UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION





Washington,
D.C. 20549





FORM
10K





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


For the
fiscal year ended April 30, 2010





Or





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





For
the transition period from _________ to _____________





Commission
file number: 000-27485





SUN RIVER ENERGY,
INC.


(Exact
name of registrant as specified in its charter)





Colorado
              84-1491159State
      or other jurisdiction of
              I.R.S.
      Employerincorporation
      or organization
              Identification
      No.




5950 Berkshire Lane, Suite
1650, Dallas, Texas 75225




(Address
of principal executive offices) (Zip Code)




Registrant's
telephone number, including area code:(214)
739-9191




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





Title of each class
                
                Name of each exchange on which
      registeredCommon
      stock
                
                OTC





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





Common Stock


Title of
each class





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈ No
x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈ No
x





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
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x No
 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T
(ss.  232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such
files). Yes  ̈ No
x





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).





Large
      accelerated filer  ̈
                        Accelerated
      filer
                         ̈Non-accelerated
      filer  ̈
                        Smaller
      reporting company
                        x





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





There
were 23,585,819 shares issued and outstanding of the registrant's Common Stock
as of August 10, 2010.





The
aggregate market value of voting stock held by non-affiliates of the registrant
was approximately $19,937,050, based on the average bid and ask as of August 10,
2010.








SUN
RIVER ENERGY, INC.


2010
ANNUAL REPORT ON FORM 10-K





TABLE
OF CONTENTS


PagePART
      IITEM
      1
                                  Business
                                  
                                  3ITEM
      1 A.
                                  Risk
      Factors
                                  
                                  16ITEM
      1 B.
                                  Unresolved
      Staff Comments
                                  
                                  29ITEM
      2
                                  Properties
                                  
                                  29ITEM
      3
                                  Legal
      Proceedings
                                  
                                  31ITEM
      4
                                  Removed
      and Reserved
                                  
                                  32PART
      IIITEM
      5
                                  Market
      for Registrant's Common Equity, Related Stockholder
Mattersand
      Issuer Purchases of Equity  Securities
                                  
                                  33ITEM
      6
                                  Selected
      Financial Data
                                  
                                  34ITEM
      7
                                  Management's
      Discussion and Analysis of Financial Condition andResults
      of Operations
                                  
                                  35ITEM
      7 A.
                                  Quantitative
      and Qualitative Disclosures About Market Risk
                                  
                                  40ITEM
      8
                                  Financial
      Statements and Supplementary Data
                                  
                                  40ITEM
      9
                                  Changes
      in and Disagreements with Accountants on Accountingand
      Financial Disclosure
                                  
                                  40ITEM
      9 A.
                                  Controls
      and Procedures
                                  
                                  41ITEM
      9 A(T).
                                  Controls
      and Procedures
                                  
                                  41ITEM
      9B
                                  Other
      Information
                                  
                                  42PART
      IIIITEM
      10
                                  Directors,
      Executive Officers, and Corporate Governance
                                  
                                  43ITEM
      11
                                  Executive
      Compensation
                                  
                                  49ITEM
      12
                                  Security
      Ownership of Certain Beneficial Owners and Management andRelated
      Stockholder Matters
                                  
                                  51ITEM
      13
                                  Certain
      Relationships and Related Transactions, and Director
      Independence
                                  
                                  53ITEM
      14
                                  Principal
      Accounting Fees and Services
                                  
                                  55PART
      IVITEM
      15
                                  Exhibits,
      Financial Statement Schedules
                                  
                                  56SIGNATURES
                                  
                                  
                                  57




2


Note
about Forward-Looking Statements





This
Form 10-K contains forward-looking statements, such as statements relating to
our financial condition, results of operations, plans, objectives, future
performance and business operations. These statements relate to expectations
concerning matters that are not historical facts. These forward-looking
statements reflect our current views and expectations based largely upon the
information currently available to us and are subject to inherent risks and
uncertainties. Although we believe our expectations are based on reasonable
assumptions, they are not guarantees of future performance and there are a
number of important factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements. By making
these forward-looking statements, we do not undertake to update them in any
manner except as may be required by our disclosure obligations in filings we
make with the Securities and Exchange Commission under the Federal securities
laws. Our actual results may differ materially from our forward-looking
statements.





PART
I





ITEM 1 — BUSINESS





Sun River
Energy, Inc. ("Sun River" or the "Company") was incorporated under the laws of
the State of Colorado on April 30, 1998 as Dynadapt System, Inc. (“DSI”) to
raise capital for an Internet website related project.  On April 21,
2006, DSI acquired 100% of the issued and outstanding shares (8,633,333) of Sun
River Energy, Inc. in exchange for 8,633,333 shares of the DSI’s common stock,
as part of a Plan and Agreement of Reorganization, dated April 21,
2006.  As a result of the Plan and Agreement of Reorganization, DSI
changed its business operations to focus on the development of the company as an
independent energy company engaged in the exploration of North American
unconventional natural gas properties and conventional oil and gas
exploration.  On August 18, 2006, the DSI changed its name to Sun
River Energy, Inc.





