              
              
              -
              
              
              
              (4,288)
              
              
              
              (132,384)Prepaid
      expense and other assets
              
              
              41,695
              
              
              
              (253,185)
              
              
              
              (261,960)Other
      assets
              
              
              -
              
              
              
              -
              
              
              
              80,958Accounts
      payable and accrued liabilities
              
              
              (182,939)
              
              
              
              549,995
              
              
              
              827,659Income
      taxes payable
              
              
              (4,847,978)
              
              
              
              4,847,978
              
              
              
              -Net
      cash used in operating activities
              
              
              (1,469,263)
              
              
              
              (3,291,507)
              
              
              
              (9,542,565)
 F-10


Cash
      flows from investing activities:Purchases
      of property and equipment
                  
                  
                  (4,419
                  )
                  
                  
                  (12,949
                  )
                  
                  
                  (115,055
                  )Proceeds
      from sale of marketable securities
                  
                  
                  189,633
                  
                  
                  
                  -
                  
                  
                  
                  189,633Proceeds
      from sale of investment
                  
                  
                  600,000
                  
                  
                  
                  -
                  
                  
                  
                  600,000Payment
      for note receivable
                  
                  
                  (137,500
                  )
                  
                  
                  -
                  
                  
                  
                  (137,500
                  )Purchase
      of oil and gas properties
                  
                  
                  (1,596,596
                  )
                  
                  
                  -
                  
                  
                  
                  (13,365,529
                  )Deposits
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (9,913
                  )Asset
      retirement obligation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  51,273Proceeds
      from sale of oil leases
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,314,820Consideration
      paid on sale of subsidiary
                  
                  
                  (1,533,395
                  )
                  
                  
                  -
                  
                  
                  
                  (1,533,395
                  )Proceeds
      from disposition of Peace Oil property
                  
                  
                  -
                  
                  
                  
                  14,071,294
                  
                  
                  
                  14,071,294Purchase
      of marketable securities
                  
                  
                  (383,879
                  )
                  
                  
                  (5,091,848
                  )
                  
                  
                  (5,475,727
                  )Gemini
      repayment
                  
                  
                  -
                  
                  
                  
                  (1,380,000
                  )
                  
                  
                  (1,380,000
                  )Deduct
      June 2006 Signet cash balance
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (5,626,405
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  (2,866,156
                  )
                  
                  
                  7,586,497
                  
                  
                  
                  (6,416,504
                  )Cash
      flows from financing activities:Proceeds
      from the sale of common stock subscription, net of costs and
      fees
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,250,000Repurchase
      of common stock
                  
                  
                  (33,933
                  )
                  
                  
                  -
                  
                  
                  
                  (33,933
                  )Proceeds
      from exercise of options
                  
                  
                  5,850
                  
                  
                  
                  91,867
                  
                  
                  
                  97,717Proceeds
      from equity to debt conversion
                  
                  
                  -
                  
                  
                  
                  250,000
                  
                  
                  
                  250,000Net
      (payments for) proceeds from Joint Venture Partner cash call
      obligations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  125,000Proceeds
      from convertible debentures
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,710,000Proceeds
      from note payable, gross
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,421,933Proceeds
      from Signet stock, net of costs and fees
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,769,602Share
      issuance costs
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (124,987
                  )Deferred
      financing costs
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,208,375
                  )Net
      cash (used in) provided by financing activities
                  
                  
                  (28,083
                  )
                  
                  
                  341,867
                  
                  
                  
                  17,256,957Effect
      of exchange rates on cash and cash equivalents
                  
                  
                  (74,846
                  )
                  
                  
                  (1,068,739
                  )
                  
                  
                  (800,980
                  )Net  increase
      (decrease) in cash and cash equivalents
                  
                  
                  (4,438,348
                  )
                  
                  
                  3,568,118
                  
                  
                  
                  496,908Cash
      and cash equivalents at the beginning of the period
                  
                  
                  5,095,191
                  
                  
                  
                  1,527,073
                  
                  
                  
                  159,935Cash
      and cash equivalents at the end of the period
                  
                  $
                  656,843
                  
                  
                  $
                  5,095,191
                  
                  
                  $
                  656,843
  See
accompanying footnotes to consolidated financial statements
 
 F-11
  SURGE
GLOBAL ENERGY, INC.
 (AN EXPLORATION
STAGE COMPANY)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
    For
      the periodfrom
      January 1,2005
      (inceptionFor
      the Year Ended
              
              
              of
      explorationDecember
      31
              
              
              stage)
      through2008
              
              
              2007
              
              
              December
      31, 2008Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during the period for interest
              
              
              10,838
              
              
              
              449,259
              
              
              
              506,498Cash
      paid during the period for taxes
              
              
              8,112
              
              
              
              -
              
              
              
              8,112Supplemental
      Disclosures of Non-Cash Transactions:Amortization
      of debt discount-beneficial conversion feature of convertible
      debenture
              
              
              -
              
              
              
              1,076,575
              
              
              
              2,099,067Amortization
      of discount attributable to warrants
              
              
              -
              
              
              
              -
              
              
              
              629,192Stock
      options pursuant to employment agreement
              
              
              265,691
              
              
              
              1,348,943
              
              
              
              6,596,181Amortization
      of deferred compensation costs
              
              
              -
              
              
              
              -
              
              
              
              3,039,038Loss
      on revaluation of warrant liability
              
              
              -
              
              
              
              -
              
              
              
              431,261Common
      stock issued in exchange for convertible notes payable
              
              
              -
              
              
              
              -
              
              
              
              1,710,000Unrealized
      loss on available for sale securities
              
              
              980,270
              
              
              
              -
              
              
              
              980,270Exchange
      of North Peace shares for common shares
              
              
              35,000
              
              
              
              -
              
              
              
              35,000Cancellation
      of common shares
              
              
              1,000
              
              
              
              -
              
              
              
              1,000Repurchase
      of common stock and redeemable preferred shares in exchange for marketable
      securities and issued preferred stock re Peace Oil
              
              $
              (5,930,156
              )
              
              
              5,930,156
              
              
              $
              -
  See
accompanying footnotes to consolidated financial statements
 
 F-12
 
 SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 
 NOTE
1 - SUMMARY OF ACCOUNTING POLICIES
 
 A summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.
 
 Business
and Basis of Presentation
 
 The
consolidated financial statements include the accounts of Surge Global Energy,
Inc., its wholly owned subsidiaries, Surge Energy Resources, Inc., Cold Flow
Energy ULC, 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.) (see Note 5), (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 state in these financial statements are in $US
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, as
defined by Statement of Financial Accounting Standards No. 7 (“SFAS 7”) and is
now seeking to explore the acquisition and development of oil and gas properties
in the United States and Canada. From its inception of exploration stage through
the date of these financial statements, the Company has not generated any
revenues from oil and gas operations and has incurred significant operating
expenses. Consequently, its operations are subject to all risks inherent in the
establishment of a new business enterprise.
 
 For the
period from January 1, 2005 (inception of exploration stage) through December
31, 2008, the Company has accumulated exploration stage losses of $35,393,088
excluding foreign currency losses and unrealized losses on available for sale
securities of $995,909. The Company will cease to be an exploration stage oil
and gas corporation once it commences oil and gas drilling and
exploration.
 
 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.
 
 Reclassifications
 
 Certainreclassifications have been made in the prior period financial
statements to conform to the current period presentation. Thesereclassifications did not have any effect on comprehensive net
income (loss) or shareholders' equity.
 
 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-13
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
   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.
 
 Given the
volatility of oil and gas prices, it is reasonably possible that the estimate of
discounted future net cash flows from proved oil and gas reserves could change
in the near term. If oil and gas prices decline in the future, even if only for
a short period of time, it is possible that additional impairments of oil and
gas properties could occur. In addition, it is reasonably possible that
additional impairments could occur if costs are incurred in excess of any
increases in the present value of future net cash flows from proved oil and gas
reserves, or if properties are sold for proceeds less than the discounted
present value of the related proved oil and gas reserves.
 
 Investment
in unconsolidated subsidiary
 
 Investee
entities that the Company can exercise significant influence, but not control,
are accounted for under the equity method of accounting. Whether the Company
exercises significant influence with respect to an investee depends on an
evaluation of several factors, among others, representation of the Company’s
board of directors and ownership level, generally 20% to 50% interest in the
voting securities of the company including voting rights associated with the
Company’s holdings in common, preferred and other convertible instruments in the
company. Under the equity method of accounting, the Company’s share of the
earnings or losses of these companies is included in the equity income (loss)
section of the consolidated statements of operations.  A loss in value
of an investment that is other than a temporary decline is recognized as a
charge to operations. Evidence of a loss in value might include, but would not
necessarily be limited to, absence of an ability to recover the carrying amount
of the investment or inability of the investee to sustain an earnings capacity
that would justify the carrying amount of the investment.  The Company
had no unconsolidated subsidiaries in which it held equity interests of over 20%
as of December 31, 2008.
 
 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 a total
of $541,804 invested in cash in a short-term money market account maintained by
a U.S. bank, of which $250,000 is subject to FDIC insurance, $105,195 in a
national Canadian bank, and $9,844 in a liquid money market fund at December 31,
2008.
 
 Marketablesecurities
 
 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. Statement of Financial Accounting Standards No. 115,Accounting for Certain Investments
in Debt and Equity Securities, Securities and Exchange Commission (SEC)
Staff Accounting Bulletin (SAB) 59,Accounting for Noncurrent Marketable
Equity Securities, and FSP 115-1 and 124-1:The Meaning of
Other-than-temporary Impairment and its Application to Certain
Investments, provide guidance on determining when an investmentis 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.
 
  F-14
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
 
 Property
and Equipment
 
 Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are depreciated using the straight-line method over their
estimated useful lives of the assets. Depreciation expenses from continuing
operations amounted to $7,238 and $9,197 for the years ended December 31, 2008
and 2007, respectively.  Maintenance, repairs, and minor renewals are
charged against earnings when incurred. Additions and major renewals are
capitalized.
 
 Income
Taxes
  Income
taxes are provided based on the liability method for financial reporting
purposes in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes.” 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. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statements
of operations in the period that includes the enactment
date.
  Earnings
(Loss) Per Share
 
 The
Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," specifying the computation, presentation and disclosure
requirements of earnings per share information. Basic earnings (loss) per share
has been calculated based upon the weighted average number of common shares
outstanding. During the years ended December 31, 2008 and 2007, 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 33,555,151 and 30,659,776 for the
years ended December 31, 2008 and 2007, respectively.
 
 Foreign
Currency Translation
 
 The
Company translates the foreign currency financial statements in accordance with
the requirements of Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." Assets and liabilities are translated at the rates of
exchange at the balance sheet date, and related revenue and expenses are
translated at average monthly exchange rates in effect during the period.
Resulting translation adjustments are recorded as a separate component in
stockholders' equity. Foreign currency transaction gains and losses are included
in the statements of income/losses.
 
 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 fair value because of the short-term maturity of these
instruments.
 
 Liquidity
 
 As shown
in the accompanying consolidated financial statements, the Company incurred
losses from operations of $2,267,890 and $4,823,292 for the years ended December
31, 2008 and 2007, respectively. The Company’s cash position at December 31,
2008 was $656,843 compared with $5,095,191 at December 31, 2007, a decrease of
$4,438,348. The Company's current assets, on a consolidated basis, exceeded its
current liabilities by $701,705 as of December 31, 2008 compared with working
capital deficit of $1,055,618 in the prior year, an improvement of
$1,757,323.
 
 Income
from oil and gas investments are expected to commence in mid-2009, and by
reducing operating expenses in future periods and generating cash from the sale
of marketable securities, long term investments and stock offerings management
believes it has sufficient capital resources to meet projected cash flow needs
through the next twelve months.
  
 F-15
 
 SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
 
 Stock-Based
Compensation
 
 The
Company measures and recognizes compensation expense for all share-based payment
awards made to employees and directors including employee stock options based on
estimated fair values.  Stock-based compensation expense recognized
under SFAS 123(R) for the years ended December 31, 2008 and 2007 was $265,691
and $1,348,943, respectively.
  Stock-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period. Stock-based compensation expense recognized in the Company’s
Consolidated Statement of Operations for the years ended December 31, 2008 and
2007 included compensation expense for share-based payment awards granted prior
to, but not yet vested as of December 31, 2005 based on the grant date fair
value estimated in accordance with the pro forma provisions of SFAS 123 and
compensation expense for the share-based payment awards granted subsequent to
December 31, 2005 based on the grant date fair value estimated in accordance
with the provisions of SFAS 123(R).
  The
Company uses the Black-Scholes option-pricing model as its method of valuation
for share-based awards granted. The Company’s determination of fair value of
share-based payment awards on the date of grant using an option-pricing model is
affected by the Company’s stock price as well as assumptions regarding a number
of highly complex and subjective variables. These variables include, but are not
limited to the Company’s expected stock price volatility over the term of the
awards, and certain other market variables such as the risk free interest
rate.
 
 Comprehensive
Income
 
 Statement
of Financial Accounting Standards No. 130 (“SFAS 130”), “Reporting Comprehensive
Income,” establishes standards for reporting and displaying of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
 
 Recently
Issued Accounting Pronouncements
 
 In July
2006, the FASB issued FASB Interpretation (“FIN”) No. 48 - Accounting for
Uncertainty in Income Taxes – An Interpretation of FASB Statement No.
109.  FIN 48 prescribes detailed guidance for the financial statement
recognition, measurement, and disclosure of uncertain tax positions recognized
in an enterprise’s financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes.  Tax positions must meet a
more-likely-than-not recognition threshold at the effective date to be
recognized upon the adoption of FIN 48 and in subsequent periods.  The
Company adopted FIN 48 effective January 1, 2007.  The impact of the
adoption of FIN 48 did not have a material effect on the Company’s financial
position, results of operations, or cash flows.
 
 In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements”.  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements.  Effective January 1, 2008,
the Company adopted SFAS 157 for financial assets and liabilities. SFAS 157
establishes a framework for measuring fair value and expands disclosures
about fair value measurements by establishing a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1 measurements)
and lowest priority to unobservable inputs (Level 3 measurements).
 
