The accompanying notes are an integral part of these consolidated financial statements.
Sun River Energy, Inc.
Notes to the Consolidated Financial Statements
October 31, 2011
(Unaudited)
Note 1 – Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization
Sun River Energy, Inc. ("Sun River" or the "Company") is an oil and gas exploration and production company. The Company’s primary focus is on development of unconventional natural gas reserves across a multi-state area. The Company’s strategy is to acquire acreage that allows it to predictably, consistently and profitably prove and develop these reserves.
Sun River owns mineral interests in three major geological areas.
Sun River’s largest acreage is its undeveloped acreage in the Raton Basin of Colfax County, New Mexico. The Company owns subsurface and timber rights in fee simple. The total rights approximate 242,000 gross acres. The overlapping gross acreage is broken out as follows:
171,000 acres of subsurface rights to hydrocarbons (i.e. oil and gas);
178,000 acres of subsurface rights to hard rock minerals, including gold, silver and copper;
154,000 acres of subsurface rights to coal; and
40,400 acres of surface rights to timber.
Sun River also owns 1,663 acres of leasehold mineral interest in Tom Green County, Texas and working interest in two (2) Permian Basin wells. The first well has been completed and is currently producing natural gas and crude oil from the Harkey Sand geological formation.
The Company has developed the right to 690.20 acres in East Texas Basin. This acreage is located in the Carthage Field, Panola County, Texas.
Sun River also owns 663 gross acres, 623 net acres of leasehold mineral interest in Tom Green County, Texas and working interest in two (2) Permian Basin wells. The first well has been completed and is currently producing natural gas and crude oil from the Harkey Sand geological formation.
Operationally, Sun River has conducted extensive geological and geophysical analysis of the Raton Basin in Colfax County, New Mexico and continues to analyze the area. The Company has identified numerous prospect areas based on the analysis to date and by analyzing and comparing our acreage with Shell Oil's activity in the Tucumcari Basin to the South.
Basis of Presentation
The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. Operating results for the three and six months ended October 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2012. These interim financial statements and notes thereto should be read in conjunction with the consolidated financial statements presented in the Company’s April 30, 2011 Annual Report on Form 10-K, and the current year's reports on Forms 10-Q and 8-K. In the opinion of management of the Company, when the interim financial statements and notes are so read, management believes the disclosures are adequate to make the information presented not misleading. For all periods reported, other comprehensive loss equals net loss. Certain reclassifications have been made to the consolidated financial statements for prior periods in order to conform to the current period presentation.
Going Concern
During the three and six months ended October 31, 2011, we have continued to incur losses of $2,868,000 and $5,519,000, respectively, and have negative working capital of $9,207,000 at October 31, 2011.Approximately $6,492,000 of our negative working capital position was comprised of amounts owed to significant stockholders, including Officers of the Company. Subsequent to October 31, 2011, we are attempting to raise capital to resolve our working capital requirements and develop our oil and gas assets. We are, to a limited degree, evaluating the sale of certain shallow mineral rights. The Company has multiple options available to meet our current financial obligations when due, summarized as follows:
| | ● | The Company will evaluate the possibility of settlement of its $4,000,000 note payable - related party obligation with issuance of additional shares to the creditor; or |
| | ● | Sun River has raised capital in a Preferred Stock offering, and the Company is currently raising additional equity through the sale of additional preferred or common stock and will utilize any proceeds to pay this debt if not already settled; or |
| | ● | The Company will evaluate the availability of long term financing to refinance the debt, potentially secured with a portion of our $21,134,000 holdings in oil and gas properties; or |
| | ● | The Company may sell a portion of our oil and gas properties to pay this debt, in addition to other selected current liabilities of the Company which may be due. |
However, there can be no assurance that the Company will be able to execute any or all of the above contemplated transactions, which raises substantial doubt about the Company’s ability to continue as a going concern. Our consolidated financial statements were prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Recent Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance to achieve common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (“IFRS”). The guidance changes the wording used to describe the requirements in GAAP for measuring fair value and disclosures about fair value. The guidance includes clarification of the application of existing fair value measurements and disclosure requirements related to a) the application of highest and best use and valuation premise concepts; b) measuring the fair value of an instrument classified in a reporting entity’s stockholders’ equity; and c) disclosure of quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. Additionally, the guidance changes particular principles or requirements for measuring fair value and disclosing information about fair value measurements related to a) measuring the fair value of financial instruments that are managed within a portfolio; b) application of premiums and discounts in a fair value measurement; and c) additional requirements to expand the disclosures about fair value measurements. The guidance is effective for each reporting entity for interim and annual periods beginning after December 15, 2011. The adoption of this standard is not expected to have any impact on our results of operations, cash flows or financial position.