As part
of the acquisition of Sun River, DSI acquired 120,000 acres of a mixture of fee
oil and gas mineral interest, a limited amount of coal bed methane fee interest,
and approximately 34,000 acres oil and gas mineral leasehold.





Business of Sun River Energy,
Inc.





Sun River
is an oil and gas exploration, development and production company engaged in
locating and developing petroleum resources primarily in the Raton Basin in
Colfax County, N.M.  Our principal business strategy has been to
enhance stockholder value by using technologies new to a specific area to
generate and develop high-potential exploitation resources in this
area.  Accordingly, our principal business model has been the
acquisition of oil and gas mineral interests, either directly or indirectly, and
the exploitation and development of those properties. The Company’s past
activities have targeted the Mississippian and Pennsylvanian formations on the
Company’s property in Colfax County, N.M.  As of April 30, 2010, Sun
River held oil and gas mineral interests in 158,960 gross acres (128,357 net
acres) located in New Mexico.  There are no producing wells and three
shut-in wells located on these properties. (Please see Subsequent Material
Events below in this section).




3


Subsequent
Material Events – Company Business





On July
18, 2010, the Company entered into a Securities Purchase Agreement (“Purchase
Agreement”) to acquire 100% of the outstanding stock of PC Operating Texas Inc.
and a Purchase and Sale Agreement (“PSA”) by and between FTP Oil and Gas LP
(seller) and Sun River Energy, Inc. (Buyer) dated June 18, 2010, effective
August 1, 2010, to acquire certain oil and gas mineral interests and well bore
rights from FTP Oil & Gas LP (“FTP”).  Contemporaneously, the
Company entered into employment contracts with Donal R. Schmidt, Jr. and
Thimothy S. Wafford.  The Board of Directors approved all
contracts.  As of August 3, 2010, the Purchase Agreement and the PSA
had closed.  Collectively, the Purchase Agreement, the PSA and the
employments contracts are referred to herein as the “Agreements”.





PC
Operating Texas Inc. – Acquisition





In
accordance with the terms of the Purchase Agreement, the Company authorized and
issued 250,000 shares of its restricted common stock to the two shareholders
(125,000 shares to Mr. Schmidt and 125,000 shares to Mr. Wafford) of PC
Operating in exchange for all of the issued and outstanding common stock of PC
Operating.  Subsequently, on August 3, 2010 the Board of Directors
approved the change of PC Operating’s name to Sun River Operating, Inc. (a Texas
corporation).  Sun River Operating, Inc. is a full service oil &
gas operating company located in Dallas, Texas.  It owns office
equipment, software, furniture and personal property that allow it to conduct
operations in multiple geographic areas.  In addition, it employees a
staff of two attorneys, a CPA, two accountants, a land technician, a geologist
and two petroleum engineers.





FTP
Oil & Gas LP





In
accordance with the terms of the PSA, the Company authorized and issued
1,388,000 shares of its restricted common stock and a convertible note in the
amount of $1,000,000 with a term of one year to FTP in exchange for certain
wells bore rights and oil and gas mineral leases in Tom Green County, Texas, as
described further below.  FTP is a limited partnership owned by
jointly Mr. Schmidt and Mr. Wafford.





The FTP
acquisition included 100% working interest in 2,148 gross acres (1,610 net
acres) in Tom Green County, Texas consisting of four prospects developed by
industry partner Fairchild Petroleum of Midland, Texas.  The leases
are subject to participation agreements requiring all other potential mineral
interest owners to purchase leasehold from the Company at a set price in order
to participate in any drilling activities or otherwise forfeit all rights under
that well.  Two wells were drilled on the acreage in the spring of
2010.





The first
well the Stansberry # 1 was drilled to a total depth of 5,507
feet.  It is completed in the Harkey Sand at between the 4,780 foot
and the 4,784 intervals.  The well has a 1,650 psi shut in tubing
pressure and is awaiting a pipeline connection in conjunction with a gas
marketing agreement.





The
second well the Lora # 1 was drilled to a total depth of 4,807
feet.  The well remains shut in awaiting a completion attempt in the
3,200 foot sands.  This sand is prolific in this area of the Permian
Basin in the nearby Christoval North Field.


4




The
Company owns a 39% working interest and a 29.25% net revenue interest in both
wells and will continue to operate.  Field spacing rules allow for an
additional 51 development wells on the prospect acreage.





Management
Employment Contracts





Messrs.
Schmidt and Wafford are members and managers of FTP Oil & Gas LLC, and were
officers, directors and shareholders of PC Operating Texas Inc, which are
subject of the Purchase Agreement and PSA described above.