 The three
levels of the fair value hierarchy under SFAS 157 are described as
follows:
 
 Level 1
Observable inputs that reflect quoted prices (unadjusted) for identical assets
or liabilities in active markets.
 
 Level
2 Inputs reflect quoted prices for identical assets or liabilities in
markets that are not active; quoted prices for similar assets
or liabilities in active markets; inputs other than quoted prices that are
observable for the asset or the liability; or inputs that are derived
principally from or corroborated by observable market data by correlation or
other means.
 
  F-16
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
 
 Level 3
Unobservable inputs reflecting the Company’s own assumptions incorporated in
valuation techniques used to determine fair value. These assumptions are
required to be consistent with market participant assumptions that are
reasonably available.
 
 The
Company believes that the fair value of its financial instruments comprising
cash, certificates of deposit, accounts receivable, notes receivable,
accounts payable, and notes payable approximate their carrying amounts.
 The fair values of the Company’s Level 1 financial assets are available
for sale securities that primarily include shares of common stock in
various companies, are based on quoted market prices of the identical underlying
security. As of December 31, 2008, he Company did not have any Level 2 or 3
financial assets or liabilities. The Level 1 available for sale securities have
a carrying amount of $440,085 and a level 1 fair value of $440,085 based on
quoted prices in active markets.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – including an amendment of FASB
statement No. 115.” This Statement permits all entities to choose, at specified
election dates, to measure eligible items at fair value (the “fair value
option”). A business entity shall report unrealized gains and losses on items
for which the fair value option has been elected in earnings (or another
performance indicator if the business entity does not report earnings) at each
subsequent reporting date. Upfront costs and fees related to items for which the
fair value option is elected shall be recognized in earnings as incurred and not
deferred. If an entity elects the fair value option for a held-to-maturity or
available-for-sale security in conjunction with the adoption of this Statement,
that security shall be reported as a trading security under Statement 115, but
the accounting for a transfer to the trading category under paragraph 15(b) of
Statement 115 does not apply. Electing the fair value option for an existing
held-to-maturity security will not call into question the intention of an entity
to hold other debt securities to maturity in the future.  The Company
implemented SFAS No. 159 effective January 1, 2008, and it did not have a
significant impact on the Company’s financial position, results of operations,
and cash flows.
 
 In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”.  This
standard will significantly change the accounting and reporting related to
noncontrolling interests in a consolidated subsidiary. After adoption, any
noncontrolling interests will be classified as stockholders’ equity, a change
from its current classification between liabilities and stockholder’s equity.
Any earnings attributable to minority interests will be included in net
earnings. Purchases and sales of minority interests will be reported in equity,
deferring, perhaps permanently, recognition of the economic gain or loss on
partial dispositions.  This statement is effective as of the first
fiscal year that begins after December 15, 2008.
 
 In
December 2007, the FASB issued SFAS 141R, Business Combinations.  This
standard will significantly change the accounting for business combinations both
during the period of the acquisition and in subsequent periods.  This
statement is effective as of the first fiscal year that begins after December
15, 2008.
  The
Company does not expect the adoption of any other 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 CEO of 11 Good Energy is a
former director of the Company and a shareholder of Surge.  The convertible
note receivable bears interest at a rate of 8% per annum and matures June 30,
2009.  The note is secured with a lien on certain real property owned
by the CEO of 11 Good Energy.
 
 The note
is 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 maturity date or upon notice of
prepayment of the convertible note by 11 Good Energy, Inc.  The
conversion price is equal to 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 is equal
to the number of common stock issuable upon conversion.  The exercise
price of the warrants is equal to 85% of the cash sales price per share of any
common stock to be offered by 11 Good Energy, Inc. in a private
placement.  The warrants will expire 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.  The allocation of the purchase price was $137,500 to the
convertible note receivable and $137,500 to the 500,000 common shares of 11 Good
Energy.  A discount of $137,500 was recorded on $275,000 face value of
convertible note receivable.
  F-17
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  NOTE
3 – INVESTMENTS IN MARKETABLE SECURITIES
 
 North
Peace Energy Corp.
 
 On June
28, 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 $CDN15,000,000 in cash and 2,270,430 restricted common shares of North
Peace initially valued at $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. The Company utilized the proceeds from the sale to
fund its operations.
 
 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, leaving a balance of North Peace shares owned from
the North Peace transaction at 1,739,129 shares, or 3.1% of North Peace as of
December 31, 2008.  As of December 31, 2008, the ten day weighted
average closing price of the common stock of North Peace Energy Corp.
(NPE) listed on the TSX Venture Exchange was $0.25. The net unrealized loss
on the investment in NPE shares which are held as securities available-for-sale
was $980,270 for the year ended December 31, 2008.  This loss was
recorded as a decrease in other comprehensive income and a reduction in
shareholders’ equity. Also in 2008, the Company recorded an impairment charge of
$1,008,121 to reduce the value of North Peace shares to their year end market
value.
 
 As of
December 31, 2008, the Company owned 1,739,129 shares of North Peace Energy Corp
valued at $440,085 or $0.25 per share.  As of December 31, 2007, the
investment in North Peace Energy Corp was valued as non-current due to the
restrictive legend on the North Peace Energy shares. As of December 31, 2008,
the investment is classified as current due to the lifting of the restriction
and the marketability of the shares.
 
 11
Good Energy Inc.
 
 As of
December 31 2008, the Company owned 500,000 shares of 11 Good Energy Inc.
acquired in September 2008, valued at $137,500.
  Sale
of Peace Oil Corp
 
 On June
27, 2008, Cold Flow Energy ULC, a wholly subsidiary, entered into a
definitive agreement with a privately owned Canadian corporation (“Purchaser”),
pursuant to which Cold Flow sold all issued and outstanding common and preferred
shares of Peace Oil Corp.  Cold Flow Energy ULC indemnified the
Purchaser for any tax liabilities in excess of $CDN4,175,042 and all other
liabilities arising prior to the date of sale. As part of the sale, Cold Flow
Energy ULC paid the Purchaser $1,340,107 and the Purchaser effectively assumed
all tax liabilities of Peace Oil Corp. arising as a result of the purchase of
common and preferred shares.
 
 The
following summarizes the disposition of the Peace Oil:
 
 Cash
      consideration paid to the purchaser
              
              $
              (1,340,107
              )Tax
      liabilities previously recorded
              
              
              4,847,978Other
      liabilities and adjustments
              
              
              (40,934)Subtotal
              
              
              3,466,937Expenses
      of sale
              
              
              (192,408
              )Net
      gain in 2008 on sale of Peace Oil
              
              $
              3,274,529
 
  F-18
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 
 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 December 31, 2008 are
as follows:
 
 Year Incurred
              
              
              Acquisition Costs
              
              
              Exploration Costs
              
              
              Development Costs
              
              
              Total2008
              
              
              $
              897,209
              
              
              $
              118,990
              
              
              $
              -
              
              
              $
              1,016,199
 
 The
Company presently has no producing oil and gas properties.  During
2008, the Company acquired drilling and exploration rights in White Pine County,
Nevada; Park County, Wyoming and Crane County, Texas.
 
 During
2008, the Company commenced drilling of an exploration well on the Wyoming lease
and had not evaluated or completed the well as of December 31,
2008.
 
 During
2008, the Company drilled unsuccessfully on its Crane County, Texas exploration
lease and the property was deemed impaired.  As a result, the costs
incurred were transferred to the full cost pool and an impairment expense of
$580,397 was recorded as the Company had no proved reserves as of December 31,
2008.
 
 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.  Approximately 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.
 
 Andora is
a privately owned oil and gas company and is owned 55.4% by Pan Orient Energy
Corp., a Canadian energy company listed on the TSX Venture
Exchange.  At the time of the combination, the Company’s former CEO,
David Perez, was a member of Signet’s Board of Directors and possessed 850,000
shares of Signet common stock, which he exchanged for approximately 252,361
shares of common stock of Andora.  See additional disclosures in the
Litigation Matters and Subsequent Events footnotes.
 
 The Company used the equity method to
account for its investment in Signet effectiveJuly 6, 2006until its interest declined below 20%
of the outstanding shares of Signet, subsequently Andora. Under the equity
method of accounting, the Company's share of net income (loss) from Signet was
reflected as an increase (decrease) in its investment accounts and was also
recorded as equity loss from affiliates. For the year ended December 31, 2008
and 2007, the Company charged operations for $0 and $1,056,578e reflected as a
reduction to the Signet investment. Since the September 19, 2007
combination, the Company has recorded its investment in Andora using the cost
method of accounting. respectively, representing the Company’s share of
Signet's loss. Both the 2006 impairment charge and share of Signet’s loss were
reflected as a reduction to the Signet investment.
  The net
investment in Andora at December 31, 2008 and 2007 was $3,540,639 representing
the Company’s approximate 5.61% of the fully diluted shares of Andora. No
charges relating to Andora were made to the Company’s financial statements in
the year ended December 31, 2008, but a charge for the equity losses in Andora
(formerly Signet) for the year ended December 31, 2007 was $1,056,578. The
Company owns a total of 3,429,138 common shares of Andora of which 2,349,321
shares are held in an escrow account created pursuant to the plan of
arrangement between Signet Energy Inc., Andora Energy Corporation and an
unaffiliated Alberta company. See Litigation Matters and Subsequent
Events.
 
 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.
  F-19
 SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  NOTE
6 – 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 theYear Ended December
      31,2008
              
              
              2007Net
      Income/(Loss)
              
              $
              607,835
              
              
              $
              (11,343,620
              )Income
      tax computed at combined U.S. and state statutory rates
      (40%)
              
              
              243,000
              
              
              
              (4,500,000
              )Permanent
      differences
              
              
              -
              
              
              
              900,000Changes
      in valuation allowance
              
              
              (243,000
              )
              
              
              3,600,000Total
              
              $
              -
              
              
              $
              -
  Tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred liabilities are presented below:
  As
      of December 31,Deferred
      tax assets:
              
              2008
              
              
              2007Net
      operating loss carryforwards
              
              $
              4,720,000
              
              
              $
              3,910,000-Less
      valuation allowance
              
              
              (4,720,000
              )
              
              
              (3,910,000)Total
              
              $
              -
              
              
              $
              -
 
 At
December 31, 2008, Surge had a net operating loss carryforwards of approximately
$11,900,000 for federal and approximately $8,400,000 for state income tax
purposes, which will begin to expire, if unused, beginning in 2021. The
valuation allowance increased by approximately $810,000 and $960,000 for the
years ended December 31, 2008 and 2007, 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
7 – 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.
 
 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 US $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 as of December
31, 2008.
   F-20
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  NOTE
8 - CAPITAL STOCK
 
 Preferred
Stock
 
 On March
2, 2007, the Company issued one share of Special Voting Preferred Stock to
Olympia Trust Company as trustee pursuant to the Voting and Exchange Trust
Agreement. The preferred stock was issued in connection with the acquisition of
Peace Oil Corp. The issuance of the preferred stock is exempt from registration
pursuant to Regulation S promulgated under the Securities Act of 1933, as
amended. The Special Voting Preferred Stock is not convertible into shares of
any other series or class of our capital stock. The one share of Special Voting
Preferred Stock referred to herein was cancelled in June, 2008.
 
 Common
Stock
 
 On
February 22, 2007, the Company approved an increase to the
Company's authorized shares of capital stock to an aggregate of 210,000,000
shares, consisting of 200,000,000 shares of common stock with a par value of
$0.001 per share and 10,000,000 shares of preferred stock, pursuant to an
amendment to our Certificate of Incorporation.
 
 The
Company is not currently subject to any contractual arrangements, which restrict
its ability to pay cash dividends. The Company's Certificate of Incorporation
prohibits the payment of cash dividends on the Company's Common Stock in excess
of $0.05 per share per year so long as any one preferred stock remains
outstanding unless all accrued and unpaid dividends on one preferred stock has
been set apart and there are no arrearages with respect to the redemption of
any preferred stock.
 
 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 EITF 00-19 “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock”.   In
December 2006, the FASB approved FSP EITF 00-19-2 “Accounting for Registration
Payment Arrangements, which establishes the standard that contingent obligations
to make future payments under a registration rights arrangement shall be
recognized and measured separately in accordance with Statement 5 and FASB
Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss”. The
Company has evaluated the effect of how FSP EITF 00-19-2 and FSP EITF Topic D-98
affected these accompanying financial statements. In adopting FSP EITF 00-19-2
accounting pronouncement on January 1, 2007, the Company reclassified the
remainder of the warrant liability of $2,309,400 to permanent
equity.
 
 In
January 2007, the Company issued 383,333 shares of Common Stock to two of the
Company’s directors in connection with stock options exercised at an average of
$0.24 per share for net proceeds of $91,867.
 
 In April
2007, the Company redeemed 2,000,000 shares of Common Stock for a note payable
with Gemini, which 2,000,000 shares were cancelled.
 
 In
November 2007, Cold Flow shareholders exchanged 3,749,953.5 preferred shares
into 7,499,907 common shares of the Company.
 