In September 2011, the FASB issued authoritative guidance intended to simplify how entities, both public and nonpublic, test goodwill for impairment. The guidance permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Accounting Standards Codification (“ASC”) Topic 350 “Intangibles-Goodwill and Other”. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. As this guidance only provides changes in the procedures for testing the impairment of goodwill, the adoption of this standard is not expected to have any impact on our results of operations, cash flows or financial position.
Summary of Significant Accounting Policies
Oil and Gas Properties, Full Cost Method
The Company uses the full cost method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to acquisition, exploration and development activities are capitalized as oil and gas property costs. Properties not subject to amortization consist of exploration and development costs which are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired. The Company assesses the realization of unproved properties, taken as a whole, if any, on at least an annual basis or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed based on 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. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.
Costs of oil and gas properties will be amortized using the units of production method.
In applying the full cost method, the Company will perform an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the “estimated present value,” of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense.
Stock-Based Compensation
The Company currently provides for stock-based compensation in three ways. (1) Stock options are granted to certain employees under the Company’s Incentive Plan. (2) The issuance of restricted stock vested over a period of time. (3) The issuance of warrants to purchase the Company’s common stock, which are primarily granted to certain service providers, including a consultant pursuant to a consulting agreement. Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense on a straight line basis over the requisite service period (vesting period).
Note 2 – Oil and Gas Properties, Leases and Mineral Rights
All of the Company’s oil and gas properties are located in the United States. The Company’s oil and gas properties consist of the following at October 31, 2011 (in thousands):
| Proved Properties | | Acquisition Costs | | | Development Costs | | | Depletion | | | Asset Retirement Costs | | | Total | |
| Balance at April 30, 2011 | | $ | 4,551 | | | $ | 2,944 | | | $ | (61 | ) | | $ | 58 | | | $ | 7,492 | |
| Activity-May 1, 2011 to October 31, 2011 | | | - | | | | 1,218 | | | | (87 | ) | | | 1 | | | | 1,132 | |
| Total | | $ | 4,551 | | | $ | 4,162 | | | $ | (148 | ) | | $ | 59 | | | $ | 8,624 | |
| Unevaluated Properties | | Acquisition Costs | | | Development Costs | | | Impairment of Properties | | | Asset Retirement Costs | | | Total | |
| Balance at April 30, 2011 | | $ | 12,794 | | | $ | - | | | $ | (899 | ) | | $ | - | | | $ | 11,895 | |
| Activity-May 1, 2011 to October 31, 2011 | | | 615 | | | | - | | | | | | | | - | | | | 615 | |
| Total | | $ | 13,409 | | | $ | - | | | $ | (899 | ) | | $ | - | | | $ | 12,510 | |
Note 3 – Notes payable
The Company’s outstanding Notes Payable consisted of the following as of October 31, 2011:
| Notes payable | | | | |
| | | | | | |
| Balance as of April 30, 2011 | | | $ | 88,000 | |
| | | | | | |
| Payments | | | | (6,000 | ) |
| | | | | | |
| Balance as of October 31, 2011 2011 | | | $ | 82,000 | |
| | | | | | |
| Notes payable - related parties | | | | | |
| | | | | | |
| Balance as of April 30, 2011 | | | $ | 5,000,000 | |
| | | | | | |
| Conversion of the FTP note | | | | (1,000,000 | ) |
| | | | | | |
| Proceeds during period | | | | 225,000 | |
| | | | | | |
| Balance as of October 31, 2011 | | | $ | 4,225,000 | |
During the six months ended October 31, 2011, the Company converted the note to FTP for $1,000,000 in principal and $87,000 in accrued interest to 720,000 shares of restricted common stock, as provided for in the note.
