UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10Q
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(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended October 31, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number: 000-27485
SUN RIVER ENERGY, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1491159
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(State of Incorporation) (IRS Employer ID Number)
10200 W. 44th Ave., Suite 210 E., Wheat Ridge, CO 80033
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(Address of principal executive offices)
303-940-2090
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(Registrant's Telephone number)
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 the filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated file, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] (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 Exchange Act). Yes [ ] No [ X]
Indicate the number of share outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of December 15, 2008, there were 15,232,421 shares of the registrant's common
stock issued and outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Balance Sheets - October 31, 2008 and April 30, 2008 F-1
Statements of Operations -
Three and six months ended October 31, 2008 and 2007 and From
October 22, 2002 (Inception) to October 31, 2008 F-2
Statements of Changes in Shareholders' Deficit -
From October 22, 2002 (Inception) to October 31, 2008 F-3
Statements of Cash Flows -
Six months ended October 31, 2008 and 2007 and
From October 22, 2002 (Inception) to October 31, 2008 F-4
Notes to the Financial Statements F-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 1
Item 3. Quantitative and Qualitative Disclosures About Market Risk - Not Applicable
Item 4. Controls and Procedures 4
Item 4T. Controls and Procedures 4
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 5
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 5
Item 3. Defaults Upon Senior Securities - Not Applicable 6
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 6
Item 5. Other Information - Not Applicable 6
Item 6. Exhibits 6
SIGNATURES 7
PART I
ITEM 1. FINANCIAL STATEMENTS
SUN RIVER ENERGY, INC.
(A Development Stage Company)
Balance Sheets
October 31, April 30,
2008 2008
--------------- ---------------
Unaudited Audited
ASSETS:
Current Assets:
Cash $ 157 $ 12,038
Marketable Securities 11,835
--------------- ---------------
Total Current Assets 157 23,873
Fixed Assets, net of depreciation $1,200 - $360 840 960
Other Assets:
Leases 220,000 220,000
Mineral Rights 100,000 100,000
Wells in process and advances 275,973 251,477
--------------- ---------------
Total Other Assets 595,973 571,477
--------------- ---------------
TOTAL ASSETS $ 596,970 $ 596,310
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current Liabilities:
Accounts Payable $ 561,336 $ 551,299
Accrued Interest Payable 56,277 26,313
Notes Payable 826,154 819,554
--------------- ---------------
Total Current Liabilities 1,443,767 1,397,166
Stockholders' Deficit
Preferred stock, $0.0001 par value; 25,000,000 authorized
no shares issued or outstanding - -
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 15,232,421 shares issued and outstanding as of
October 31, 2008 and 15,075,768 shares as of April 30, 2008 1,523 1,508
Additional paid-in capital 2,753,991 2,754,006
Deferred consulting expense - (7,880)
Deficit accumulated during the development stage (3,602,311) (3,548,490)
--------------- ---------------
Total Stockholders' Deficit (846,797) (800,856)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 596,970 $ 596,310
=============== ===============
The accompanying notes are an integral part of these financial statements.
F-1
SUN RIVER ENERGY, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
Three Months ended Six Months ended October 22, 2002
October 31, October 31, (Inception) to
2008 2007 2008 2007 October 31, 2008
------------------------------ ------------------------------ ------------------
REVENUES
Miscellaneous Revenue $ - $ - $ - $ - $ -
-------------- ------------- ------------- ------------- ------------------
EXPENSES
Consulting - 44,600 7,880 234,180 626,966
Accounting & Legal 3,150 1,875 3,150 5,450 273,698
Lease Expenses 1,969 - 4,158 - 685,682
Office Expenses 2,625 17,377 5,029 18,816 78,398
Depreciation 60 60 120 120 360
Bank Charges 39 139 143 323 1,058
-------------- ------------- ------------- ------------- ------------------
Total Operating Expenses 7,843 64,051 20,480 258,889 1,666,162
-------------- ------------- ------------- ------------- ------------------
Net Loss from Operations (7,843) (64,051) (20,480) (258,889) (1,666,162)
-------------- ------------- ------------- ------------- ------------------
Other Income and (Expenses)
Interest income - 26 3 30 768
Interest expense (15,104) (117,334) (30,075) (284,131) (822,221)
Debt Relief - - - - 429,645
Loss on Claim Release - - - - (1,298,603)
Realized (Loss) on sale of assets - - (44,034) (22,997) (245,738)
Unrealized (Loss) on investments - (107,865) 40,765 (112,170) -
-------------- ------------- ------------- ------------- ------------------
Net Loss $ (22,947) $(289,224) $ (53,821) $(678,157) $ (3,602,311)
============== ============= ============= ============= ==================
Per Share Information
Loss per common share $ * $ (0.02) $ * $ (0.04)
============== ============= ============= =============
Weighted average number
of shares outstanding 15,208,583 15,075,768 15,142,175 15,075,768
============== ============= ============= =============
* Less than $(0.01) per share.
