Organization, Basis of Presentation and Summary of Significant Accounting Policies

12 Months Ended

Apr. 30, 2012

Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization, Basis of Presentation and Summary of Significant Accounting Policies

Note 1 – Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

Sun River Energy, Inc. is an exploration and production company focused on oil and natural gas. The Company’s strategy is to acquire acreage that allows it to predictably, consistently and profitably prove and develop these reserves. Senior management has demonstrated strength in identifying, acquiring, drilling, developing, producing and ultimately divesting unconventional natural gas resources.

As of April 30, 2012 Sun River owns mineral interests in New Mexico and Texas

		Developed Acres (A)				Undeveloped Acres (A)				Total Acres
Location		Gross		Net		Gross		Net		Gross		Net


New Mexico			0		0		222,855		211,649		222,855		211,649
Texas			2,554		2,239		3,890		3,773		6,445		6,013
Total			2,554		2,239		226,745		215,422		229,300		217,662
(A)	Undeveloped acreage may be contained in acreage that is held by production, or has been unitized with acreage that is currently under production.

Sun River’s largest asset is its undeveloped acreage in the Raton Basin of Colfax County, New Mexico. The Company owns subsurface and timber rights in fee simple. As of April 30, 2012, the total rights approximate 222,855 gross acres.

On July 27, 2012, Sun River Energy, Inc. (the "Company") entered into a Contract for Sale (“Agreement”) with Mericol, Inc. (“Buyer”) to sell only its gold, silver, iron ore, copper and coal interests in Colfax County, New Mexico. The Company will retain all other mineral interests or mineral extracts and timber interests. The Company is also granting Buyer a three (3) year option to acquire a 5% working interest in any oil and/or gas (including coalbed methane) wells drilled on the Company’s lands. The Agreement has an effective date of July 27, 2012 (the “Effective Date”).

Under the terms of the Agreement, Buyer shall pay the Company the Purchase Price consisting of the following: (1) five hundred thousand dollars ($500,000) and (2) two million five hundred sixty four thousand one hundred and three (2,564,103) shares of Buyer’s common stock (the “Shares”), which shall be subject to a lock-up period of twelve (12) months.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). References to GAAP issued by the Financial Accounting Standards Board (“FASB”) in these footnotes are to the FASB Accounting Standards Codification (“ASC”). The consolidated financial statements include the accounts of Sun River Energy, Inc. and its’ wholly owned subsidiaries. Undivided interests in oil and gas joint ventures are consolidated on a proportionate basis. All significant intercompany transactions have been eliminated.

Certain reclassifications have been made to the consolidated financial statements for prior periods in order to conform to the current period presentation.

Going concern considerations

During the years ended April 30, 2012 and 2011, the Company incurred losses of $24,047,000 and $7,328,000, respectively, and has negative working capital of $13,918,000 and $6,492,000 at April 30, 2012 and 2011 respectively. Approximately $10,419,000 of the negative working capital position was comprised of amounts owed to significant stockholders, including Officers of the Company. The Company is attempting to raise capital to resolve the working capital requirements and develop the oil and gas assets. To a limited degree, the Company is evaluating the sale of certain shallow mineral rights. The Company has multiple options available to meet the current financial obligations when due, summarized as follows:

	?	The Company is attempting to settlement of its $4,000,000 note payable - related party obligation with assignment of certain mineral rights that the Company was not anticipating to develop; and/or
	?	Sun River has raised capital in a Preferred Stock offering, and the Company is currently attempting to raise additional equity through the sale of additional common stock and will utilize any proceeds to improve their working capital; and/or

The Company may sell a portion of our mineral rights to improve our working capital, 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. The 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.

Summary of Significant Accounting Policies

Cash and cash equivalents

We consider all highly liquid investment instruments purchased with original maturities of three months or less to be cash equivalents for purposes of the consolidated statements of cash flows and other statements. We maintain cash on deposit, which, at times, exceed federally insured limits. We have not experienced any losses on such accounts and believe we are not exposed to any significant credit risk on cash and equivalents.

Accounts receivable

Accounts receivable are recorded at the invoiced amount, or estimated sales based on production reports for product delivered to buyer, and do not bear any interest. We regularly review receivables to insure that the amounts will be collected and establish or adjust an allowance for uncollectible amounts as necessary using the specific identification method. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. There were no reserves for uncollectible amounts in the periods presented.

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.Costs of oil and gas properties will be amortized using the units of production method.

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.

In applying the full cost method, the Company will perform an impairment test (ceiling test) at each reporting date, whereby the carrying value of full cost pool 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, If capitalized costs of the full-cost pool exceed this limit, the excess is charged as an impairment expense.

During the year 2012, the Company took an impairment charge to their oil and gas properties of $8,300,000. The charge is primarily due to a lack of available investment capital as commodity prices remain low, and low commodity prices.

Stock-based compensation

The Company currently provides for stock-based compensation in three ways. (1) Shares of the Company’s common stock, and stock options and are granted to certain employees under the Company’s Incentive Plan. (2) The issuance of common 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.