 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.
   F-21
 
 SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE
9 - WARRANTS AND STOCK OPTIONS
 
 Class A Warrants.  The
following table summarizes the balances of warrants outstanding at December 31,
2008.
  Warrants
      Outstanding
              
              Warrants
      ExercisableExercise
      Prices
              
              
              Number
                Outstanding
              
              
              Weighted
      Average
                Remaining
                Contractual
      Life
                (Years)
              
              
              Weighted
                Average
                Exercise
      Price
              
              
              Number
                Exercisable
              
              
              Weighted
                Average
                Exercise
      Price$
              0.08
              
              
              
              100,000
              
              
              
              0.90
              
              
              
              0.08
              
              
              
              100,000
              
              
              $
              0.080.11
              
              
              
              300,000
              
              
              
              1.50
              
              
              
              0.11
              
              
              
              200,000
              
              
              
              0.110.12
              
              
              
              120,000
              
              
              
              1.50
              
              
              
              0.12
              
              
              
              80,000
              
              
              
              0.120.60
              
              
              
              3,000,000
              
              
              
              3.41
              
              
              
              0.60
              
              
              
              3,000,000
              
              
              
              0.600.75
              
              
              
              1,000,000
              
              
              
              1.00
              
              
              
              0.75
              
              
              
              1,000,000
              
              
              
              0.751.00
              
              
              
              1,000,000
              
              
              
              1.49
              
              
              
              1.00
              
              
              
              1,000,000
              
              
              
              1.001.45
              
              
              
              200,000
              
              
              
              1.91
              
              
              
              1.45
              
              
              
              200,000
              
              
              
              1.451.60
              
              
              
              1,005,000
              
              
              
              1.03
              
              
              
              1.60
              
              
              
              1,005,000
              
              
              
              1.60$
              2.00
              
              
              
              1,200,000
              
              
              
              2.20
              
              
              
              2.00
              
              
              
              1,200,000
              
              
              
              2.007,925,000
              
              
              
              2.21
              
              
              $
              1.00
              
              
              
              7,785,000
              
              
              $
              1.00
  Transactions
involving the Company's warrant issuance or expiration are summarized as
follows:
 Number
      of
                Shares
              
              
              Weighted
      Average
                Price
      Per ShareOutstanding
      at December 31, 2006
              
              
              9,805,000
              
              
              $
              0.93Granted
              
              
              1,000,000
              
              
              
              1.00Exercised
              
              
              -
              
              
              
              -Canceled
      or expired
              
              
              -
              
              
              
              -Outstanding
      at December  31, 2007
              
              
              10,805,000
              
              
              $
              0.94Granted
              
              
              1,620,000
              
              
              
              0.50Exercised
              
              
              -
              
              
              
              -Canceled
      or expired
              
              
              (4,500,000
              )
              
              
              0.67Outstanding
      at December 31, 2008
              
              
              7,925,000
              
              
              $
              1.00
 
 During
2008, the Company issued 1,620,000 warrants to purchase 1,620,000 shares of
common stock to consultants and other third parties at exercise prices of $0.08
to $0.75 per share with terms from one to two years, of which 1,200,000 shares
vested immediately on the date of grant and the remainder vest monthly
thereafter: 100,000 of these warrants were issued in settlement of a lawsuit
were exercisable at $0.10 per share and expired unexercised in December 2008;
520,000 were issued in conjunction with consulting agreements at an average
price of $0.1065 per share; and 1,000,000 warrants were issued to Frederick C.
Berndt in conjunction with the 11 Good Energy Note at an exercise price of $0.75
per share.  Fair value of $24,506 was recorded in 2008 and $368,000 in 2007
using the Black-Scholes method of warrant-pricing model.  Variables used in
the Black-Scholes pricing model for warrants issued during the year ended
December 31, 2008 include (1) discount rate range of 1.94% to 2.09%, (2) warrant
life of 1 to 2 years, (3) expected volatility of 71% to 108% and (4) zero
expected dividends.  During the year ended December 31, 2008,
4,500,000 warrants expired: 1,500,000 due to non-exercise, 2,000,000 warrants
issued in conjunction with the Company’s financing in March 2007 to Gemini
Financial and 1,000,000 warrants issued to Mark Fritz, a director, expired
because of contractual agreements.
  
 F-22
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  NOTE
9 - WARRANTS AND STOCK OPTIONS (Continued)
 
 Stock
Options
 
 The
following table summarizes the balances of options issued to officers and
directors outstanding at December 31, 2008.
 
 Options
      Outstanding
              
              Options
      ExercisableExercise
      Prices
              
              
              Number
                Outstanding
              
              Weighted
      Average
                Remaining
                Contractual
                Life
      (Years)
              
              Weighted
      Average
                Exercise
      Price
              
              Actual
                Number
                Exercisable
              
              Weighted
      Average
                Exercise
      Price$
              0.08
              
              
              
              5,200,000
              
              4.16
              
              $
              0.08
              
              4,543,334
              
              $
              0.080.09
              
              
              
              500,000
              
              4.73
              
              
              0.09
              
              125,000
              
              
              0.090.10
              
              
              
              500,000
              
              4.21
              
              
              0.10
              
              375,000
              
              
              0.10$
              0.12
              
              
              
              250,000
              
              4.53
              
              
              0.12
              
              75,000
              
              
              0.126,450,000
              
              4.22
              
              $
              0.08
              
              5,118,334
              
              $
              0.08
 
 Transactions
involving the Company's options issuance are summarized as follows:
 
 Number
      of
                Shares
              
              
              Weighted
                Average
      Price
                Per
      ShareOutstanding
      at December 31, 2006
              
              
              9,611,203
              
              
              $
              0.73Granted
              
              
              1,800,000
              
              
              
              0.35Exercised
              
              
              (383,333
              )
              
              
              0.24Canceled
      or expired
              
              
              (2,902,667
              )
              
              
              0.82Outstanding
      at December 31, 2007
              
              
              8,125,203
              
              
              $
              0.64Granted
              
              
              6,500,000
              
              
              
              0.08Exercised
              
              
              (150,000
              )
              
              
              0.04Canceled
      or expired
              
              
              (8,025,203
              )
              
              
              0.65Outstanding
      at December 31, 2008
              
              
              6,450,000
              
              
              $
              0.08
 
 During
2008, options to purchase 6,500,000 shares of common stock were granted by Surge
Global Energy, Inc. 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.  Fair value expense of $265,691 was recorded
in 2008 using the Black-Scholes method of option-pricing model.  Variables
used in the Black-Scholes pricing model for options issued during the year ended
December 31, 2008 include (1) discount rate range of 2.21% to 3.03%, (2) option
life of 5 years, (3) expected volatility of 63% to 108% and (4) zero expected
dividends.  Options for 5,200,000 shares were issued at an exercise
price of $0.08 per share, 500,000 options were issued at $0.10 per share,
500,000 options were issued at $0.09 per share, and 300,000 options were issued
at $0.115 per share (of which 50,000 shares were exercised).  Non cash
compensation expense of $265,691 and $1,348,943 was charged to operations for
expenses arising from the issuance of options during the years ended December
31, 2008 and 2007, respectively.
 
 During
the year ended December 31, 2008, a total of 8,025,203 out of the money stock
options issued to prior directors and officers were cancelled due to their
resignation pursuant to the terms of the Company’s employee stock option
plan.
  
 F-23
 
 SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  NOTE
10 – 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 year ended December 31, 2008. This
investment had been acquired in 2004 for $600,000 and was impaired prior to
January 1, 2007. The Company also recorded a gain on sale of $57,638 on the sale
of North Peace Energy shares.
 
 During
the year ended December 31, 2008, the Company exchanged 584,929 shares of North
Peace Energy shares for all outstanding Cold Flow Exchangeable Shares, resulting
in a loss on the exchange of $105,376 after foreign exchange
adjustments.
 
 NOTE
11 - RELATED PARTY TRANSACTIONS
 
 On
December 31, 2007, the Company entered into an Addendum to Employment Agreement
with Mr. William Greene.  The addendum extends the term of the
Employment Agreement dated December 14, 2006 between the Company and Mr. Greene,
as amended, from December 31, 2007 to June 30, 2008.  In addition, the
Addendum provided that if Mr. Greene’s employment with the Company is terminated
prior to June 30, 2008 due to a voluntary or involuntary change in control, Mr.
Greene is entitled to a 90-day severance payment based on his current
compensation.  Mr. Greene resigned on February 15, 2008 and agreed to
serve as a consultant to the Company for part of 2008.
 
 On May 1,
2008, the Company entered in to an Employment Agreement with Mr. E. Jamie
Schloss as CEO which provided for initial salary for the period from June 17,
2008 through December 31, 2008 at the rate of $9,500 per month. Thereafter, an
increase to $10,500 per month until June 30, 2009, then $11,500 per month
until April 30, 2010. Mr. Schloss received payment for services rendered prior
to the execution of the agreement for the periods May 1, 2008 through June 16,
2008 and February 11, 2008 through April 30, 2008 at the rate of $9,500 per
month.
 
 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 is currently involved in contract and indemnity disputes in several
litigation matters:  Litigation can involve complex factual and legal
questions and its outcome is uncertain. Although it is not possible at this
early stage to predict the likely outcome of this action, an adverse result
could have a material adverse effect on us. 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.
 
 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. The Company and Mr. Perez were served on March 22,
2008. The Company is liable for legal fees and related expenses incurred in
this matter, and has accrued costs of litigation to December 31, 2008. Although
it is impossible to predict with certainty the outcome of this proceeding, or
the outcome of any litigation, the Company believes in the merits of our
defense, does not anticipate an unfavorable outcome, and is vigorously defending
itself from this claim. Any loss in this matter is deemed remote. A total of
$398,000 has been accrued at December 31, 2008 for legal fees incurred by third
parties in this matter.
 
 In2007,David Perez, our former Chief
Executive Officer and formerly Chairman of the Board, and/or his law firm
received approximately $345,000 before Mr. Perez’s resignation on February 6,
2008 for reimbursement of legal fees incurred in lawsuits involving Mr. Jack
Zemer, in which suits Mr. Perez and former director Daniel Schreiber were
defendants, and in which the Company was not a named party.  Mr.
Perez has also claimed additional amounts from the Company as indemnification in
connection with these
   F-24
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  NOTE 12 – LITIGATION
MATTERS (Continued)
  lawsuits
totaling $191,000 to date.  The payment of Mr. Perez’s legal fees was
reviewed by a prior Board of Directors based on incomplete information supplied
by Mr. Perez.  The current Board of Directors, elected on February 11,
2008, has reviewed those claims and expenditures and based on legal advice
determined that they were improper.
 
 After Mr.
Perez resigned from the Company as Chief Executive Officer, he has also claimed
that his resignation was for “Good Reason” as defined in his employment
agreement and he is owed the severance provided for in his employment
agreement.  The Company is disputing this claim and will seek to recover
any funds paid, accrued or attributable to this claim. The Company also disputes
that Mr. Perez resigned for “Good Reason;” denies that he is owed such
severance, and the Company has filed a cross complaint against Mr. Perez to
recover all legal fees paid or accrued and to recover other damages from Mr.
Perez.
 
 On April
11, 2008, a lawsuit was filed against the Company by Schwartz Semedjian 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. This case is still pending and the Company has accrued
expenses in the amount of $71,732 in conjunction with this
matter.  The Company believes that any loss in excess of what has been
accrued is deemed remote.
 
 On June
23, 2008, a complaint was filed against the Company in Superior Court of San
Diego, California by its former Chief Operating Officer, David Perez, alleging
Breach of Contract and seeking Declaratory Relief. The claims are for breach of
an Indemnity Agreement and breach of the Company's bylaws with respect to
advancement and reimbursement of past, present and future legal fees and
expenses incurred by Mr. Perez in conjunction with the abovementioned Zemer
lawsuit, in which lawsuit the Company was not a named party. Mr. Perez
reserved his right to seek any and all claims he has against the Company under
the arbitration clause of his employment agreement to seek recovery for any
claims Mr. Perez has against the Company pursuant to said
agreement.  The Company intends on vigorously defending this
complaint. The Company has accrued $445,000 in legal fees as of December 31,
2008 in conjunction with this matter.  Any loss in excess of what has been
accrued is deemed remote
 
 On August
1, 2008, the Company filed counterclaims seeking monetary damages against Mr.
Perez and Daniel Schreiber, a former Director, and Granite Financial Group,
a company owned by Mr. Schreiber, alleging (i) breach of fiduciary duty,
(ii) breach of his employment agreement, (iii) fraudulent and intentional
misconduct in conscious disregard of the Company’s rights, (iv) conspiracy with
other parties to wrongfully obtain the Company’s assets for themselves and each
of them, and (v) seeking injunctive relief with respect to certain securities
held by Mr. Perez.
 
 On August
12, 2008 Granite Financial Group, LLC (“Granite”) and Daniel Schreiber filed
suit against the Company in the Court of Common Pleas in Cuyahoga County, Ohio
alleging breach of contract, claim for indemnity and declaratory relief. This
claim arises from an arbitration proceeding in Ohio regarding claims made by
Mark Fritz, currently a Director of the Company, against Granite regarding the
sale of securities. Granite is seeking reimbursement for legal fees and related
costs in that matter.
 
 On
October 20, 2008, the Company filed a Motion to Dismiss in Ohio on the basis
that the Granite Complaint did not have jurisdiction. In February, 2009 this
lawsuit was dismissed in Ohio but essentially the same claims were subsequently
refilled in San Diego County (Case #37-2009-0082077-CU-BC-CTL). See Note
14, Subsequent events. The Company intends on vigorously defending this
complaint. A total of $218,000 has been accrued on our financial statements as
of December 31, 2008 in conjunction with this matter. The Company believes that
any loss in excess of what has been accrued is deemed remote
 
 NOTE
13- COMMITMENTS AND CONTINGENCIES
 
 Operating
Leases
  The
Company leased an office in Calgary, Alberta with monthly base rent of
approximately $300 per month until June 2009. In March 2008, the Company
relocated to its executive offices to 990 Highland Drive Suite 110-V Solana
Beach, California for a term of six months and monthly rent of
$825.  On May 6, 2008, the Company cancelled its prior six-month lease
at 990 Highland Drive Suite 110-V and entered into a new lease. The new lease is
for Suite 206 at the same address and is a three-year lease commencing May 6,
2008, the annual rentals are $25,740 for the period from May 6, 2008 to May 5,
2009, $26,676 for the period from May 6, 2009 to May 5, 2010, and $27,612 for
the period from May 6, 2010 to May 5, 2011.
 
 F-25
  SURGE
GLOBAL ENERGY, INC.
 (AN
EXPLORATION STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE 13- COMMITMENTSANDCONTINGENCIES
(Continued)
 
 Employment
Agreements
 
 The
Company had employment agreements with its former Executives who resigned from
the Company during the year ended December 31, 2008.  In addition to
salary and benefit provisions, the agreements included commitments should the
Executives terminate employment with or without cause.  It is the
Company’s position that all of those contracts are now void and that no further
payments or commitments are due on those contracts.  See additional
disclosure in the Litigation Matters.
 
 Consulting
Agreements
 
 The
Company has consulting agreements with outside contractors. The Agreements are
usually for a term of from 6 to 12 months from inception and renewable from year
to year unless either the Company or Consultant terminates such engagement by
written notice.
 