The Company was advanced $225,000 by the CE McMillan Trust, a related party, for an Unsecured Commercial Pormissory Note at 10% interest due December 13, 2011, and has been extended by verbal agreement to January 20, 2012.
The Company issued 125,000 shares to Katy for an extension to pay their note till January 20, 2011. 60,000 shares were issued subsequent to October 31, 2011.
During the six months ended October 31, 2011, the Company has made scheduled payments on all debt obligations.
Note 4 – Stockholders’ Equity
Preferred Stock
During the six months ended October 31, 2011, the Company issued 47,450 of 8% series A cumulative convertible preferred stock shares for cash proceeds of $855,000, net of commission. 675,500 shares of preferred stock were converted to 6,755,000 shares of restricted common stock. There were 58,745 shares of restricted common stock issued for dividends payable, in the approximate amount of $270,000, on the preferred stock prior to conversion. Dividends will not be due for any shares not converted after the conversion date.
Common Stock
Issuances of common stock were valued at the fair market value on the date of issuance; the FTP note was converted at a rate prescribed in the note.
Restricted Shares
During the three and six months ended October 31, 2011, the Company issued 315,000 and 414,093 shares, respectively, of its restricted common stock to certain individuals and service providers in return for their services. The fair value of the shares was based on the the closing price on the date of issue, $822,000 and $1,320,000, respectively.
During the six months ended October 31, 2011, the Company issued 41,644 shares of its restricted common stock valued at $135,000 to Directors for services rendered in prior periods. These shares were valued on grant date for an average of $3.25 a share.
Stock-Based Compensation
During the three and six months ended October 31, 2011, the Company recognized expenses of $655,000 and $1,104,000, respectively,associated with the vested options issued in connection with its Incentive Stock Option Plan. The Company issued options on 481,945 shares.
Compensation expense related to stock options and restricted stock awards recognized in operating results (general and administrative expenses) was $1,082,000 and $630,000 for the six months ended October 31, 2011 and 2010, respectively. The stock options were valued using the Black-Scholes model and the restricted stock awards were valued based on the stock price at the date of grant.
During the six months ended October 31, 2011, the Company modified options for 710,000 shares held by three Officers, changing the exercise price to$2.05, which is the closing market price on October 11, 2011. In accordance with ASC 718, the Company is recording incremental fair value as compensation cost over the remaining service period.
The following assumptions were used to value stock options, issued under the Company’s Incentive Stock Plan, calculated using the Black-Scholes options pricing model:
| | | October 31, | |
| | | 2011 | |
| Dividend yield | | 0% | |
| Expected volatility | | 64-159% | |
| Risk-free interest rate | | .3% - 1.28% | |
| Expected life | | 1-3 years | |
| | | | Number of options | | | Weighted average exercise price | | | Weighted average remaining term (in years) | | | Aggregate fair Value | |
| | | | | | | | | | | | | | |
| Outstanding at April 30, 2011 | | | | 3,335,000 | | | $ | 1.99 | | | | 9.7 | | | $ | 5,355,000 | |
| | | | | | | | | | | | | | | | | | |
| Granted | | | | 481,945 | | | | 2.05 | | | | 10.0 | | | | 253,000 | |
| | | | | | | | | | | | | | | | | | |
| Exercised | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | |
| Forfeited or expired | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | |
| Outstanding at October 31, 2011 | | | | 3,816,945 | | | $ | 1.98 | | | | 9.0 | | | $ | 5,608,000 | |
There were no options exercised during the quarter ended October 31, 2011.
Warrants
As of October 31, 2011, warrants to exercise 96,420 shares of preferred stock are outstanding. These warrants were issued during the quarter ended October 31, 2011 to the brokers who participated in the Company’s last preferred offering, and entitle the holder to purchase one share of preferred stock at $20. If the brokers exercise their warrants, the Company would receive approximately $1.9 million. The value of the warrants with a volatility rate of 67% and a weighted average remaining life of 4.5 years have a fair value of approximately $1.9 million. These warrants are accounted for as a cost of capital.
Note 5 – Litigation
We are not a party to any material pending legal or governmental proceedings, other than ordinary routine litigation incidental to our business. While the ultimate outcome and impact of any proceeding cannot be predicted with certainty, our management believes that the resolution of any proceeding will not have a material adverse effect on our financial condition or results of operations.