The accompanying notes are an integral part of these financial statements
F-2
SUN RIVER ENERGY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
October 31, 2008
Deficit
COMMON STOCK Additional Accum. During Deferred
Paid-in Development Consulting
# of Shares Amount Capital Stage Expense
--------------- -------------- --------------- ---------------- ----------------
Balance - October 22, 2002 - $ - $ - $ -
Stock issued for cash 1,000 1 49 -
Net Loss for Period - - - (50)
---------------------------------------------------------------------------------------------
Balance - December 31, 2002 1,000 1 49 (50)
---------------------------------------------------------------------------------------------
Net Loss for Year - - - -
--------------- -------------- --------------- ---------------- ----------------
Balance - December 31, 2003 1,000 1 49 (50)
--------------- -------------- --------------- ---------------- ----------------
Net Loss for Year - - - -
--------------- -------------- --------------- ---------------- ----------------
Balance - December 31, 2004 1,000 1 49 (50)
--------------- -------------- --------------- ---------------- ----------------
Issuance of shares for Merger 9,033,333 903 436,763 -
Merger accounting 484,500 48 (20,923)
Value of subsidiary in excess
of related party's basis (866,667)
Net Loss for Year - - - (350,050)
--------------- -------------- --------------- ---------------- ----------------
Balance - April 30, 2006 9,518,833 952 (450,778) (350,100)
--------------- -------------- --------------- ---------------- ----------------
Issuance of Stock for Cash 795,000 80 397,420
at $0.50 per share plus
warrant at $0.75
Issuance of Stock for Debt 242,935 24 149,976
at $0.62 per share
Issuance of Stock for Marketable
Securities at $0.50 per share 800,000 80 399,920
Issuance of Stock for Services 309,000 31 154,469
at $0.50 per share
Issuance of Stock for Lease
acquisition 880,000 88 439,912
Issuance of Stock for Cash 2,200,000 220 1,099,780
Net Loss for Year (661,339)
--------------- -------------- --------------- ---------------- ----------------
Balance - April 30, 2007 14,745,768 1,475 2,190,699 (1,011,439)
--------------- -------------- --------------- ---------------- ----------------
Issuance of Stock for Services 310,000 31 468,969
at $1.51 per share
Issuance of Stock for Interest 20,000 2 50,998
at $2.55 per share
Options issued 43,340
Deferred Consulting Expense (7,880)
Net Loss for Year (2,537,051)
--------------- -------------- --------------- ---------------- ----------------
Balance - April 30, 2008 15,075,768 1,508 2,754,006 (3,548,490) (7,880)
--------------- -------------- --------------- ---------------- ----------------
Deferred Consulting Expense 7,880
Exchange Options/Warrants for Stock 156,653 15 (15)
Net Loss for Period (53,821)
--------------- -------------- --------------- ---------------- ----------------
Balance - October 31, 2008 15,232,421 $ 1,523 $2,753,991 $(3,602,311) $ -
=============== ============== =============== ================ ================
The accompanying notes are an integral part of these financial statements
F-3
SUN RIVER ENERGY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
October 31, 2008
(continued)
Total
Stockholders'
Equity
---------------
Balance - October 22, 2002 $ -
Stock issued for cash 50
Net Loss for Period (50)
---------------
Balance - December 31, 2002 -
---------------
Net Loss for Year -
---------------
Balance - December 31, 2003 -
---------------
Net Loss for Year -
---------------
Balance - December 31, 2004 -
---------------
Issuance of shares for Merger 437,666
Merger accounting (20,875)
Value of subsidiary in excess
of related party's basis (866,667)
Net Loss for Year (350,050)
---------------
Balance - April 30, 2006 (799,926)
---------------
Issuance of Stock for Cash 397,500
at $0.50 per share plus
warrant at $0.75
Issuance of Stock for Debt 150,000
at $0.62 per share
Issuance of Stock for Marketable
Securities at $0.50 per share 400,000
Issuance of Stock for Services 154,500
at $0.50 per share
Issuance of Stock for Lease
acquisition 440,000