The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods. Awards that vest only upon achievement of performance criteria are recorded only when achievement of the performance criteria is considered probable. We estimate the fair value of stock options using the Black-Scholes option pricing model. This model is highly complex and dependent on key estimates by management. The estimates with the greatest degree of subjective judgment are the estimated lives of the stock-based awards, the estimated volatility of our stock price, and the assessment of whether the achievement of performance criteria is probable. The fair value of stock awards is based on the quoted market price on the grant date.

Furniture, fixtures & equipment

Furniture, fixtures & equipment are recorded at cost. Depreciation is on a straight-line method using the estimated lives of the assets (3-15 years). Expenditures for maintenance and repairs are charged to expense.

Goodwill

We utilized multiple market approaches to estimate the fair value of goodwill. In developing these fair value estimates, there was considerable judgment involved, particularly in determining the valuation methodologies to utilize and the weighting of different valuation methodologies applied. Certain key assumptions included the future value of services and assets, market capitalization, implied control premium, income taxes, depreciation and amortization and forecasted operating results.

During the year ended 2012, the Company took an impairment charge for $287,000 to goodwill, primarily due to lower commodity prices generated reduced operational opportunities to generate revenue.

Asset retirement obligations

The asset retirement obligation relates to the plug and abandonment costs when our wells are no longer useful. We determine the value of the liability by obtaining quotes for this service and estimate the increase we will face in the future. When the liability is initially recorded, there is a corresponding increase in the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, either the obligation is settled at its recorded amount or a gain or loss is incurred and recognized. If costs rise more than what we have expected there could be additional charges in the future, however, we monitor the costs of the abandoned wells and we will adjust this liability if necessary.

Revenue recognition

Oil and gas revenues are recognized net of royalties when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collection of the revenue is probable. Cash received relating to future revenues is deferred and recognized when all revenue recognition criteria are met.

Production Costs

Production costs, including compressor rental and repair, pumpers’ salaries, saltwater disposal, ad valorem taxes, insurance, repairs and maintenance, expensed workovers and other operating expenses are expensed as incurred and included in lease operating expense on our consolidated statements of operations.

Exploration expenses include dry hole costs, delay rentals, and geological and geophysical costs.

Lease operating costs / joint-interest billings

All direct costs associated with and necessary to operate a producing property billed at the working interest percentage of each working interest party.

Business combinations

We account for business combinations in accordance with ASC Topic No. 805 (“ASC 805 “), Business Combinations. This statement establishes principles and requirements for how an acquirer recognizes assets acquired, liabilities assumed and any non-controlling interests acquired.

Fair value of financial instruments

Accounting guidance establishes a single authoritative definition of fair value based upon the assumptions market participants would use when pricing an asset or liability and creates a fair value hierarchy that prioritizes the information used to develop those assumptions. Additional disclosures are required, including disclosures of fair value measurements by level within the fair value hierarchy. We incorporate a credit risk assumption into the measurement of certain assets and liabilities.

Management estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates included in the consolidated financial statements are: (1) oil revenues and reserves; (2) depreciation, depletion and amortization; (3) valuation allowances associated with income taxes; (4) accrued assets and liabilities; (5) stock-based compensation; and (6) asset retirement obligations. Although management believes these estimates are reasonable, changes in facts and circumstances or discovery of new information may result in revised estimates. Actual results could differ from those estimates.

Impairment of Long-Lived Assets

All of our long-lived assets are monitored for potential impairment when circumstances indicate that the carrying value of an asset may be greater than its future net cash flows. The evaluations involve a significant amount of judgment since the results are based on estimated future events, such as future sales prices for oil, NGLs and gas, future costs to produce these products, estimates of future oil and gas reserves to be recovered and the timing thereof, the economic and regulatory climates and other factors. The need to test an asset for impairment may result from significant declines in commodity prices or downward revisions to estimated quantities of oil and gas reserves. Any assets held for sale are reviewed for impairment when we approve the plan to sell. Estimates of anticipated sales prices are highly judgmental and subject to material revision in future periods. Because of the uncertainty inherent in these factors, we cannot predict when or if future impairment charges will be recorded.

For April 30, 2012, we recorded an impairment expense of $8.6 million, of which $8.3 million was attributable to our oil and gas properties in Texas.

At April 30, 2012, we had $155,000 recorded for Texas, which is the estimated fair value at April 30, 2012. We also recorded an impairment expense of $287,000, related to all of our remaining carrying costs associated with our goodwill, which was the total carrying value we had recorded.

Earnings per share

The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, “Earnings per Share.”Basic earnings(loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.Diluted earnings(loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect.

Recent accounting standards

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amended guidance changes several aspects of the fair value measurement guidance in ASC 820, Fair Value Measurement, further clarifying how to measure and disclose fair value. This guidance amends the application of the “highest and best use” concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. The fair value disclosure requirements also were amended. The amendment is effective for the Company at the beginning of July 2012, with early adoption prohibited. The adoption of this amendment is not expected to materially affect the Company’s financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income which amended requirements for the presentation of other comprehensive income (OCI), requiring presentation of comprehensive income in either a single, continuous statement of comprehensive income or on separate but consecutive statements, the statement of operations and the statement of OCI. The amendment is effective for the Company at the beginning of fiscal year 2013 with early adoption permitted. The Company elected early adoption of the guidance, which had no impact on our financial statements as we have no elements of comprehensive income other than net loss.

- Definition

The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.

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SUN RIVER ENERGY, INC 10-K/A