Note 6 – Subsequent Events
On December 12, 2011, Sun River Energy, Inc. (the “Company”) terminated the consulting agreement between the Company and Cicerone Corporate Development, LLC, one of the Company’s principal shareholders (“Cicerone”). Under the terms of the agreement, Cicerone was to provide consulting services to the Company related to the implementation of corporate strategies, achievement of market listing standards, debt and equity financings, and corporate governance and shareholder matters. The Agreement was supposed to remain in effect until August 1, 2013, and automatically renew for subsequent one year terms, unless either party notifies the other in writing at least ninety (90) days prior to the end of the term. As its consulting fee under the Agreement, Cicerone was entitled to receive, on a monthly basis, the sum of $8,333. The Agreement also provides for confidentiality obligations of Cicerone and a covenant not to engage in shorting transactions in connection with the Company’s Common Stock. The Company will not incur any material early termination penalties in connection with the termination of this agreement.
The Company issued a total of 60,000 shares of restricted common stock to extend the Katy note to January 20, 2012.
The Company issued 100,000 shares to four directors for their services in the current year.
The Company is in ongoing negotiations with CE McMillan Trust on the extension of their note.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY AND FORWARD LOOKING STATEMENTS
In addition to statements of historical fact, this Quarterly Report on Form 10-Q for the quarter ended October 31, 2011 contains forward-looking statements. The presentation of future aspects of Sun River Energy, Inc. (“Sun River,” the “Company” or “issuer”) found in these statements is subject to a number of risks and uncertainties that could cause actual results to differ materially from those reflected in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” or “could” or the negative variations thereof or comparable terminology are intended to identify forward-looking statements.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause the Company’s actual results to be materially different from any future results expressed or implied by the Company in those statements. Important facts that could prevent the Company from achieving any stated goals include, but are not limited to, the following:
Some of these risks might include, but are not limited to, the following:
| | (a) | | volatility or decline of the Company’s stock price; |
| | | | |
| | (b) | | potential fluctuation in quarterly results; |
| | | | |
| | (c) | | failure of the Company to earn revenues or profits; |
| | | | |
| | (d) | | inadequate capital to continue or expand its business, inability to raise additional capital or financing to implement business plans; |
| | | | |
| | (e) | | failure to commercialize its technology or to make sales; |
| | | | |
| | (f) | | rapid and significant changes in markets; |
| | | | |
| | (g) | | litigation with or legal claims and allegations by outside parties; and |
| | | | |
| | (h) | | insufficient revenues to cover operating costs. |
The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the factors described in other documents the Company files, from time to time, with the SEC, including the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K filed by the Company.
Results of Operations
Three Months Ended October 31, 2011 compared to the Three Months Ended October 31, 2010.
Revenue. During the three months ended October 31, 2011, the Company generated revenues due to production of $133,000. The Company had no revenues during the three months ended October 31, 2010, during its development stage.
Operational Expenses. During the three months ended October 31, 2011, operating expenses, which are comprised of depreciation, operating costs and general and administrative expenses, were $2.7 million compared to $1 million during the three months ended October 31, 2010, which represents an increase of $1.7 million, or 170%. This increase is primarily due to increased personnel costs of $578,000, legal fees $215,000, consulting costs of $200,000, advertising $200,000 and travel costs of $170,000. General and administrative expenses include $1.4 million in noncash items.
Interest Expense. The Company recognized interest expense of $342,000 during the three months ended October 31, 2011 compared to $26,000 for the same period in 2010. The increase of $316,000 in interest expense resulted primarily from the average outstanding balance of related party notes payable.
Six Months Ended October 31, 2011 compared to the Six Months Ended October 31, 2010.
Revenue. During the six months ended October 31, 2011, the Company generated revenues due to production of $244,000. The Company had no revenues during the six months ended October 31, 2010, as it was still inits development stage.
Operational Expenses. During the six months ended October 31, 2011, operating expenses, which are comprised of depreciation, operating costs and general and administrative expenses, were $5.3 million compared to $1.9 million during the six months ended October 31, 2010, which represents an increase of $3.4 million, or 180%. This increase is primarily due to increased personnel costs of $1.8 million, legal fees $780,000, advertising $200,000 and travel costs of $296,000, offset by reductions in consulting costs of $393,000. General and administrative expenses include $2.5 million in noncash items, predominately equity issued for services.