Issuance of Stock for Cash 1,100,000
Net Loss for Year (661,339)
---------------
Balance - April 30, 2007 1,180,735
---------------
Issuance of Stock for Services 469,000
at $1.51 per share
Issuance of Stock for Interest 51,000
at $2.55 per share
Options issued 43,340
Deferred Consulting Expense (7,880)
Net Loss for Year (2,537,051)
---------------
Balance - April 30, 2008 (800,856)
---------------
Deferred Consulting Expense 7,880
Exchange Options/Warrants for Stock -
Net Loss for Period (53,821)
---------------
Balance - October 31, 2008 $ (846,797)
===============
The accompanying notes are an integral part of these financial statements
F-4
SUN RIVER ENERGY, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months October 22, 2002
Ended October 31, (Inception) to
2008 2007 October 31, 2008
--------------- -------------- -------------------------
Cash Flows from Operating Activities
Net Loss $ (53,821) $ (678,157) $ (3,602,311)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 120 120 360
Unrealized loss on marketable securities (40,765) 210,370 -
Stock and options issued for services and interest - 558,620 602,840
Amortization of consulting stock 7,880 - 115,000
Decrease (Increase) in current assets 52,600 381,882 52,800
(Decrease) increase in accounts payable and accrued expenses 40,001 - 617,614
--------------- -------------- -----------------
Net Cash Used by Operating Activities 6,015 472,835 (2,213,697)
--------------- -------------- -----------------
Cash Flows from Investing Activities
Increase in Fixed Assets - (1,200) (1,200)
Increase in Other Assets (24,496) (722,451) (211,974)
Acquisition - net of cash acquired - - (813,001)
--------------- -------------- -----------------
Net Cash Provided by (Used In) Investing Activities (24,496) (723,651) (1,026,175)
Cash Flows from Financing Activities
Stock issued for cash - 1,100,000 1,444,750
Stock issued for debt/assets - - 990,000
(Payments on) Proceeds from notes payable 6,600 (863,615) 826,154
Merger accounting - - (20,875)
--------------- -------------- -----------------
Total Cash from Financing Activities 6,600 236,385 3,240,029
--------------- -------------- -----------------
Increase (Decrease) in Cash (11,881) (14,431) 157
Cash and Cash Equivalents - Beginning of Period 12,038 17,572 -
--------------- -------------- -----------------
Cash and Cash Equivalents - End of Period $ 157 $ 3,141 $ 157
=============== ============== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expense $ - $ - $ 13,739
=============== ============== =================
Cash paid for income taxes $ - $ - $ -
=============== ============== =================
NON-CASH TRANSACTIONS
Stock issued for debt $ - $ - $ 150,000
Stock issued for marketable securities $ - $ - 400,000
Stock issued for other assets $ - $ - 440,000
Stock issued for services $ - $ - 154,500
--------------- -------------- -----------------
$ - $ - $ 1,144,500
=============== ============== =================
The accompanying notes are an integral part of these financial statements
F-5
SUN RIVER ENERGY, INC.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2008
Note 1 - Organization, Basis of Presentation and Summary of Significant
Accounting Policies:
Organization:
Sun River Energy, Inc. was incorporated on April 30, 1998, as Dynadapt Systems,
Inc., under the laws of the State of Colorado. On April 28, 2006, the Company
entered into an "Agreement and Plan of Reorganization" with Sun River Energy,
Inc. (SRE), a privately held Colorado Corporation, whereby the Company acquired
SRE for the purchase price of 8,633,333 shares of the Company's common stock.
The acquisition of SRE was accounted for by the purchase method of accounting.
Under purchase accounting, the total purchase price was allotted to the tangible
and intangible assets and liabilities of SRE based upon their respective fair
values as of the closing date based upon valuations and other studies. On August
31, 2006, the company voted to change its name from Dynadapt Systems, Inc. to
Sun River Energy, Inc. to better reflect the focus and business purposes of the
Company.