 NOTE
14 - SUBSEQUENT EVENTS
 
 On March
6, 2009, a writ of attachment for approximately $247,900 was granted to Granite
Financial Corp. in conjunction with their claim for legal fees relating to costs
incurred by Granite in the Mark Fritz arbitration originally commenced in
Ohio.  These funds were placed into an attorney trust account pending
resolution of the Granite Financial lawsuit.
 
 On April
9, 2009, as of March 31, 2009, the Company entered in to a total settlement and
release of all claims agreement with its former CEO and Board Chairman, David
Perez. The terms of the settlement are that the Company will issue a promissory
note for $225,000, payable in 14 equal installments and one final payment of
$6,100. The note will bear interest at 5% per annum. In return, the Company will
receive 252,361 Andora shares 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 has been reversed in the
2008 financial statements.


F-26


ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




Dismissal
      of RBSM LLP





On
September 19, 2008, Surge Global Energy, Inc. (the “Company”) dismissed RBSM LLP
(“RBSM”) as the Company’s independent registered public accounting
firm. The Audit Committee of the Board of Directors of the Company (the
“Audit Committee”) recommended and approved the decision to change independent
registered public accounting firms. RBSM’s report on Registrant’s financial
statements for each of the two years ended December 31, 2007 and 2006
(collectively, the “Prior Fiscal Years”) did not contain an adverse opinion or
disclaimer of opinion, nor was such report qualified or modified as to
uncertainty, audit scope or accounting principles, except that the audit report
for the year ended December 31, 2006 contained an explanatory paragraph
describing the existence of substantial doubt about the Registrant's ability to
continue as a going concern. There were no disagreements (“Disagreements”)
between Registrant and RBSM during either (i) the Prior Fiscal Years, or (ii)
the period January 1, 2008 through September 19, 2008 (the “Interim Period”) on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which Disagreement, if not resolved
to the satisfaction of RBSM, would have caused RBSM to make reference to the
subject matter of the Disagreement in connection with its report for the Prior
Fiscal Years.





There
were no reportable events under Item 304(a)(1) (v) of Regulation S-K, during
either (i) the Prior Fiscal Years or (ii) the Interim Period.





Engagement
      of GBH CPAs, PC





On
September 19, 2008, the Company engaged GBH CPAs, PC (“GBH”) to serve as the
Company’s independent registered public accounting firm to audit the Company’s
financial statements for the fiscal year ending December 31, 2008. The
Audit Committee approved the Company’s engagement of GBH.





The
Company did not, nor did anyone on its behalf, consult GBH during the Company’s
two most recent fiscal years and any subsequent interim periods prior to the
Company’s engagement of that firm regarding the application of accounting
principles to a specified transaction (completed or proposed), the type of audit
opinion that might be rendered on the Company’s financial statements, any matter
being the subject of disagreement or reportable event, or any other matter as
defined in Regulation S-K, Item 304 (a)(1)(iv) or (a)(1)(v).




ITEM
    9A(T).
              CONTROLS AND
      PROCEDURES


Under the
supervision and with the participation of our management, including the Chief
Executive and Chief Financial Officer  and Audit Committee, we have
evaluated the effectiveness of our disclosure controls and procedures as
required by Exchange Act Rule 13a-15(b) as of the end of the period covered by
this report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer and the Audit Committee have concluded that these disclosure
controls and procedures are effective.




Report
of Management on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Internal control over
financial reporting is a process to provide reasonable assurance regarding the
reliability of our financial reporting for external purposes in accordance with
accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes maintaining records that in
reasonable detail accurately and fairly reflect our transactions; providing
reasonable assurance that transactions are recorded as necessary for preparation
of our financial statements; providing reasonable assurance that receipts and
expenditures of company assets are made in accordance with management
authorization; and providing reasonable assurance that unauthorized acquisition,
use or disposition of company assets that could have a material effect on our
financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of our financial
statements would be prevented or detected.





Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that the
company’s internal control over financial reporting was effective as of
December 31, 2008. There were no significant changes in our internal
control over financial reporting during the year ended December 31, 2008,
except as described below, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting. Our
independent auditors have not audited and are not required to audit this
assessment of our internal control over financial reporting for the fiscal year
ended December 31, 2008.






21





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management’s report
in this annual report. Limitations on Effectiveness of Controls and
Procedures





Our
management, including our Chief Executive Officer and Audit Committee, does not
expect that our disclosure controls and procedures or our internal controls will
prevent all errors and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected.  These inherent
limitations include, but are not limited to, the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.





Changes
in internal controls





There
have been no changes in our internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Rule 13a-15 or
15d-15 under the Exchange Act that occurred during the quarter ended December
31, 2008 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.





2007 Report on Controls and
Procedures and Corrections made in 2008





Our
management, including the Chief Executive Officer and Audit Committee, evaluated
the effectiveness of our internal control over financial reporting as of
December 31, 2007 based on the framework defined inInternal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this evaluation, because of the
Company’s limited resources and limited number of employees, management
concluded that, as of December 31, 2007, our internal control over
financial reporting is not effective in providing reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally
accepted accounting principles. We also discovered the following material
weakness in our internal control over financial reporting: we had no procedure
to determine how gains would be treated for tax purposes under Canadian
law.  This material weakness led to the following mistakes in our
financial statements, which have since been corrected.





On
January 31, 2008, the Board, in consultation with management of the Company,
determined that previously issued (i) consolidated financial statements for the
quarters ended (a) June 30, 2007 contained in the Company’s Quarterly Report on
Form 10-QSB filed August 20, 2007, and (b) September 30, 2007 contained in the
Company’s Quarterly Report on Form 10-QSB filed November 16, 2007, needed to be
restated to correct an error in accounting for Canadian income taxes in
connection with the disposition of certain assets by Peace Oil Corp. (“Peace
Oil”), the Company’s indirectly-owned Canadian subsidiary, Cold Flow Energy
ULC.  Upon advice from Canadian tax counsel and accounting advisors,
the Board determined that the purchase and sale of the Peace Oil assets required
different treatment under Canadian tax laws.  We have amended the
financial statements listed above to correctly account for the Canadian income
taxes in connection with the disposition of certain assets by Peace
Oil.




After
consultation with Canadian counsel and accountants, the Board determined that
the reserve for Canadian income taxes was incorrect and needed to be
restated.  The amounts reported in the Company’s financial statements
for its quarters ended June 30, 2007 and September 30, 2007 did not properly
reflect tax consequences of the sale of certain assets by Peace
Oil.  The 2007 financial statements were amended to properly reflect
the tax consequences of the sale of certain assets by Peace Oil. Subsequently in
June, 2008, the Company sold its Peace Oil subsidiary.






ITEM 9B.
              OTHER
    INFORMATION


None








22




PART
III




ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




Board of
Directors





The
following tables and narrative description sets forth, as of April 1, 2009, the
age, principal occupation and employment, position with us, directorships in
other public corporations, and year first elected as one of our directors, of
each individual nominated for election as director at the annual meeting and/or
currently serving as a director.  Unless otherwise indicated, each
director has been engaged in the principal occupation or occupations described
below for more than the past five  years.





Name
            Age
            Director
      Since
            Present
      Position with SurgeE.
      Jamie Schloss
            65
            2008
            Chief
      Executive Officer, Director and nomineeBarry
      Nussbaum
            53
            2008
            Chairman, DirectorJeffrey
      Bernstein
            49
            2008
            DirectorMark
      Fritz (1)
            51
            2008
            DirectorCharles
      Sage (2)
            64
            2008
            DirectorKenneth
      D. Polin (2)
            55
            2008
            DirectorEdwin
      Korhonen (1)
            73
            2008
            Director










(1)           Current
member of Audit Committee


(2)           Current
member of Compensation Committee





E. Jamie Schloss, Chief Executive
Officer, Director




Mr.
Schloss, a certified public accountant for more than 30 years, joined our Board
on February 11, 2008 and previously served on the Surge's Board from October
2004 to July 2006.  Mr. Schloss served as Chief Financial Officer from
December 2005 to June 2006 and was appointed to serve as our Chief Executive
Officer and Chief Financial Officer on February 19, 2008. Prior to his
appointment as Chief Financial Officer in 2004, Mr. Schloss' company Castle Rock
Resources, Inc. was engaged as a consultant to Surge. Castle Rock participated
in the drilling of more than 20 deep oil & gas wells in Texas, New Mexico,
and Louisiana from 1990 to 1995 through joint venture partnerships. In June
1995, Castle Rock and partners sold seven wells in the Townsend (Sublime) Field
in south Texas to Weeks Exploration Company for an aggregate of
$16,000,000.  Castle Rock continues to own and manage two oil &
gas wells in south Texas which have been producing oil and gas for more than 15
years. Mr. Schloss has a Juris Doctorate (JD) degree, a B.A. from the University
of Pennsylvania, and an MBA equivalent from Pace College in New York. Mr.
Schloss worked as a Certified Public Accountant in California and New Jersey
from 1966-1970. Prior to his experience in the oil & gas drilling and
exploration business, Mr. Schloss was an executive and officer of several
entertainment industry firms including MCA-Universal., Warner Bros. Television
Distribution, Western-World Television, and Hal Roach Studios.





Barry
Nussbaum, Chairman and Director





Mr.
Nussbaum joined our Board on February 11, 2008 and previously served on Surge's
Board from March 2006 to July 2006. Mr. Nussbaum is the CEO of BNC Real Estate,
which he founded 30 years ago. While formerly owning and managing properties
throughout Southern California and Arizona, BNC Real Estate currently owns and
manages projects throughout Texas. Mr. Nussbaum is also the co-founder and
former board member of several companies including Digital Orchid, a wireless
technology company, which sells products in 22 countries. He is in his tenth
year as a board member (four as president) of the California 22nd District
Agricultural Association, also known as the Del Mar Fair Board. Appointed to
three terms by the Governor of California, the Del Mar Fair Board manages the
100+acres of fairgrounds properties including the world famous Del Mar Race
Track. In addition, the Governor previously appointed him to the State Race
Authority and State Race Track Leasing Commission. Mr. Nussbaum has a Juris
Doctorate from the University of San Diego School of Law, and a Bachelor of Arts
(Summa Cum Laude) from Claremont McKenna College.





Jeffrey
L. Bernstein, Director





Mr.
Bernstein joined our Board on February 11, 2008 and is the founder of Granite
Group, L.P., a hedge fund, for which he has served as its CEO from 1998 to the
present.  From 1982 to 2000, Mr. Bernstein was a trader on the Chicago
Board of Trade.  He has a B.A. from the University of California at
Santa Barbara.








23





Mark
Fritz, Director





Mr. Fritz
joined our Board on February 12, 2008.  Mr. Fritz has been the owner
and President of MCF Machine Co., Inc., a machine job shop, since
1981.  Mr. Fritz attended Ohio State University and
Stark State University from 1975 through 1980 and was voted the
Business Person of the Year in Canton, Ohio in 1989.




Charles
Sage, Director





Mr. Sage
joined our Board on February 11, 2008.  Mr. Sage was employed by the
Goodyear Tire & Rubber Company from 1967 until 2000 where he held senior
sales, marketing and general management positions.  Responsibilities
included strategic planning, product and process rationalization, organizational
development, merger and acquisitions, and succession planning. Since 2001, he
has been engaged as a consultant to industrial rubber products companies seeking
to broaden market presence through the acquisition of North American
operations.  Mr. Sage has a Bachelor of Science (BS) degree from the
Kelley School of Business at Indiana University, Bloomington,
Indiana.





Kenneth
D. Polin, Director





Mr. Polin
joined our Board on March 18, 2008.  Mr. Polin has over 30 years of
experience in the areas of securities, venture capital, mergers and
acquisitions, and other financing transactions, and is a partner in the law firm
of Foley & Lardner LLP.  He concentrates his practice on corporate
and securities law, with an emphasis on representation of emerging and public
technology and growth companies.  He also has extensive experience
representing venture capital and other investors.  Mr. Polin has
managed a broad range of major business transactions for these entities,
including private placements and public offerings; mergers, acquisitions and
balance sheet financings.  He has been counsel to companies in the
biotechnology, media, communications, hardware, healthcare, commercial finance
transactions.  He joined Foley & Lardner in 2001 after having
previously been a partner in several other major national law
firms.  Mr. Polin is a member of the California State Bar and the San
Diego Bar Association.  He is extremely active in community affairs as
a member of the board of directors of the Lawrence Family Jewish Community
Centers of San Diego County, where he previously served as
president.  He also is the immediate past Chairman of the United
Jewish Federation of San Diego and a member of the board of directors of
CONNECT.  Mr. Polin received his bachelor’s degree, summa cum laude,
from American University in 1975.  His J.D. degree was conferred,
magna cum laude, in 1978 by Georgetown University, where he was a member of the
Georgetown University Law Review.





Edwin
J. Korhonen, Director





Edwin J.
Korhonen, P.Eng. joined our Board on July 14, 2008. He is a graduate of Queen’s
University Kingston ON (1957) with a BS.C in Electrical Engineering. He is a
member of the Professional Engineers of Ontario. Mr. Korhonen began his career
as a Sales Engineer with Allen-Bradley selling electric motor controls. He then
joined Campbell Soup in Toronto in 1963 and worked in production management and
as Director of Engineering in the US, returning in 1973 as President of the
Canadian Company. He subsequently became President of Nabisco Brands and then
Maple Leaf Flour Mills in Canada until 1991. For the past 15 years, he
has


been
involved as President with smaller, early-stage businesses, including Tracker
Corporation, a bar code identification system to identify and return lost and
stolen items; Eco Logic, a high temperature hydrogen technology to destroy
hazardous and toxic materials; and since 1998 as President and investor in
Northstar Multicorp, manufacturer of a peat-based absorbent to clean up oil
spills, currently exported to over 15 countries. He also served 21 years on the
Board of Governors of the Queensway Hospital in Toronto, including serving
as Treasurer and Chairman of the finance and audit committee for five years. Mr.
Korhonen is currently a director of ISG Preventive Technology Inc, a start-up
Toronto based company with a patented integrated strain gauge technology that
can be used to estimate and predict fatigue life of materials and
structures.