Interest Expense. The Company recognized interest expense of $447,000 during the six months ended October 31, 2011 compared to $52,000 for the same period in 2010. The increase of $395,000 in interest expense resulted primarily from the average outstanding balance of related party notes payable.
Liquidity and Capital Resources
As of October 31, 2011, the Company had cash and cash equivalents of $238,000 and a working capital deficit of $9.2 million, compared with $1,489,000 in cash and cash equivalents and a working capital deficit of $6.5 million as of April 30, 2011. The decrease in working capital is primarily due to continued general operations of the Company as we continue to pursue additional capital to expand our current operations, included but not limited to our properties in New Mexico.
Operating Activities.Net cash used in operating activities was $592,000 for the six months ended October 31, 2011. Net cash used was primarily for personnel, travel andlegal costs to raise capital and develop oil and gas assets.
Investing Activities. The net cash used in investing activities was $1,834,000 primarily as the Company continues to develop their oil and gas properties.
Financing Activities. Net cash provided by financing activities of $1,174,000 for the six months ended October 31, 2011 was generated by the Preferred Stock offering $855,000, short term borrowings $225,000, and $100,000 received as the Company begins to raise capital on its current private placement.
Approximately $6,492,000 of our negative working capital position was comprised of amounts owed to significant stockholders, including Officers of the Company. Subsequent to October 31, 2011, we are attempting to raise capital to resolve our working capital requirements and develop our oil and gas assets. We are, to a limited degree, evaluating the sale of certain shallow mineral rights. The Company has multiple options available to meet ourcurrent financial obligations when due, summarized as follows:
| | ● | The Company will evaluate the possibility of settlement of this obligation with issuance of additional shares to the creditor; or |
| | ● | Sun River has raised capital in a Preferred Stock offering, and the Company is currently raising additional equity through the sale of additional preferred or common stock and will utilize any proceeds to pay this debt if not already settled; or |
| | ● | The Company will evaluate the availability of long term financing to refinance the debt, potentially secured with a portion of our $21,134,000 holdings in oil and gas properties; or |
| | ● | The Company may sell a portion of our oil and gas properties to pay this debt, in addition to other selected current liabilities of the Company which may be due. |
However, there can be no assurance that the Company will be able to execute any or all of the above contemplated transactions, which raises substantial doubt about the Company’s ability to continue as a going concern. Our consolidated financial statements were prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Critical Accounting Policies and Estimates
We refer you to the corresponding section in Part II, Item 7 of our Annual Report on Form 10-K for the year ended April 30, 2011 and the notes to the Unaudited Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for a description of critical accounting policies and estimates.
Off Balance Sheet Arrangements
From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations. As of October 31, 2011, the off-balance sheet arrangements and transactions that we had entered into included operating lease agreements, farmout agreements and gas transportation commitments. The required bond for Sun River Operating with the Texas Railroad Commission is secured with the personal guarantees of our CEO and COO. The Company does not believe that these arrangements are reasonably likely to materially affect its liquidity or availability of, or requirements for, capital resources currently or in the future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
The Company’s Chief Executive and Principal Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the Company’s fiscal quarter ended October 31, 2011 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, as appropriate, to allow timely decisions regarding required disclosure. Based on his evaluation, the Chief Executive and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of October 31, 2011.
The Company’s management team continues to evaluate the Company’s disclosure controls and procedures and will implement standard accounting procedures and controls necessary to ensure the effectiveness of its disclosure controls and procedures. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION Item 1. Legal Proceedings.
We are not a party to any material pending legal or governmental proceedings, other than ordinary routine litigation incidental to our business. While the ultimate outcome and impact of any proceeding cannot be predicted with certainty, our management believes that the resolution of any proceeding will not have a material adverse effect on our financial condition or results of operations.