The Company is an independent energy company engaged in the, exploration of
North American unconventional natural gas properties and conventional oil and
gas exploration. Its intended operations are principally energy prospects in the
Rocky Mountain region including a coal bed methane prospect located in the Raton
Basin in Northern New Mexico and the Company is seeking other opportunities.
Basis of Presentation:
Development Stage Company
The Company has not earned any significant revenues from its limited principal
operations. Accordingly, the Company's activities have been accounted for as
those of a "Development Stage Enterprise" as set forth in Financial Accounting
Standards Board Statement No. 7 ("SFAS 7"). Among the disclosures required by
SFAS 7 are that the Company's financial statements be identified as those of a
development stage company, and that the statements of operation, stockholders'
equity (deficit) and cash flows disclose activity since the date of the
Company's inception.
Going Concern
The Company's financial statements for the quarter ended October 31, 2008 have
been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. The Company reported a net loss of $53,821 for the six months ended
October 31, 2008 and an accumulated deficit during the development stage of
$3,602,311 as of October 31, 2008. At October 31, 2008, the Company's total
current liabilities exceed total current assets by $1,443,610.
The Company is in the development stage and has not earned any revenue from
operations. The Company's ability to continue as a going concern is dependent
upon its ability to develop additional sources of capital or locate a merger
candidate and ultimately, achieve profitable operations. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties. Management is seeking new capital to revitalize
the Company.
F-6
Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less and money market instruments to be cash equivalents.
Revenue Recognition
The Company recognizes revenue when it is earned and expenses are recognized
when they occur.
Marketable Securities
On August 17, 2006, in exchange for 800,000 shares of the Company's restricted
common stock, the Company acquired 200,000 shares of the common stock of Tonga
Capital Corporation ("Tonga") from a non-affiliate. At the time of the
acquisition, the Tonga shares had a market value of $400,000 ($0.50 per share).
The 800,000 shares of the Company's stock issued for the shares had a value of
$400,000 ($0.50 per share).
At October 31, 2008, the Company had liquidated all of the remaining 57,400
shares of common stock of Tonga. These securities are no longer carried on the
books of the Company.
Unrealized gains and losses are computed on the basis of specific identification
and are reported as a component of other income (loss), included as a separate
item on the Company's statement of operations. The Company reported an
unrealized gain on marketable securities of $ 40,765 during the six months ended
October 31, 2008 (an unrealized loss of $112,170 for the six months ended
October 31, 2007).
Realized gains, realized losses, and declines in value, judged to be
other-than-temporary, are included in other income (expense). The Company
recognized a loss on the sale of these shares of $ 44,035 during the six months
ended October 31, 2008 (a realized loss of $22,997 for the six months ended
October 31, 2007).
Deferred Consulting Costs
In May 2007, the Company entered into a twelve-month consulting services
agreement with a third party, in which the party agreed to provide investment
banking services. Compensation consisted of 100,000 shares of the Company's
restricted common stock with a market value of approximately $115,000 (based on
a closing market price of $1.15 per share at the date the transaction was
entered into) The deferred cost is being amortized on a straight-line basis as
earned over the twelve-month period from the date of the agreement. During the
year ended April 30, 2008, $107,120 was expensed. During the six months ended
October 31. 2008 the remaining $7,880 was expensed.
F-7
Fair Value of Financial Instruments
The carrying amount of cash, accounts payable and notes payable is considered to
be representative of its fair value because of the short-term nature of this
financial instrument.
Stock-Based Compensation
The Company has adopted the provisions of and accounts for stock-based
compensation in accordance with Statement of Financial Accounting Standards No.
123 - revised 2004 ("SFAS 123R"), "Share-Based Payment", which replaced
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-based Compensation", and supersedes APB Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees". Under the fair value recognition
provisions of this statement, stock-based compensation cost is measured at the
grant date based on the fair value of the award and is recognized as expenses on
a straight-line basis over the requisite service period, which is the vesting
period. The Company elected the modified-prospective method, under which prior
periods are not revised for comparative purposes. The valuation provisions of
SFAS 123R apply to new grants and to grants that were outstanding as of the
effective date and are subsequently modified. All options granted prior to the
adoption of SFAS 123R and outstanding during the periods presented were
fully-vested.
Other Comprehensive Income
The Company has no material components of other comprehensive income (loss), and
accordingly, net loss is equal to comprehensive loss in all periods.