There are
no family relationships among any of the directors, executive officers or
persons nominated to become a director or executive officer.




Independence
of the Board of Directors




Our
common stock is traded on The Over the Counter Bulletin Board System (“OTCBB”)
under the symbol “SRGG.”  The Board has determined that a majority of
the members of, and the Board’s nominees to, the Board qualify as
“independent,” as defined by Rule 10A-3 under the Securities Exchange Act of
1934.  In order to be considered to be independent for purposes of
Rule 10A-3, a member of an audit committee of an issuer that is not an
investment company may not, other than in his or her capacity as a member of the
audit committee, the board of directors, or any other board committee: (A)
accept directly or indirectly any consulting, advisory, or other compensatory
fee from the issuer or any subsidiary thereof, provided that, unless the rules
of the national securities exchange or national securities association provide
otherwise, compensatory fees do not include the receipt of fixed amounts of
compensation under a retirement plan (including deferred compensation) for prior
service with the listed issuer (provided that such compensation is not
contingent in any way on continued service); or (B) be an affiliated person of
the issuer or any subsidiary thereof. Accordingly, an independent director may
not be an employee of the Company.






24





Consistent
with these considerations, after review of all relevant transactions and
relationships between each director and each nominee recommended by the Board,
or any of his or her family members, and Surge, its senior management and its
independent auditors, the Board has determined further that Barry Nussbaum,
Chairman of the Board,  Jeffrey Bernstein, Charles Sage, Mark Fritz,
Kenneth D. Polin and Edwin Korhonen are independent under the Board’s
definition.  In making this determination, the Board considered that
there were no new transactions or relationships between its current independent
directors and Surge, its senior management and its independent auditors since
last making this determination.




Executive
Sessions of Independent Directors




Our
non-employee directors meet regularly in executive sessions where only
non-employee directors are present.  Persons interested in
communicating with the non-employee directors may address correspondence to a
particular director, or to the non-employee directors generally, in care of
Corporate Secretary, Surge Global Energy, Inc., 990 Highland Drive, Suite 206,
Solana Beach, California 92075.




Board
Meetings




During
the fiscal year ended December 31, 2008, the Board held 21 meetings. Each
director attended at least 75% of the aggregate total number of meetings of the
Board plus the total number of meetings of all committees of the Board on which
he served. We encourage, but do not require, our directors to attend the annual
meeting of our stockholders.  All of the members of the Board attended
our last annual meeting.




Committees
of the Board




The Board
has two committees: an Audit Committee (established in accordance with Section
3(a)(58)(A) of the Exchange Act), and a Compensation Committee, with the members
of each committee indicated below.




·
            The
      Audit Committee consists of Mark Fritz (Chair) and Edwin
      Korhonen.





·
            The
      Compensation Committee consists of Kenneth Polin (Chair) and Charles
      Sage.




Audit
Committee




The Audit Committee consists of Mark
Fritz and Edwin Korhonen. The functions of the Audit Committee include reviewing
and supervising the financial controls of the Company, appointing the Company’s
independent registered public accounting firm, reviewing the books and accounts
of the Company, meeting with the officers of the Company regarding the Company’s
financial controls, acting upon recommendations of the auditors and taking such
further actions as the Audit Committee deems necessary to complete an audit of
the books and accounts of the Company. The Audit Committee met four times in
2008. Our Board has adopted a written Audit Committee
Charter.




The Board
has reviewed the definition of independence for Audit Committee members in Rule
10A-3(b)(1) of the Exchange Act and  has determined that all members
of our Audit Committee are independent under such standards.  The
Board has determined that Mr. Korhonen qualifies as an “audit committee
financial expert,” as defined in applicable Securities Exchange Commission
(“SEC”) rules.  The Board made a qualitative assessment of Mr.
Korhonen’s level of knowledge and experience based on a number of factors,
including his education and business experience. The term “Financial Expert” is
defined as a person who has the following attributes: an understanding of
generally accepted accounting principals and financial statements; has the
ability to assess the general application of such principals in connection with
the accounting for estimates, accruals and reserves; experience preparing,
auditing, analyzing or evaluating financial statements that present a breadth
and level of complexity of accounting issues that are generally comparable to
the breadth and complexity of issues that can reasonably be expected to be
raised by the Company’s financial statements, or experience actively supervising
one or more persons engaged in such activities; an understanding of internal
controls and procedures for financial reporting; and an understanding of audit
committee functions.





Compensation
Committee




The
current members of the Compensation Committee are Kenneth Polin (Chair) and
Charles Sage.  Each member of the Compensation Committee is
“independent” under the Board’s definition. The Compensation Committee’s
functions include making recommendations to the Board regarding compensation
matters and determining compensation for the Chief Executive Officer and Chief
Financial Officer. In addition, the Compensation Committee administers the
Company’s stock plans and, within the terms of the respective stock plan,
determines the terms and conditions of issuances. The Compensation Committee met
three times in 2008. Our Board has adopted a written Compensation Committee
Charter.







25





The
Compensation Committee has the central role in determining all aspects of
executive compensation. The Compensation Committee makes recommendations to the
Board with respect to the overall compensation program for officers, including
incentive compensation plans, equity-based plans, severance plans, deferred
compensation arrangements, retirement benefits, perquisites and any other
compensation programs that primarily benefit officers. The Compensation
Committee reviews and approves corporate goals and objectives relevant to the
compensation of the company’s Chief Executive Officer (“CEO”) and the Chief
Financial Officer (“CFO”). The Compensation Committee also evaluates the CEO’s
performance in light of these goals and objectives. Based on individual and
company performance, competitive compensation information and other
considerations, the committee makes recommendations on CEO pay for approval by
the Board. The Compensation Committee tracks the total compensation of each
Executive Officer by reviewing, at least once a year, tally sheets that
summarize the major elements of compensation. In addition, the Compensation
Committee is responsible for reviewing and making recommendations to the Board
with respect to new or amended broad-based, “qualified” benefit plans and
programs and for reporting to the Board annually on succession planning. 
The Compensation Committee has sole authority for compensating, retaining and
terminating outside consultants and advisors who assist the Compensation
Committee in performing its responsibilities.




Our CEO
serves as both CEO and CFO and does not determine or approve any element or
component of his own base salary, annual incentive awards, long-term incentives
or other aspects of compensation. The CEO does provide input and make
recommendations to the Compensation Committee. These recommendations are based
on various factors including individual contribution and performance, company
performance, labor market conditions, complexity and importance of roles and
responsibilities, reporting relationships, retention needs and internal pay
relationships.




Nominating
Committee




The Board
does not currently have a nominating committee. The Board previously had a
Nominating and Governance Committee, which met one time in 2008.





Stockholder
Nominations




The
policy of the Board is to consider properly submitted stockholder nominations
for candidates for membership on the Board as described below in the section
entitled “Identifying and Evaluating Nominees for Directors” and in our Bylaws.
In evaluating such nominations, the Board will address the membership criteria
set forth below in the section entitled “Director Qualifications”. Any
stockholder nominations proposed for consideration by the Board should include
the nominee’s name and qualifications for membership on the Board and other
information in accordance with the Company’s Bylaws and should be addressed
to:





Surge Global Energy, Inc.


990
Highland Drive, Suite 206


Solana
Beach, California 92075


Attn:
Board Chairman





Director
Qualifications




Members
of the Board should possess certain core competencies, some of which may include
broad experience in business, finance or administration, familiarity with
national and international business matters, and familiarity with the oil and
gas industry. In addition to having one or more of these core competencies,
members of the Board are identified and considered on the basis of knowledge,
experience, integrity, diversity, leadership, reputation, and ability to
understand our business.




Identifying
and Evaluating Nominees for the Board




The Board
utilizes a variety of methods for identifying and evaluating nominees for the
Board. However, there are no specific minimum qualifications that the Board
requires to be met by a director nominee recommended for a position on the
Board, nor are there any specific qualities or skills that are necessary for one
or more of our Board to possess, other than as are necessary to meet any
requirements under rules and regulations applicable to us. The Board has the
duty of regularly assessing the composition of the Board, including the size of
the Board, diversity, age, skills and experience in the context of the needs of
the Board. In addition, the Board also has the duty of identifying individuals
qualified to become members of the Board. Candidates may come to the attention
of the Board through current members of the Board, professional search firms,
stockholders or other persons. These candidates will be evaluated by the Board
and may be considered at any point during the year. As described above, the
Board will consider properly submitted stockholder nominations for candidates
for the Board. Following verification of the stockholder status of persons
proposing candidates, recommendations will be aggregated and considered by the
Board. If any materials are provided by a stockholder in connection with the
nomination of a director candidate, such materials will be forwarded to the
Board.






26




We have
previously, and we may in the future, review materials provided by professional
search firms or other parties to identify, evaluate and recruit potential
director nominees who are not proposed by a stockholder.  In addition,
a professional search firm may be used to make initial contact with potential
candidates to assess, among other things, their availability, fit and major
strengths.





Communications
with the Board




Stockholders
may communicate with the Company by writing to Surge Global Energy, Inc.,
Attention: Corporate Secretary, 990 Highland Drive, Suite 206, Solana
Beach California 92075. Communications received from stockholders are
forwarded directly to the Board, or to any individual member or members, as
appropriate, depending on the facts and circumstances outlined in the
communication. The Board has authorized the Secretary of the Company to exclude
communications that are patently unrelated to the duties and responsibilities of
the Board, such as spam, junk mail and mass mailings. In addition, material that
is unduly hostile, threatening, illegal or similarly unsuitable will be
excluded, with the provision that any communication that is filtered out by the
Secretary pursuant to the policy will be made available to any non-management
director upon request.




Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers and
directors, and persons who own more than ten percent of a registered class of
our equity securities, to file reports of ownership on Form 3 and changes in
ownership on Forms 4 or 5 with the SEC. To our knowledge, based solely upon a
review of Forms 3 and 4 and amendments thereto furnished to us by reporting
persons, and any written representations made to us by such persons that no
other reports were required during the fiscal year ended December 31, 2008, only
Mark Fritz failed to file timely one Form 4 report with the SEC to report one
transaction and change in beneficial ownership.  Such transaction has
since been reported on a Form 4 report.






ITEM
      11.
            EXECUTIVE
      COMPENSATION





Executive
Officers




The
following table identifies persons who served as our executive officers serving
during any part of the fiscal year ended December 31, 2008, the positions they
hold or held, and the year(s) in which they served.  Our officers are
elected by the Board to hold office until their successors are elected and
qualified.




Name
            Position
            Age
            Served
      as OfficerE.
      Jamie Schloss
            Chief
      Executive Officer, Chief Financial Officer, Director
            65
            2008
      – presentDavid
      Perez
            Former
      Chief Executive Officer and Chairman
            45
            2004
      – 2008John
      Stiska
            Former
      Chief Executive Officer
            67
            2008
      – 2008William
      Greene
            Former
      Chief Financial Officer
            52
            2006 –
      2008





John
Stiska.        Mr. Stiska was
replaced as Chief Executive Officer by E. Jamie Schloss on February 19,
2008.




David
Perez.       Mr. Perez resigned as
Chief Executive Officer on February 6, 2008.




William
Greene.  Mr. Greene resigned as Chief Financial Officer on
February 15, 2008.




Summary
Compensation Table




The
following table sets forth the overall compensation earned over the fiscal years
ended December 31, 2008 and 2007 by (1) each person who served as the principal
executive officer of the Company during fiscal year 2008; (2) the Company’s two
most highly compensated executive officers as of December 31, 2008 with
compensation during fiscal year 2008 of $100,000 or more; and (3) those two
individuals, if any, who would have otherwise been in included in section (2)
above but for the fact that they were not serving as an executive of the Company
as of December 31, 2008.







27






Summary
Compensation Table (continued)





Salary CompensationName and
                Principal
                Position
              
              Fiscal
                Year
              
              
              Salary/Fees
                ($)
              
              
              
              Bonus
      ($)
              
              
              
              Restricted
                Stock
                Awards
    (1)
              
              
              
              Options
                Awards
                ($)(1)
              
              
              
              Non-Equity
                Incentive Plan
                Compensation
                ($)
              
              
              
              Nonqualified
                Deferred
                Compensa-
                tion
                Earnings ($)
              
              
              
              All Other
                Compensa-
                tion
                ($) (2)
              
              
              
              Total ($)E,
      Jamie Schloss,
              
              2008
              
              $
              97,000
              
              
              $
              -0-
              
              
              $
              -0-
              
              
              
              70,000
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              6,000
              
              
              $
              173,000Chief
      Executive
              
              2007
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-Officer
      (3)John
      Stiska,
              
              2008
              
              $
              8,101
              
              
              $
              -0-
              
              
              $
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              -0-
              
              
              $
              8,101Former
      Chief
              
              2007
              
              
              18,000
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              90,210
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              108
      ,210ExecutiveOfficer
      (4)David
      Perez,
              
              2008
              
              $
              44,402
              
              
              $
              -0-
              
              
              $
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              11,211
              
              
              $
              55,613Former
      Chief
              
              2007
              
              
              250,000
              
              
              
              50,000
              
              
              
              -0-
              
              
              
              459,832
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              424,609
              
              
              
              1,184,441Executive
      Officerand
      Chairman(5)William
      Greene,
              
              2008
              
              $
              95,506
              
              
              $
              -0-
              
              
              $
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              3,875
              
              
              $
              99,381Former
      Chief
              
              2007
              
              
              145,500
              
              
              
              36,000
              
              
              
              -0-
              
              
              
              227,513
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              34,500
              
              
              
              443,513Financial
      Officer(6)




(1)
            Reflects
      dollar amount expensed by the company during applicable fiscal year for
      financial statement reporting purposes pursuant to FAS 123R. FAS 123R
      requires the company to determine the overall value of the stock awards
      and options as of the date of grant. The stock awards are valued based on
      the fair market value of such shares on the date of grant and are charged
      to compensation expense over the related vesting period. The options are
      valued at the date of grant based upon the Black-Scholes method of
      valuation, which is expensed over the service period over which
      the options become vested. As a general rule, for
      time-in-service-based options, the company will immediately expense any
      option or portion thereof which is vested upon grant, while expensing the
      balance on a pro rata basis over the remaining vesting term of the
      option. For a description FAS 123R and the assumptions used in
      determining the value of the options under the Black-Scholes model of
      valuation, see the notes to the consolidated financial statements included
      with this Form 10-K.