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Company has made the following unregistered sales of its securities from July 31, 2011 through October 31, 2011.
| DATE OF SALE | | TITLE OF SECURITIES | | NO. OF SHARES | | CONSIDERATION | | CLASS OF PURCHASER |
| September 2, 2011 | | Common Stock | | 720,000 | | Note conversion | | Stockholder |
| November 8, 2011 | | Common Stock | | 100,000 | | Director's fees | | Independent directors |
| December 2011 | | Common Stock | | 60,000 | | Extension fee on note | | Stockholder |
Exemption from Registration Claimed
All of the shares described above were issued by us in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 4(2). All of the individuals and/or entities listed above that purchased the unregistered securities were all known to us and our management, through pre-existing business relationships, as long standing business associates, friends, and employees. All purchasers were provided access to all material information, which they requested, and all information necessary to verify such information and were afforded access to our management in connection with their purchases. All purchasers of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging such intent to us. All certificates or agreements representing such securities that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration in any further resale or disposition.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved).
Item 5. Other Information.
None
Item 6. Exhibits.
| | | | | Incorporated by Reference | | | | | |
Exhibit No. | Exhibit Description | | Form | | SEC File | | Exhibit | | Filing Date | | Filed Herewith |
| 3.1(i) | | Articles of Incorporation. | | 10-SB12G | | 000-27485 | | 3.1(i) | | 9/29/1999 | | |
| 3.2 | | Certificate of Designation of 8% Series A Cumulative Convertible Preferred Stock | | 10-Q | | 000-27485 | | 3.2 | | 3/11/2011 | | |
| 4.1 | | Warrants issued to J.H Brech | | 10-Q | | 000-27485 | | 4.1 | | 3/11/2011 | | |
| 4.2 | | Warrant issued to Tom Anderson | | 10-Q | | 000-27485 | | 4.2 | | 3/11/2011 | | |
| 4.3 | | Warrant issued to Redgie Green | | 10-Q | | 000-27485 | | 4.3 | | 3/11/2011 | | |
| 4.4 | | Warrant issued to David Surginer | | 10-Q | | 000-27485 | | 4.4 | | 3/11/2011 | | |
| 4.5 | | Warrant issued to Steven Weathers | | 10-Q | | 000-27485 | | 4.5 | | 3/11/2011 | | |
| 4.6 | | Warrants issued to Cicerone Corporate Development | | 10-Q | | 000-27485 | | 4.6 | | 3/11/2011 | | |
| 4.7 | | Warrant issued to Avalon | | 10-Q | | 000-27485 | | 4.7 | | 3/11/2011 | | |
| 4.8 | | Warrant issued to Aspenwood Capital | | 10-Q | | 000-27485 | | 4.8 | | 3/11/2011 | | |
| 10.1 | | Amended and Restated Consulting Agreement with Cicerone Corporate Development, LLC and incorporated herein by reference. | | 8-K | | 000-27485 | | 10 | | 11/29/2010 | | |
| 10.2 | | Promissory Note dated June 10, 2010 between Sun River Energy, Inc. and J.H. Brech, LLC. and incorporated herein by reference. | | 10-Q | | 000-27485 | | 10 | | 12/20/2010 | | |
| 10.3 | | Promissory Note dated November 1, 2010 between Sun River Energy, Inc. and Cicerone Corporate Development, LLC. and incorporated herein by reference. | | 10-Q | | 000-27485 | | 10 | | 12/20/2010 | | |
| 10.4 | | Employment Agreement dated as of December 22, 2010 with Jay Leaver and incorporated herein by reference. | | 8-K | | 000-27485 | | 10 | | 1/18/2011 | | |
| 10.5 | | Settlement Agreement and Release and Covenant Not to Sue, dated January 10, 2011 and incorporated herein by reference. | | 8-K | | 000-27485 | | 10 | | 1/14/2011 | | |
| 10.6 | | Purchase and sale agreement with Peccary | | 10-Q | | 000-27485 | | 10 | | 3/11/2011 | | |
| 21 | | List of subsidiaries | | 10-Q | | 000-27485 | | 21 | | 3/11/2011 | | |
| 31.1 | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | * |
| 31.2 | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | * |
| 32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | * |
| 32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | * |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, hereunto duly authorized.
| | | | | |
| | SUN RIVER ENERGY, INC. | |
| Date: December 19, 2011 | By: | /s/ JF “Rick” Hoover | |
| | | Name: | JF “Rick” Hoover | |
| | | Title: | CFO (Principal Accounting Officer) | |