Loss Per Share
SFAS No. 128, Earnings per Share, requires dual presentation of basic and
diluted earnings or loss per share (EPS) with a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between the financial statements and tax basis of assets and liabilities that
will result in taxable of deductive amounts in the future based on enacted laws
and rates applicable to the periods in which the differences are expected to
affect taxable income (loss). Valuation allowance is established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations, or SFAS No. 141R. SFAS No. 141R will change the accounting for
business combinations. Under SFAS No. 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations we engage in will be recorded and
disclosed following existing GAAP until January 1, 2009. We expect SFAS No. 141R
will have an impact on accounting for business combinations once adopted but the
effect is dependent upon acquisitions at that time. We are still assessing the
impact of this pronouncement.
F-8
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements--An Amendment of ARB No. 51, or SFAS No. 160".
SFAS No. 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. We believe that SFAS 160 should not have a material impact on
our financial position or results of operations.
In March 2008, the FASB issued Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities--an amendment of FASB Statement No. 133"
(SFAS 161). The Statement requires companies to provide enhanced disclosures
regarding derivative instruments and hedging activities. It requires companies
to better convey the purpose of derivative use in terms of the risks that such
company is intending to manage. Disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect a company's financial
position, financial performance, and cash flows are required. This Statement
retains the same scope as SFAS No. 133 and is effective for fiscal years and
interim periods beginning after November 15, 2008. The Company does not expect
the adoption of SFAS 161 to have a material effect on its results of operations
and financial condition.
In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3,
"Determination of the Useful Life of Intangible Assets." This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, "Goodwill and Other Intangible Assets." The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under Statement 142 and the period of expected cash flows used
to measure the fair value of the asset under FASB Statement No. 141 (Revised
2007), "Business Combinations," and other U.S. generally accepted accounting
principles (GAAP). This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. The Company does not expect the
adoption of FAS 142-3 to have a material effect on its results of operations and
financial condition.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" (SFAS 162). SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). SFAS 162 will become effective 60 days following the SEC's approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles." The Company does not expect the adoption of SFAS 162 to have a
material effect on its results of operations and financial condition.
In May 2008, the FASB issued FASB Staff Position (FSP) No. APB 14-1 "Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" (FSP APB 14-1). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis and will be adopted by the Company in the first quarter of fiscal 2009.
The Company does not expect the adoption of FSP APB 14-1 to have a material
effect on its results of operations and financial condition.
F-9
Note 2 - Leases and Mineral Rights:
Mineral Rights - New Mexico
The Mineral rights in New Mexico are valued at $100,000, which is based on the
predecessor basis in mineral rights.
In February of 2007 the Company entered into an agreement with Sun River #1 LLC
to drill two wells on acreage controlled by the Company in the Raton Basin area
of New Mexico. Terms of the agreement provide for a carried 25% working interest
in the two wells. As of the date of these financial statements drilling is in
progress.
On September 5, 2008 the Company announced that it had executed a Farmout
Agreement with Myriad Resources, Inc. on approximately 17,000 acres of its
northern New Mexico property. The Farmout will provide a checkerboard pattern on
about 11,000 acres and alternating half-mile wide strips on approximately 3,000
acres. The Farmout contemplates testing through the Pierre Shale and requires
drilling on or before June 1, 2009 with additional wells each 120 days
thereafter.
Note 3 - Notes Payable:
As of October 31, 2008, Notes Payable consisted of the following:
Rate Principal Repay Balance Interest Due Security
---- --------- ----- ------- -------- --- --------
Sharon K. Fowler 4/20/06 6.00% $ 150,000 $119,363 $ 30,637 $ 2,498 9/30/07 Lease
Lender Facilities, LLC 10/8/07 8.75% $ 314,527 - $ 314,527 $ 25,141 10/8/08 None
LPC Investments 1/3/08 7.5% $ 74,600 - $ 74,600 $ 3,071 9/30/08 None
Littman Pension Plan 10/8/07 7.5% $ 123,763 - $ 123,763 $ 9,893 10/8/08 None
M.A. Littman 1/31/08 7.5% $ 175,000 - $ 175,000 $ 10,279 1/31/09 None
MA Littman 12/13/07 7.5% $ 75,000 - $ 75,000 $ 3,378 12/13/08 None
Note Payable - Related Party
On April 10, 2006, the Company issued a 6% secured corporate promissory note for
$600,000, to a shareholder of the Company, Mr. Robert A. Doak, Jr. The
promissory note had an original due date of March 31, 2007. During the year
ended April 30, 2007, the Company made payments of $191,898 on the note. On
April 10, 2007, Mr. Doak agreed to extend the payment of note for 6 months. On
October 8, 2007, Mr. Doak assigned the note and accrued interest to Mr. M.A.