(2)
            Includes
      all other compensation not reported in the preceding columns, including
      (i) perquisites and other personal benefits, or property, unless the
      aggregate amount of such compensation is less than $10,000; (ii) any
      “gross-ups” or other amounts reimbursed during the fiscal year for the
      payment of taxes; (iii) discounts from market price with respect to
      securities purchased from the company except to the extent available
      generally to all security holders or to all salaried employees; (iv) any
      amounts paid or accrued in connection with any termination (including
      without limitation through retirement, resignation, severance or
      constructive termination, including change of responsibilities) or change
      in control; (v) contributions to vested and unvested defined contribution
      plans; (vi) any insurance premiums paid by, or on behalf of, the company
      relating to life insurance for the benefit of the named executive officer;
      and (vii) any dividends or other earnings paid on stock or option awards
      that are not factored into the grant date fair value required to be
      reported in a preceding column.




(3)
            Mr.
      Schloss was appointed to our Board on February 11, 2008 and did not
      receive any cash compensation for service on theBoard during 2008. Mr.
      Schloss received $97,000 as compensation for being the both the Chief
      Executive Officer and ChiefFinancial Officer during 2008. Mr. Schloss was
      awarded 1,700,000 options in 2008 that vest over 12 months at an exercise
      price of $0.08 with a full value of $81,960 per FAS 123R and vested option
      expense using FAS 123R of $70,000 for the year ended December 31,
      2008.





(4)
            Mr.
      Stiska was appointed to our Board on October 11, 2006.  In 2007,
      Mr. Stiska received $2,750 and $18,000 as a memberof our Board in 2008 and
      2007, $12,000 as Chairman of the Audit Committee and $3,000 as a member of
      the CompensationCommittee and compensation as Chief Executive officer of
      $5,351.  Mr. Stiska was awarded 400,000 options in 2006 that
      later were cancelled due to his resignation pursuant to the terms of the
      Company’s employee stock option plan.  Mr. Stiska briefly served
      as Chief Executive Officer from February 11, 2008 to February 18,
      2008.




28




(5)
            Mr.
      Perez resigned as Chief Executive Officer and a Director in February,
      2008.





Included
in 2007 compensation were 1,200,000 stock options granted which resulted in
$459,832 in vested FAS 123Rexpense. See the Company’s September 30, 2007, Form
10-QSB filing, Note I – Warrants and Options, page 29 for thevaluation
assumptions used in vested option expense.





2007
other annual compensation includes:


•          
2007 profit sharing contributions of $29,500 to the Company’s 401(k) plan with
an equal and corresponding


reduction to base salary.


•           2007
life insurance premiums of $4,315 and auto allowance of $12,000


•           Payments
accrued in prior periods yet paid in 2007 for $25,433


•           Reimbursements
for legal expenses per Mr. Perez’s employment contract totaling
$344,782





2008
other annual compensation includes:


•           2008
life insurance premiums of $3,597 and auto allowance of $1,367


•           Payments
for health insurance of $1,345 and $4,903 of travel expenses




During
the years ended December 31, 2004 through December 31, 2008, no options were
exercised by Mr. Perez, and inJune, 2008, all of Mr. Perez’s options
expired.





(6)
            Option
      awards for Mr. Greene include:





•           2007
      options of $227,513 in vested FAS 123R
  expense





During
the year ended December 31, 2008, all stock options granted previously to Mr.
Greene were forfeited by Mr. Greene and none were exercised.





2007
Other annual compensation includes 2007 profit sharing contributions of $34,500
to the Company’s 401(k) plan with an equal and corresponding reduction to base
salary.  For the year ended December 31, 2007, Surge employed no other
executive officers.




No
outstanding common share purchase option or other equity-based award granted to
or held by any named executive officer in 2008 were re-priced or otherwise
materially modified, including extension of exercise periods, the change of
vesting or forfeiture conditions, the change or elimination of applicable
performance criteria, or the change of the bases upon which returns are
determined, nor was there any waiver or modification of any specified
performance target, goal or condition to payout.




Employment
Agreement




On June
17, 2008, the Company entered into an employment contract with E. Jamie Schloss,
Chief Executive Officer and Chief Financial Officer, for employment either
directly or indirectly through his controlled company. The guaranteed contract
runs for the period June 17, 2008 through April 30, 2010, and also covers
reimbursement of expenses for services rendered since February 11, 2008 and
adjusted compensation from May 1, 2008 until June 16, 2008.





Mr.
Schloss’ (hereafter “Executive’s”) new base salary is as follows: An initial
salary for period June 17 through December 31, 2008 at the rate of $9,500
per month. Thereafter, an increase to $10,500 per month until June 30,
2009, then $11,500.00 per month until April 30, 2010, of which 50% will be
allocated to Peace Oil Corp. or another Surge subsidiary. Executive will also
serve as CEO of each subsidiary of the Company at no additional compensation.
Executive will also receive payment for the periods May 1, 2008 through
June 16, 2008 (the “Pre-Employment Contract Period”) for services rendered prior
to the execution of this agreement at the rate of $9,500 per month and
reimbursement of other expenses as set forth below.





The
agreement also contains the following material provisions:





FRINGE
BENEFITS: Company to pay normal payroll taxes directly or reimburse for actual
payroll tax amounts owed. Company will also pay Executive’s out of pocket
health, dental, vision, and long term care insurance premiums, prescription
drug plan, actual out of pocket medical, dental & drugs, not to exceed
$1,500 per month in total for medical plans & expenses.





OTHER
EXPENSES: Company to reimburse Executive’s normal travel and related expenses
while away from Executive’s base of operations which are now Palm Desert, CA for
about 10 months of the year and Lexington KY for about 2 months of the year.
Company to pay actual out of pocket expenses at Executive’s home for supplies,
telephones, cell phone, Internet, and related expenses attributable to Company
business commencing from February 11, 2008. Executive will supply all his
current furniture & equipment, including without limitation, such things as
computers, printers, Fax machines, and telephones  at no cost to the
Company, but the Company agrees to pay all repairs and maintenance of said items
and replace any item which fails or becomes inadequate or obsolete during the
term of employment. If Executive relocates to Solana Beach area at
Company’s request, Company will pay reasonable actual and relocation
costs.






29





CAR
ALLOWANCE: Company to pay a car allowance of $750.00 per month for the entire
term of the contract and Pre-Employment Contract Period beginning May1 2008 and
related automobile out of pocket costs for business use.





TAX
RETURNS: As interim CFO (which employee is not being paid anything now in
addition to CEO duties), employee will prepare and file the company's
U.S. Federal and State Tax returns and review prior filings on his own time. For
prior period returns, already drafted but not complete, the fee will be $850.00
Federal and $350.00 State. For new returns, commencing 2007 and subsequent
years, the fee will be $2,500.00 Federal and $500.00 State. Canadian income
tax returns will be prepared by KPMG or another accounting firm in Canada which
Executive will review at no additional compensation.





STOCK
OPTIONS: Executive will receive additional stock options as
approved by the compensation committee based on a performance review at
December, 2008 and at December, 2009.





TERMINATION.
The Company may only terminate this Agreement for cause as defined in the
agreement. In the event that this Agreement is terminated for cause, Executive’s
Base Salary and all benefits under this Agreement shall terminate immediately
upon such discharge, and Company shall have no further obligations to Executive
except for payment and reimbursement for any monies due which right to payment
or reimbursement accrued prior to such termination. The Company may terminate
this Agreement upon the disability as defined in the agreement or death of
Executive by giving written notice to Executive.  In the case of
disability, such termination will become effective immediately days upon the
giving of such notice unless otherwise specified by the Company.  Upon
any such termination, the Company shall be relieved of all its obligations under
this Agreement, except for payment of Executive’s Base Salary and unpaid paid
time off and other benefits through the effective date of termination. Executive
may terminate this Agreement at any time by giving three months’ prior written
notice to the Company.  The Company shall be relieved of all of its
obligations under this Agreement, except for payment of Executive’s Base Salary
and unpaid benefits paid through the termination date.





INDEMNIFICATION:  Mr.
Schloss’ agreement provides for indemnification to the fullest extent permitted
by law, directors and officer’s liability insurance and for these provisions to
apply during the term of his agreement and for a period of six years
thereafter.






30




Executive
Officer Outstanding Equity Awards At Fiscal Year-End




The
following table provides certain information concerning any common share
purchase options, stock awards or equity incentive plan awards held by each of
our named executive officers that were outstanding as of December 31,
2008.




Option Awards
            
            
            
            
            
            
            
            Stock AwardsName
            
            Number of
                Securities
                Underlying
                Unexercised
                Options(#)
                Exercisable
            
            Number of
              Securities
              Underlying
              Unexercised
              Options(#)
              Unexercisable
            
            Equity
                Incentive
                Plan
                Awards:
                Number of
                Securities
                Underlying
                Unexercised
                Unearned
                Options (#)
            
            Option
                Exercise
                Price ($)
            
            Option
              Expiration
              Date
            
            Number of
                Shares or
                Units of
                Stock That
                Have Not
                Vested (#)
            
            Market
              Value of
              Shares or
              Units of
              Stock
      That
              Have Not
              Vested
            
            Equity
              Incentive
              Plan
              Awards:
              Number
              of
              Unearned
              Shares,
              Units or
              Other
              Rights
              That Have
              Not
              Vested
            
            Equity
              Incentive
              Plan
              Awards:
              Market or
              Payout
              Valueof
              Unearned
              Shares,
              Unitsor
              Other
              Rights
              That Have
              Not
              VestedDavid
      Perez
            
            -0-
            
            -0-
            
            -0-
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/AWilliam
      Greene
            
            -0-
            
            -0-
            
            -0-
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/AE.
      Jamie Schloss (1)
            
            1,501,667
            
            198,333
            
            -0-
            
            $0.08
            
            2/26/2013
            
            N/A
            
            N/A
            
            N/A
            
            N/AJohn
      Stiska (2)
            
            -0-
            
            -0-
            
            -0-
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A




___________


(1)
            Mr.
      Schloss was appointed to our Board on February 11, 2008 and did not
      receive any compensation for service on the Board during 2008. Mr. Schloss
      received $97,000 as compensation for being the both the Chief Executive
      Officer and Chief Financial Officer during 2008. Mr. Schloss was awarded
      1,700,000 options in 2008 that vest over 12 months at an exercise price of
      $0.08 with a full value of $81,960 per FAS 123R and vested option expense
      using FAS 123R of $70,000 for the year ended December 31,
      2008.





(2)
            Mr.
      Stiska was appointed to our Board on October 11, 2006.  In 2007,
      Mr. Stiska received $2,750 and $18,000 as a member of our Board in 2008
      and 2007, $12,000 as Chairman of the Audit Committee and $3,000 as a
      member of the Compensation Committee and $5,351 as Chief Executive
      Officer.  Mr. Stiska was awarded 400,000 options in 2006 that
      later were cancelled in June 2008 due to his resignation pursuant to the
      terms of the Company’s employee stock option plan after his resignation
      for the Board. . Mr. Stiska briefly served as Chief Executive Officer from
      February 11, 2008 to February 18,
2008.





Director
Compensation





Director
compensation is developed by the Compensation Committee in coordination with
management and submitted to the entire Board for approval.   As of
February 12, 2008, all director fees to be paid to members of the Board were
eliminated. Accordingly, directors do not presently receive compensation for
serving on the Board or on its committees other than the grant of stock options
and/or restricted stock awards. Depending on the number of meetings and the time
required for the Company’s operations, the Company may decide to compensate its
directors in the future.





Travel
Expenses





All
directors shall be reimbursed for their reasonable out of pocket expenses
associated with attending the meeting, such amounts are not reflected in the
compensation table below.





Compensation
Table





The
following table shows the overall compensation earned for the 2008 fiscal year
with respect to each current and former non-employee and non-executive director
who served solely in the capacity of a director during fiscal 2008.








31






DIRECTOR COMPENSATIONName and
              Principal
              Position
            
            Fees
              Earned
              or Paid
              in Cash
              ($)
            
            
            Stock
              Awards ($)(5)
            
            
            Option
              Awards ($)
              (1)
            
            
            Non-Equity
              Incentive Plan
              Compensation
              ($) (2)
            
            
            Nonqualified
              Deferred
              Compensation
              Earnings ($)
            
            
            All Other
              Compensation ($)
              (3)(4)(6)
            
            
            Total ($)Current
      Directors:Barry
      Nussbaum (4)
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            102,940
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            102,940Jeffrey
      Bernstein (5)
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            25,130
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            25,130Mark
      Fritz (6)
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            8,337
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            8,337Edwin
      Korhonen (7)
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            11,915
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            11,915Kenneth
      Polin (8)
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            22,239
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            22,239Charles
      Sage (9)
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            25,130
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            25,130




Former
Directors:





Thomas
      Page (10)
            
            $
            2,500
            
            
            $
            -0-
            
            
            $
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            2,500Richard
      Collato (11)
            
            $
            2,000
            
            
            $
            -0-
            
            
            $
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            2,000Robert
      Fields (12)
            
            $
            1,625
            
            
            $
            -0-
            
            
            $
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            1,625Dale
      Fisher (134)
            
            $
            3,679
            
            
            $
            -0-
            
            
            $
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            3,679John
      Stiska  (14)
            
            $
            2,500
            
            
            $
            -0-
            
            
            $
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            $
            2,500




(1)
            Reflects
      dollar amount expensed by the company during applicable fiscal year for
      financial statement reporting purposes pursuant to FAS 123R. FAS 123R
      requires the company to determine the overall value of the restricted
      stock awards and options as of the date of grant based upon the
      Black-Scholes method of valuation, and to then expense that value over the
      service period over which the restricted stock awards and options become
      vested. As a general rule, for time-in-service-based options, the
      company will immediately expense any restricted stock awards and option or
      portion thereof which is vested upon grant, while expensing the balance on
      a pro rata basis over the remaining vesting term of the restricted stock
      awards and options. For a description FAS 123R and the assumptions
      used in determining the value of the restricted stock awards and options
      under the Black-Scholes model of valuation, see the notes to the financial
      statements included with this Form
10-K.