Littman and Lender Facilities, LLC in the amounts of $123,763 and $314,527,
respectively. The new promissory notes have an annual interest rate of 7.5% and
a due date of October 15, 2008.
Note Payable - LPC Investments, LLC
On October 24, 2008, the Company received notice from LPC Investment, LLC
("LPC") of a demand of payment in connection with $74,6000 in unsecured
promissory notes held by LPC. LPC is demanding payment of the outstanding
principal and accrued interest. The promissory note had a due date of September
30, 2008. At this time, the Company has not made payment on the promissory note.
On December 12, 2008, LPC Investmens, LLC (LPC Investments) filed a lawsuit, in
the Jefferson County District Court, against the Company. The lawsuit alleges
a breach of contract against the Company in connection with the payment of a
unsecured, 8.75% promissory note and conversion of 2,200,000 shares of
the Company's common stock into a preferred note. LPC Investment is seeking not
only payment of the unsecured, 8.75% promissory note and accured interest and
attorney fees. At this time, the Company has not filed a response to the
complaint, but intends to defend itself against the claims and come to a
settlement.
F-10
Note 4 -Stockholders' Deficit:
Preferred Stock
At a Special Meeting of the Shareholders of the Company on June 23, 2008, the
shareholders voted to authorized the creation of 25,000,000 shares of Preferred
Stock with a par value of $0.0001, to be issued in such classes or series and
with such rights, designations, privileges and preferences as to be determined
by the Company's Board of Directors at the time of the issuance of any preferred
shares.
Common Stock
During the six months ended October 31, 2008 the Company issued 156,563 shares
of common stock in exchange for 507,500 warrants and options that were
outstanding. This was accounted for as solely a capital transaction between
common stock and additional paid-in capital.
Options
During the six months ended October 31, 2008 and 2007, the Company did not grant
any options.
A summary of stock option activity for the six months ended October 31, 2008 is
presented below:
Weighted Average
Shares Under Weighted Remaining
Option Average Contractual Life Aggregate
Exercise Price Intrinsic Value
Outstanding at April 30, 2008 60,000 $ 1.00 1.93 years $ -
Granted - - - -
Exercised - - - -
Cancelled (60,0000) 1.00 -
Expired - - - -
----------------- ----------- --------------- --------
Outstanding at October 31, 2008 - $ - - $ -
================= =========== =============== ========
F-11
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with our unaudited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements.
The independent registered public accounting firm's report on the Company's
financial statements as of April 30, 2008, and for each of the years in the
two-year period then ended, includes a "going concern" explanatory paragraph
that describes substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to the factors prompting the
explanatory paragraph are discussed below and also in Note 2 to the unaudited
quarterly financial statements.
PLAN OF OPERATIONS
The Company had no revenues during the three months ended October 31, 2008 The
Company has minimal capital and minimal cash.
During the year ended April 30, 2008, the company drilled 3 coal bed methane
wells in the Raton Basin in northern New Mexico, Meyers #1, #2 and #3. All three
wells have shown multiple coal zones, which will be completed to seek methane
gas.
Over the next twelve months, the Company intends to frac the Myers #1 and #2 in
order to test production thereafter. The Company has perforated multiple zones
and intends to frac these zones.
The Company intends to operate all of our prospects in the Raton Basin and hold
working interest of 100% on an 80% NRI on our leases, except that we have a 25%
working interest in the Sun River #1, LLC, a drilling syndication for the Myers
#1 and #2 wells, which was assembled in early 2007.
On September 4, 2008, the Company entered into a Farmout Agreement with a third
party, Myriad Resources Corporation ("Myriad"). As part of the Farmout
Agreement, Myriad has agreed to develop and explore approximately 17,000 acres
of our acreage in the Raton Basin for oil, gas and methane production. If Myriad
drills and completes any wells of commercial production, then per the terms of
the Farmout Agreement, they shall be transferred 100% right, title and interest
in and to the oil and gas produced, subject to a 10% non-convertible overriding
royalty interest reserved by the Company.
The Company will still need substantial additional capital to support our
proposed future operations. The Company has no revenues. The Company has no
committed source for any funds as of the date herein. No representation is made
that any funds will be available when needed. In the event funds cannot be
raised when needed, the Company may not be able to carry out its business plan,
may never achieve sales or royalty income, and could fail in business as a
result of these uncertainties.
1
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended October 31, 2008 compared to
the Three Months Ended October 31, 2007.
During the three months ended October 31, 2008 and 2007, the Company did not
recognize any revenues from its operating activities.
During the three months ended October 31, 2008, operating expenses were $7,843
compared to $64,051 during the three months ended October 31, 2007. The $56,208
decrease in a result of the $44,600 decrease in consulting expenses and a
decrease of $14,752 in office expenses compared to the prior year.
The Company recognized interest expense of $15,104 during the three months ended
October 31, 2008 compared to $117,334 for the same period in 2007.
During the three months ended October 31, 2008, the Company recognized a net
loss of $22,947, compared to a net loss of $289,224 for the comparable three
months in 2007. The decrease of $266,277 was due to the $56,208 decrease in
operating expenses combined with the $102,230 decrease in interest expense
discussed above. There was also an unrealized loss of $107,865 in 2007.
Results of Operations for the Six Months Ended October 31, 2008 compared to the
Six Months Ended October 31, 2007.
During the six months ended October 31, 2008 and 2007, the Company did not
recognize any revenues from its operating activities.
During the six months ended October 31, 2008, operating expenses were $20,480
compared to $258,889 during the six months ended October 31, 2007. The $238,409
decrease in a result of the $189,580 decrease in consulting expenses and a
decrease of $13,787 in office expenses compared to the prior year.
The Company recognized interest expense of $30,075 during the six months ended
October 31, 2008 compared to $284,131 for the same period in 2007.
During the six months ended October 31, 2008, the Company recognized a net loss
of $53,821, compared to a net loss of $678,157 for the comparable six months in
2007. The decrease of $624,336 was due to the $238,409 decrease in operating
expenses combined with the $254,056 decrease in interest expense discussed
above. There was also an unrealized gain of $40,765 for the six months ended
October 31, 2008 opposed to an unrealized loss of $112,170 for the same six
month period in 2007. There was also a realized loss of $44,034 in 2008 compared
to a realized loss of $22,997 in 2007.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended October 31, 2008, the Company received cash of
$6,015 from our operating activities. The Company had cash of $157 at October
31, 2008. The Company used $24,496 in investing activities during the six months
ended October 31, 2008. The Company received funds in the amount of $6,600 from
financing activities during the six months ended October 31, 2008. There were no
expenditures in the financing activity category for the period. During the six
months ended October 31, 2008 the Company had a net decrease in cash of $12,038.
2
During the six months ended October 31, 2007, the Company received cash of
$472,835 from its operating activities. The Company had a cash balance of $3,141
at October 31, 2007. The Company used $723,651 in its investing activities for
the six months ended October 31, 2007. The Company received $1,100,000 from sale
of its common stock and used $863,615 to retire debt as part of its financing
activities.
As of October 31, 2008 the Company had sold the remaining marketable securities
consisting of 57,400 shares of Momentum Biofuels, Inc. These securities were
carried at an estimated fair value of $11,835 at April 30, 2008 based on quoted
market prices. During the three months ended July 31, 2008, the Company sold
57,400 shares and received funds of $8,565, which it used to support operations.
During the three months ended October 31, 2008 the Company issued 156,563 shares
of common stock in exchange for 507,500 warrants and options that were
outstanding. This was accounted for as solely a capital transaction between
common stock and additional paid-in capital.
On October 24, 2008, the Company received notice from LPC Investment, LLC
("LPC") of a demand of payment in connection with $66,600 in unsecured
promissory notes held by LPC. LPC is demanding payment of the outstanding
principal and accrued interest. The promissory note had a due date of September
30, 2008. At this time, the Company has not made payment on the promissory note.
The Company will need to either borrow or make private placements of stock in
order to fund operations. No assurance exists as to the ability to achieve loans
or make private placements of stock.
GOING CONCERN
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
The Company is in the development stage. The Company's ability to continue as a
going concern is dependent upon its ability to develop additional sources of
capital or locate a merger candidate and ultimately, achieve profitable
operations. The accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties. Management is seeking
new capital to revitalize the Company.