(2)
            Excludes
      awards or earnings reported in preceding
  columns.




(3)
            Includes
      all other compensation not reported in the preceding columns, including
      (i) perquisites and other personal benefits, or property, unless the
      aggregate amount of such compensation is less than $10,000; (ii) any
      “gross-ups” or other amounts reimbursed during the fiscal year for the
      payment of taxes; (iii) discounts from market price with respect to
      securities purchased from the company except to the extent available
      generally to all security holders or to all salaried employees; (iv) any
      amounts paid or accrued in connection with any termination (including
      without limitation through retirement, resignation, severance or
      constructive termination, including change of responsibilities) or change
      in control; (v) contributions to vested and unvested defined contribution
      plans; (vi) any insurance premiums paid by, or on behalf of, the company
      relating to life insurance for the benefit of the director; (vii) any
      consulting fees earned, or paid or payable; (viii) any annual costs of
      payments and promises of payments pursuant to a director legacy program
      and similar charitable awards program; and (ix) any dividends declared or
      other earnings paid on stock or option awards that are not factored into
      the grant date fair value required to be reported in a preceding
      column.





(4)
            Mr.
      Nussbaum was appointed to our Board on February 11, 2008 and did not
      receive any compensation for service on the Board during 2008. Mr.
      Nussbaum received no cash compensation during 2008. Mr. Nussbaum was
      awarded 2,500,000 options in 2008 that vest over 12 months at an exercise
      price of $0.08 with a full value of $120,528 per FAS 123R and vested
      option expense using FAS 123R of $102,940 for the year ended December 31,
      2008.




(5)
            Mr.
      Bernstein was appointed to our Board on February 11, 2008 and did not
      receive any cash compensation for service on the Board during 2008. Mr.
      Bernstein received no compensation during 2008. Mr. Bernstein was awarded
      500,000 options in 2008 that vest over 12 months at an exercise price of
      $0.08 with a full value of $30,155 per FAS 123R and vested option expense
      using FAS 123R of $25,130 for the year ended December 31,
      2008.




32




(6)
            Mr.
      Fritz was appointed to our Board on February 12, 2008 and did not receive
      any cash compensation for services on the Board during 2008. Mr. Fritz
      received $356 in reimbursed expenses during 2008. Mr. Fritz was awarded
      500,000 options in 2008 that vest over 12 months at an exercise price of
      $0.09 with a full value of $33,350 per FAS 123R and vested option expense
      using FAS 123R of $8,337 for the year ended December 31,
    2008.




(7)
            Mr.
      Korhonen was appointed to our Board on July 14, 2008 and did not receive
      any cash compensation for services on the Board during
      2008.  Mr. Korhonen was awarded 300,000 options in 2008 that
      vest over 12 months at an exercise price of $0.115 with a full value of
      $28,590 per FAS 123R and vested option expense using FAS 123R of $11,915
      and $16,675 for the years ended December 31, 2008 and December 31, 2009,
      respectively. For the period ended December 31, 2008, 50,000 options were
      exercised.




(8)
            Mr.
      Polin was appointed to our Board on March 18, 2008 and did not receive any
      cash compensation for services on the Board during 2008. Mr. Polin
      was awarded 500,000 options in 2008 that vest over 12 months at an
      exercise price of $0.10 with a full value of $29,6502 per FAS 123R and
      vested option expense using FAS 123R of $22,239 for the year ended
      December 31, 2008.




(9)
            Mr.
      Sage was appointed to our Board on February 11, 2008 and did not receive
      any compensation for service on the Board during 2008.  Mr. Sage
      received $367 in reimbursed expenses during 2008.  Mr. Sage was
      awarded 500,000 options in 2008 that vest over 12 months at an exercise
      price of $0.08 with a full value of $30,155 per FAS 123R and vested option
      expense using FAS 123R of $25,130 for the year ended December 31,
      2008.




(10)
            Mr.
      Page was appointed to our Board on October 11, 2006 and resigned on
      February 11, 2008.  Mr. Page received $2,500 and $18,000 in 2008
      and  2007 as a member of our Board, $6,000 in 2007 as Chairman of the
      Compensation Committee and $6,000 as a member of the Audit
      Committee.  Mr. Page was awarded 400,000 options in 2006 that
      later were cancelled due to his resignation pursuant to the terms of the
      Company’s employee stock option
plan.




(11)
            Mr.
      Collato was appointed to our Board on October 11, 2006 and resigned on
      February 11, 2008.  Mr. Collato received $2,000 and $18,000 in
      2008 and 2007 as a member of our Board, $3,000 in 2007 as Chairman of the
      Nominating and Governance Committee and $3,000 as a member of the
      Compensation Committee.  Mr. Collato was awarded 400,000 options
      in 2006 that later were cancelled due to his resignation pursuant to
      the terms of the Company’s employee stock option
  plan.




On
      October 6, 2006, we entered into an agreement with Richard Collato, who
      was a previous member of our Board, as a consultant to provide business
      implementation strategies as well as locate and introduce three
      prospective appointees for our Board in exchange for a $6,000 monthly
      retainer. The agreement terminated in October 2007. In addition to the
      monthly retainer, Mr. Collato earned $150,000 in other compensation during
      the years ended December 31, 2006 and December 31, 2007 upon placing three
      Board appointees and as a result of the appointees serving for a maximum
      of twelve months. In addition, Mr. Collato was granted 300,000 options
      with an exercise price of $0.001, with 150,000 options vesting immediately
      and 12,500 options vesting monthly over the next twelve months. Vested
      option expense using FAS 123R with a full value of $166,200 per FAS 123R
      and vested option expense using FAS 123R of $58,387 for the year ended
      December 31, 2007.. For the year ended December 31, 2008, 233,333 options
      were exercised.




(12)
            Mr.
      Fields was appointed to our Board on March 23, 2007 and resigned on
      February 11, 2008. Mr. Fields received $1,625 and $12,600 in 2008 and 2007
      as a member of our Board, and $2,025 in 2007 as a member of the
      Compensation Committee, prorated for his months of actual service. Mr.
      Fields was awarded 400,000 options in 2007 that later were cancelled
      due to his resignation pursuant to the terms of the Company’s employee
      stock option plan.




(13)
            Mr.
      Fisher was appointed to our Board on September 6, 2007 and resigned on
      July 11, 2008.  In 2008 and 2007, Mr. Fisher received $3,679 and
      $1,725 as a member of our Board and as a member of the Compensation
      Committee, which is the aggregate of the standard director fees prorated
      for his months of actual service.  Mr. Fisher received no
      options.  For the period ended December 31, 2007, no options
      were issued and outstanding.




(14)
            Mr.
      Stiska  was appointed to our Board on March 23, 2007 and
      resigned on February 11, 2008.







33





Equity
Compensation Plan Information





The
following table sets forth information about shares of our common stock that may
be issued upon exercise of options under all of our equity compensation plans as
of December 31, 2008.




Plan
      category
            Number
      of securities to be
              issued
      upon exercise
              of
      outstanding options,
              warrants
      and rights
              (a)
            Weighted
      average exercise
              price
      of outstanding options,
              warrants
      and rights
              (b)
            Number
      of securities
              remaining
      available
              for
      future issuance
              (c)Equity
      compensation plans approved by security holders
            --
            --
            --Equity
      compensation plans not approved by security holders (1)
            14,375,000
            $0.59
            154,187,613Total
            14,375,000
            $0.59
            154,187,613





(1)
            We
      do not have any equity compensation plans, but we have entered into
      individual compensation arrangements with certain persons providing
      options and warrants to purchase our common stock in exchange for services
      to us.




Pension
Plans




We
currently sponsored a voluntary qualified 401(k) savings plan and a pension
plan, available to full-time employees in 2007 and this plan was cancelled at
the end of 2008. Our pension plan is a non-contributory defined contribution
plan. Our 401(k) plan provides for discretionary employee contribution of up to
100% of annual pre-tax earnings, subject to the maximum amount established
annually under Section 401(k) of the Internal Revenue Code. In the years ended
December 31, 2008 and 2007, we made discretionary contributions totaling $-0-
and $-0-, respectively, to our 401(k) saving plan and pension plan and reduced
base salaries to leave total gross compensation unchanged.  Total
expense relative to these plans for the years ended December 31, 2008 and 2007
was $-0- and $-0-, respectively.




COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION





None of
the members of the Compensation Committee during the fiscal year ended December
31, 2008 was, during such year or prior thereto, an officer or employee of the
Company or any of its subsidiaries. During fiscal 2008, no executive officer of
the Company served as a director or member of the compensation committee (or
other Board committee performing similar functions, or in the absence of such
committee, the entire Board) of another entity, one of whose executive officers
served as a director or member of the Compensation Committee of the
Company.







34





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




As of
April 1, 2009, the following persons were directors, nominees, executive
officers (each a “Named Executive Officer”), or others with beneficial ownership
of five percent or more of our voting securities.  The information set
forth below has been determined in accordance with Rule 13d-3 under the Exchange
Act based upon information furnished to us or to the SEC by the persons
listed.  Unless otherwise noted the address of each of the following
persons is c/o Surge Global Energy, Inc., 990 Highland Drive, Suite 206, Solano
Beach, CA 92075.





Beneficial
      Owner
            
            Shares
              Beneficially
              Owned
      (1)
            
            Percent
              ofClassDirectorsBarry
      Nussbaum
            
            3,032,500
            
            (2)
            
            
            8.9%Edwin
      Korhonen
            
            481,227
            
            (3)
            
            
            1.5%Jeffrey
      L. Bernstein
            
            900,000
            
            (4)
            
            
            2.8%Kenneth
      Polin
            
            500,000
            
            (5)
            
            
            1.5%Charles
      Sage
            
            850,000
            
            (6)
            
            
            2.6%Mark
      C. Fritz
            
            4,737,500
            
            (7)
            
            
            13.9%Named
      Executive Officers/DirectorsE.
      Jamie Schloss
            
            3,750,000
            
            (8)
            
            
            11.1%Directors
      and officers as a group (7 persons)
            
            14,251,227
            
            (9)
            
            
            35.6%Other
      Beneficial OwnersGemini
      Master Fund Ltd.
              12220
      El Camino Real, Suite 400,
              San
      Diego, CA 92130
            
            4,000,000
            
            (10)
            
            
            11.3%1216848
      Alberta Ltd.
              9702
      71st Avenue,
              Grande
      Prairie, Alberta,
              Canada
      T8V 5E1
            
            4,022,790
            
            (11)
            
            
            12.6%






(1)
            Includes
      all shares beneficially owned, whether directly and indirectly,
      individually or together with associates, jointly or as community property
      with a spouse, as well as any shares as to which beneficial ownership may
      be acquired within 60 days of April 1, 2009 by the exercise of options,
      warrants or other convertible securities.  All percents of class
      are based upon a total outstanding amount of 31,437,387 shares of our
      voting securities outstanding as of April 1, 2009.  Unless
      otherwise specified in the footnotes that follow, the indicated person has
      sole voting power and sole investment power with respect to the
      shares.




(2)
            Includes
      100,000 shares of common stock owned by Benjamin Financial Ltd., of which
      Mr. Nussbaum is affiliated with, 232,500 shares individually, 200,000
      shares of common stock issuable upon exercise of warrants, and 2,500,000
      shares issuable upon exercise of
options.




(3)
            Includes
      150,000 shares of common stock issuable upon exercise of stock
      options.




(4)
            Includes
      200,000 shares of common stock owned individually, 200,000 shares of
      common stock issuable upon exercise of warrants, and 500,000 shares
      issuable upon exercise of stock
options.






35





(5)
            Includes
      500,000 shares of common stock issuable upon exercise of stock
      options.(6)
            Includes
      50,000 shares owned by his wife, Patricia E. Sage and 500,000 shares
      issuable upon exercise of stock options.(7)
            Includes
      1,837,500 shares of common stock issuable upon exercise of warrants and
      250,000 shares of common stock issuable upon exercise of stock options.
      1,000,000 of the shares of common stock and 1,000,000 shares of the common
      stock underlying warrants are subject to a repurchase agreement with
      Granite dated April 24, 2007.(8)
            Includes
      400,000 shares of common stock owned by Castle Rock Resources, Inc., of
      which Mr. Schloss is the sole owner and 1,700,000 shares issuable upon
      exercise of stock options.




(9)
            Includes
      2,237,500 shares of common stock issuable upon exercise of warrants and
      6,100,000 shares of common stock issuable upon exercise of
      options.




(10)
            Gemini
      Master Fund, Ltd., a Cayman Island company, beneficially owns
      warrants to purchase 4,000,000 shares of the Company’s common stock.
      Gemini Strategies, LLC is the investment manager for Gemini Master Fund
      and Steven Winters is its managing member. The information set forth under
      Item 12 for Gemini is based upon a Schedule 13G for December 31, 2007
      filed with the Securities and Exchange Commission on January 30,
      2008.




(11)
            1216848
      Alberta Ltd. is controlled by George
Brown.







ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE




Other
than as listed below and under “Item 12,” we have not been a party to, since the
beginning of our last fiscal year, nor are we a party to any current
transaction, proposed transaction, or series of transactions in which the amount
involved exceeds the lesser of $120,000 or one percent of the average of our
total assets at year-end for the last three completed fiscal years, and in
which, to our knowledge, any of our directors, director nominees,  officers, five
percent beneficial security holders, or any member of the immediate family of
the foregoing persons has had or will have a direct or indirect material
interest.





The Board
approves all related party transactions which are disclosed it.  The
procedure for the review, approval or ratification for related party
transactions involves discussing the transaction with management, discussing the
transaction with the external auditors, reviewing financial statements and
related disclosures and reviewing the details of major deals and transactions to
ensure that they do not involve related transactions.  Members of
management have been informed and understand that they are to bring related
party transactions to the Board for approval.