ADDITIONAL FINANCING
NEED FOR ADDITIONAL FINANCING
The Company does not have capital sufficient to meet the Company's cash needs,
including the costs of compliance with the continuing reporting requirements of
the Securities Exchange Act of 1934. The Company will have to seek loans or
equity placements to cover such cash needs. In the event the Company is able to
complete a business combination during this period, lack of its existing capital
may be a sufficient impediment to prevent it from accomplishing the goal of
completing a business combination. There is no assurance, however, that without
funds it will ultimately allow the Company to carry out its business.
The Company will need to raise additional funds to conduct any business
activities in the next twelve months.
No commitments to provide additional funds have been made by management or other
stockholders. Accordingly, there can be no assurance that any additional funds
will be available to the Company to allow it to cover its expenses as they may
be incurred.
3
Irrespective of whether the Company's cash assets prove to inadequate to meet
the Company's operational needs, the Company might seek to compensate providers
of services by issuances of stock in lieu of cash.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
ITEM 4. CONTROLS AND PROCEDURES
Disclosures Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is
defined in Rules 13a 15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act, is
recorded, processed, summarized and reported within the time periods required
under the SEC's rules and forms and that the information is gathered and
communicated to our President, as appropriate, to allow for timely decisions
regarding required disclosure.
As required by SEC Rule 15d-15(b), our President carried out an evaluation under
the supervision and with the participation of our management, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period
covered by this report. Based on the foregoing evaluation, our President has
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be included in our periodic
SEC filings and to ensure that information required to be disclosed in our
periodic SEC filings is accumulated and communicated to our management,
including our President, to allow timely decisions regarding required disclosure
as a result of the deficiency in our internal control over financial reporting
discussed below.
ITEM 4T. CONTROLS AND PROCEDURES
Management's Quarterly Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company in accordance with as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our 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. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Our internal control over financial
reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our
assets;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations
of our management and directors; and
4
(iii)provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements.
Management's assessment of the effectiveness of the small business issuer's
internal control over financial reporting is as of the quarter ended October 31,
2008. We believe that internal control over financial reporting is effective. We
have not identified any, current material weaknesses considering the nature and
extent of our current operations and any risks or errors in financial reporting
under current operations.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
This quarterly 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.
There was no change in our internal control over financial reporting that
occurred during the fiscal quarter ended October 31, 2008, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 12, 2008, LPC Investmens, LLC (LPC Investments) filed a lawsuit, in
the Jefferson County District Court, against the Company. The lawsuit alleges
a breach of contract against the Company in connection with the payment of a
unsecured, 8.75% promissory note and conversion of 2,200,000 shares of
the Company's common stock into a preferred note. LPC Investment is seeking not
only payment of the unsecured, 8.75% promissory note and accured interest and
attorney fees. At this time, the Company has not filed a response to the
complaint, but intends to defend itself against the claims and come to a
settlement.
ITEM 2. CHANGES IN SECURITIES
The Company made the following unregistered sales of its securities from August
1, 2008 through October 31, 2008.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
- ----------------- ------------------------- -------------- ------------------------------- ---------------------------------
9/5/2008 Common Stock 156,563 Cancelation of Warrants and Warrant and Option Holders
Options
- ----------------- ------------------------- -------------- ------------------------------- ---------------------------------
Exemption From Registration Claimed
All of the sales by the Company of its unregistered securities were made by the
Company in reliance upon Section 4(2) of the Securities Act of 1933, as amended
(the "1933 Act"). All of the individuals and/or entities listed above that
purchased the unregistered securities were almost all existing shareholders, all
known to the Company and its management, through pre-existing business
relationships, as long standing business associates, 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 management of the Company in connection with their purchases.
5
All purchasers of the unregistered securities acquired such securities for
investment and not with a view toward distribution, acknowledging such intent to
the Company. 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
ITEM 5. OTHER INFORMATION
NONE.
ITEM 6. EXHIBITS
Exhibits. The following is a complete list of exhibits filed as part of this
Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act
Exhibit 32.1 Certification of Principal Executive and Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
6
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SUN RIVER ENERGY, INC.
(Registrant)
Dated: December 15, 2008 By: /s/Wesley F. Whiting
--------------------
Wesley F. Whiting,
President & Chief
Accounting Officer
7