1)          A
former Director, Gary Vandergrift and his company Dynamo Energy, sued the
Company for alleged breach of contract. The Company’s position is that our
previously disclosed expression of intent to enter an agreement with Dynamo
Energy Corporation, a Canadian corporation (“Dynamo”), to obtain a right of
first refusal on Dynamo’s prospects was never formalized by a signed, fully
integrated agreement. On September 16, 2005, our Board determined that the
proposed agreement with  Dynamo had not been authorized by the Board
and made an offer of settlement to Mr. Vandergrift, which was not accepted. Mr.
Vandergrift has since resigned as a member of our Board. On November 2, 2006,
Dynamo filed a lawsuit for breach of contract, restitution and declaratory
relief in the Superior Court of the State of California, County of San Diego
against the Company, Frederick Berndt, our former V.P. and Director and E. Jamie
Schloss, our former Chief Financial Officer and current Director and Chief
Executive Officer.  As previously disclosed, our Board had determined
that the proposed agreement with Dynamo had not been authorized by the
Board.  In early June 2007, Dynamo asked us to stipulate to the filing
of a Second Amended Complaint to add fraud claims against David Perez, our
former Chief Executive Officer and Chairman of the Board.  Dynamo
filed a motion seeking leave to file a Second Amended Complaint.  On
November 7, 2007, the Court dismissed the case on the grounds that the Court is
not a convenient forum in which to try the case and also (i) granted Dynamo's
motion to file a Second Amended Complaint and (ii) determined that the Court
does not have personal jurisdiction over Signet and Frederick Berndt and
dismissed them from the lawsuit.  The Court entered Dynamo’s dismissal
request without prejudice on January 8, 2008. Dynamo has since re-filed the case
in the Court of Queen’s Bench of Alberta, the Judicial District of Calgary
against the Company and its former CEO, David Perez, and that case is still
pending.





2)          David
Perez, our former Chief Executive Officer and Chairman of our Board, received
252,361 shares of capital stock in Andora Energy Corporation (“Andora”) in 2007
as a result of the completed business combination of Signet Energy, Inc., an
affiliate of the Company, and Andora in exchange for shares he owned previously
in the Company’s former wholly owned subsidiary, Signet Energy,
Inc.  In 2007, Mr. Perez also received $344,782 for reimbursement of
legal fees for a lawsuit filed by Mr. Jack Zemer, in which Mr. Perez and former
director Daniel Schreiber were defendants and the Company was not a party. Mr.
Perez has claimed additional amounts of legal fees from the Company as
indemnification in connection with lawsuits involving Mr. Zemer which the
Company is disputing.  Mr. Schreiber has also claimed indemnification
is owed to him in connection with the same lawsuits.  The payment of
Mr. Perez’s legal fees was reviewed by a prior Board of Directors based on
information supplied by Mr. Perez. The current and proposed Board of Directors
reviewed those expenditures and determined they were improper. At the time Mr.
Perez resigned from the Company as Chief Executive Officer, he claimed that his
resignation was for “Good Reason” as defined in his employment agreement and
therefore he is owed the severance provided for in his employment
agreement.  The Company disputes that Mr. Perez resigned for “Good
Reason” and denies that he is owed such severance. Mr. Perez resigned as an
Officer and Director of the Company in February, 2008. For all other related
party matters regarding Mr. Perez see Legal Proceedings.






36





3)          On
March 2, 2007, Dale Fisher, a former member of the Board, was issued
1,905,145.50 redeemable preferred shares in Cold Flow ULC as a result of the
Company’s acquisition of Peace Oil Corp.  Mr. Fisher is a former Peace
Oil Corp. stockholder and was appointed as a director to our Board on September
6, 2007.  Each redeemable preferred share was exchangeable into two
shares of the Company’s common stock.  On November 6, 2007, Mr. Fisher
exchanged 500,000 redeemable preferred shares of Cold Flow into 1,000,000 shares
of the Company’s common stock.  Upon completing the North Peace
Transaction on June 28, 2007 and repaying CDN$4,000,000 in secured note payable
repayments to Peace Oil stockholders, the Company issued a warrant to purchase
1,000,000 shares to 1304146 Alberta Ltd. at an exercise price per share of
$1.00. The warrant is exercisable in cash or by net issue exercise and has a
term of three years from the date of issuance.  Mr. Fisher’s pro rata
portion of the warrant represents 212,500 shares when exercised.





On June
17, 2008, the Company entered into an agreement with Dale Fisher to purchase
500,000 common stock shares of Surge and 2,810,291 Cold Flow Exchangeable
Preferred shares. The purchase price was paid for the exchange of 142,160 shares
of North Peace Energy shares valued at $1.63 per North Peace share, for a total
cost to the Company of $231,721.





On July
11, 2008, in connection with Mr. Dale Fisher’s resignation from the Company’s
Board of Directors, the Company entered into an agreement to repurchase 500,000
shares of its common stock (valued at $.07 per share for a total cost to the
Company of $35,000) from Mr. Fisher in exchange for 21,472 shares of North Peace
Energy valued at $1.63 per North Peace Energy share.





4)           On
October 6, 2006, we entered into an agreement with Richard Collato, who was a
member of our Board until February 2008, as a consultant to provide business
implementation strategies as well as locate and introduce three prospective
appointees for our Board in exchange for a $6,000 monthly retainer. This
consulting agreement terminated in October 2007. In addition to the monthly
retainer, Mr. Collato earned $150,000 in fiscal 2007 after placing three Board
appointees to the Company’s Board and also as a result of the appointees serving
for twelve months. In addition, Mr. Collato was granted 300,000 options with an
exercise price of $0.001, of which 200,000 options were exercised in January
2007 and he also exercised 133,333 stock option shares at $.50 per
share.





On May
20, 2008, Mr. Collato exercised an option to purchase 100,000 shares at $.001
per share for $100.  Simultaneously, Mr. Collato sold these 100,000
shares and an additional 333,333 shares to Surge at $.07 per share, for a total
cost to the Company of $30,333.





5)          In
April 2007 we paid $25,000, to Granite Financial Group (“Granite”) pursuant to
the terms of a finder’s agreement. Daniel Schreiber, one of our previous
directors, is the President and sole owner of Granite. Granite was also been
retained by us as a financial advisor on a non-exclusive basis to secure up to
$10 million in financing. According to that agreement, Granite was due a 10%
finder's fee for gross amounts received by the Company from sources provided by
Granite up to $10 million. Granite Financial also received fees in conjunction
with the purchase and sale of Pease Oil Corp. of approximately $1.4 million in
2007. The current and proposed Board of Directors reviewed those expenditures
and determined that  those expenditures may have been improper. See
“Item 3” for further details regarding Mr. Schreiber and Granite
Financial.





6)          Mr.
E. Jamie Schloss, our Chief Executive Officer, and Mr. Jeffrey L. Bernstein,
each currently directors of the Company, were both each members of a Schedule
13-D group filing (as defined below) and who were co-plaintiffs in the case
Jeffrey L. Bernstein and E. Jamie Schloss v. Surge Global Energy, Inc., C.A. No.
3411-VCS, in the Court of Chancery of the State of Delaware filed in December,
2007. In that case, Mr. Schloss and Mr. Bernstein were parties adverse to the
Company at that time. However, this case was settled and dismissed.





7)          Mr.
Mark Fritz, a member of the Board, was paid $0  and $39,314 in 2008
and 2007 as interest on a convertible note and (ii) $18,000 and $83,835 in
liquidated damages in 2008 and 2007 respectively pursuant to his registration
rights agreement with the Company.







37





ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





Audit
Fees





The
aggregate fees RBSM LLP (our previous auditors) billed us in each of the last
two fiscal years for professional services it rendered to us for the audit of
our annual financial statements and review of the financial statements included
in our quarterly reports on Form 10-QSB, as well as for services that are
normally provided by RBSM LLP in connection with statutory and regulatory
filings or engagements for those years, was $83,473 in 2008 and $121,111 in
2007.





Our new
auditors, GBH CPAs, PC, billed us $63,000 for professional services it rendered
to us for the review of the financial statements included in our September 30,
2008 Form 10-Q and audit of our 2008 consolidated financial statements included
in this Form 10-K.





Audit-Related
Fees





RBSM LLP
(our previous auditors) billed us $2,875 in 2008 and $59,100 in 2007 for
audit-related services.





Tax
Fees





The
aggregate fees RBSM LLP (our previous auditors) billed us in fiscal year 2008
for professional services rendered for tax compliance, tax advice or tax
planning was $0 and $13,325 in fiscal 2007.





All
Other Fees





RBSM LLP
(our previous auditors) and GBH CPAs, PC (our new auditors) did not provide us,
or bill us for, any products or services in the last two fiscal years, other
than the services performed in connection with the fees reported under the
captions “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above.








Audit
Committee Pre-Approval Policies and Procedures





The Audit
Committee of our Board (the “Audit Committee”) has adopted a policy requiring
that all services provided to us by our independent registered public accounting
firm be pre-approved by the Audit Committee. The policy pre-approves specific
types of services that the independent registered public accounting firm may
provide us if the types of services do not exceed specified cost limits. Any
type of service that is not clearly described in the policy, as well as any type
of described service that would exceed the pre-approved cost limit set forth in
the policy, must be explicitly approved by our Audit Committee prior to any
engagement with respect to that type of service. Our Audit Committee reviews the
pre-approval policy and establishes fee limits annually, and may revise the list
of pre-approved services from time to time.








PART
IV





ITEM
      15.
            EXHIBITS AND
      FINANCIAL STATEMENT SCHEDULES




All
exhibits are filed herewith unless otherwise noted.





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)






38




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 Current 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)




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)






39





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)




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)






40




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)






41




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)




10.60Letter 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)






42




10.69   
Addendum to Employment Agreement dated December 31, 2007 by and between the
Company and William Greene (incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K, filed January 4, 2008)




10.70   
Purchase and Sale Agreement dated March 18, 2008, by and among Surge Global
Energy, Inc.; Oromin Enterprises, Ltd.; Irie Isle Limited; Cynthia Holdings
Ltd.; and Chet Idziszek (incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed March 24, 2008)





10.71   
Stock Option Agreement between the Company and Charles V. Sage dated February
27, 2008 and entered into on or about April 10, 2008




10.72   
Stock Option Agreement between the Company and Barry Nussbaum dated February 27,
2008 and entered into on or about April 10, 2008




10.73   
Stock Option Agreement between the Company and Jeffrey Lewis Bernstein dated
February 27, 2008 and entered into on or about April 10, 2008




10.74   
Stock Option Agreement between the Company and E. Jamie Schloss dated February
27, 2008 and entered into on or about April 10, 2008.





10.75   
Stock Option Agreement between the Company and Kenneth Polin dated March 18,
2008 and entered into on or about April 10, 2008.





10.76   
Employment Agreement for E. Jamie Schloss dated as of June 17, 2008.
(Incorporated by reference to Form 8-K/A - June 17, 2008 - date of earliest
event filed on April 15, 2009)





10.77   
Left blank intentionally.





10.78   
Share Purchase Agreement – Purchase of 1,405,145 CFE Preferred Shares owned by
Fisher Family Trust (Incorporated by reference to the Company’s Form 8-K filed
June 23, 2008 - date of earliest event – June 17, 2008)





10.79   
Share Purchase Agreement – Purchase of 1,905,145 CFE Preferred Shares owned by
Stouthearted Family Trust (Incorporated by reference to the Company’s Form 8-K
filed June 23, 2008  - date of earliest event – June 17,
2008)





10.80   
Share Purchase Agreement – Purchase of 500,000 common shares of the Registrant
from the Fisher Family Trust (Incorporated by reference to the Company’s
Form 8-K filed June 23, 2008  - date of earliest event – June 17,
2008)





10.81   
Share Purchase Agreement – Purchase of 1,905,145 CFE Preferred Shares owned by
Cairns Family Trust. (Incorporated by reference to the Company’s Form 8-K filed
June 23, 2008  - date of earliest event – June 17, 2008)





10.82   
Share Purchase Agreement – Purchase of 806,886 common Shares of the Registrant
from the Liu Family Trust.  (Incorporated by reference to the
Company’s Form 8-K filed June 23, 2008  - date of earliest event –
June 17, 2008)





10.83   
Share Purchase Agreement – Purchase of 1,882,732 common Shares of the Registrant
from the Ma Family Trust. (Incorporated by reference to the Company’s Form 8-K
filed June 23, 2008  - date of earliest event – June 17,
2008)





10.84   
Purchase and Sale Agreement dated June 27, 2008 by and among Cold Flow Energy
ULC., Peace Oil Corp, and CPO Acquisition Corp.  (Incorporated by
reference to the Company’s Form 8-K filed July 2, 2008  - date of
earliest event - June 27, 2008)





10.85   
Complaint filed June 23, 2008 David Perez vs. Surge Global Energy, Inc.
(Incorporated by reference to the Company’s Form 8-K filed July 2, 2008 - date
of earliest event - June 27, 2008)





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   
Left blank intentionally.





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 by Chief Executive Officer and Chief 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 Chief Executive Officer and Chief Financial Officer, required
by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of
Chapter 63 of Title 18 of the United States Code, promulgated pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.







43




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.




Dated:  April
      15, 2009
            SURGE
      GLOBAL ENERGY, INC.By:
            /s/
      E. Jamie SchlossE.
      Jamie Schloss
              Chief
      Executive Officer
              (Principal
      Executive Officer)Dated:  April
      15, 2009By:
            /s/
      E. Jamie SchlossE.
      Jamie Schloss
              Chief
      Financial Officer
              (Principal
      Accounting Officer)





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




SIGNATURE
            
            TITLE
            DATE/s/
      Barry Nussbaum
            
            Chairman
      of the Board and Director
            April
      15, 2009Barry
      Nussbaum/s/
      E. Jamie Schloss
            
            Chief
      Executive Officer, Chief Financial Officer and
            April
      15, 2009E.
      Jamie Schloss
            
            Director/s/
      Jeffrey Bernstein
            
            Director
            April
      15, 2009Jeffrey
      Bernstein/s/Edwin
      Korhonen
            
            Director
            April
      15, 2009Edwin
      Korhonen/s/
      Mark Fritz
            
            Director
            April
      15, 2009Mark
      Fritz/s/
      Charles Sage
            
            Director
            April
      15, 2009Charles
      Sage/s/
      Kenneth D. Polin
            
            Director
            April
      15, 2009Kenneth
      D. Polin




44