Under the
terms of their respective employment contracts and conditioned upon the closing
of the Purchase Agreement and PSA, Mr. Schmidt is employed for a three year term
by the Company as President and CEO and Mr. Wafford is employed for a three year
term as the COO, both effective August 1, 2010.  Additionally,
pursuant to the contracts, Mr. Schmidt was appointed as a director along with
Robert B. Fields.





Contemporaneously
with the employment of Mr. Schmidt and Mr. Wafford as the executive officers of
the company, Jay Leaver resigned as President of the Company, Redgie Green
resigned as Chief Executive Officer (CEO) of the Company and Joe Kelloff
resigned as Chief Operating Officer (COO).  Mr. Leaver and Mr. Kelloff
will remain employed by the Company as a geologist and engineer, respectively,
and both will report to Mr. Wafford.





Additionally,
under the terms for the Agreements, three of the four existing directors have
resigned effective on the date of the next regularly scheduled shareholders
meeting.  Specifically, Mr. Redgie Green, Mr. David Surgnier, and Mr.
Thomas Anderson have tendered their resignations.  It is expected Mr.
Stephen Weathers will be re-nominated for an additional term on the
board.





Operations





During
the past 12 months, the Company was engaged in geological and geophysical
analysis of its Company owned mineral interests in the Raton Basin of Colfax
County, New Mexico.  Sun River commissioned the gathering of
aeromagnetic data and gravitational data.  Based on the data gathered
and analyzed to date, the Company has approved multiple seismic shoots at select
locations.  In addition, the data gathered has allowed us to develop a
geological interpretation of the basement structure of the Raton Basin and
Cimarron Arch areas.  The Company has identified nine prospective play
areas.





Subsequent
Material Event – Operations





Effective
with the acquisition of PC Operating Texas Inc. on August 3, 2010, Sun River
became a bonded operator with the Railroad Commission in the State of Texas and
assumed operations of 2 wells acquired from FTP Oil and Gas LP.  Sun
River is overseeing the connection of the Stansberry # 1 well to the Davis Gas
Gathering pipeline connection.  The Company engineers are in the
process of evaluating the 3,200’ sands in the Lora # 1 well, and expect to
perform the completion work on this well within the next several
weeks.  Additionally, Company field personnel are actively involved in
the due diligence work required prior to acquisitions the Company has identified
and obtained authorization from the Board of Directors to
pursue.


5





Production





Sun River
Energy had no production during FY2010.





Oil
and Gas Reserves





In
December 2008, the SEC issued its final rule, Modernization of Oil and Gas
Reporting, which is effective for reporting 2009 and subsequent year’s reserve
information. In January 2010, the FASB issued its authoritative guidance on
extractive activities for oil and gas to align its requirements with the SEC’s
final rule. We intend to adopt and follow the rules and guidance.





Sun River
Energy did not have any measurable quantities of oil and gas that met the SEC’s
criteria of Proved, Probable or Possible Reserves.





Subsequent
Material Event – Reserves





As a
result of acquisitions of the two wells from FTP, Sun River has oil and gas
reserves in measurable commercial quantities under SEC
criteria.  However, as of this date, the reserves had not reviewed by
an independent engineering firm.  As required under the terms of the
Agreements described above in Material Subsequent Events – Business, the Company
will produce an independent reserve report relating to these wells and
surrounding acreage as soon as practical.





Marketing





Our
ability to market oil and natural gas often depends on factors beyond our
control. The potential effects of governmental regulation and market
factors, including alternative domestic and imported energy sources, available
pipeline capacity, and general market conditions, are not entirely
predictable.





Natural Gas.Natural gas is
generally sold pursuant to individually negotiated gas purchase contracts, which
vary in length from spot market sales of a single day to term agreements
that may extend several years. Customers who purchase natural gas include
marketing affiliates


of the
major oil and gas companies, pipeline companies, natural gas marketing
companies, and a variety of commercial and public authorities, industrial,
and institutional end-users who ultimately consume the gas. Gas purchase
contracts define the terms and conditions unique to each of these sales.
The price received for natural gas sold on the spot market may vary daily,
reflecting changing market conditions. The deliverability and price of
natural gas are subject to both governmental regulation and supply and demand
forces.





The
Company had no natural gas to sell during the year ending April 30,
2010.





Crude Oil.Oil
produced is sold at the prevailing field price to one or more of a number
of unaffiliated purchasers in the area. Generally, purchase contracts for
the sale of oil are cancelable on 30 days’ notice. The price paid by these
purchasers is an established market or “posted” price that is offered to
all producers.


6





The
Company had no oil to sell during the year ending April 30, 2010.





Subsequent
Material Event – Marketing





With
respect to the Stansberry # 1, the Company has entered into a gas marketing
contract to sell natural gas and condensate.





Competition





We
compete with major integrated oil and natural gas companies and independent oil
and natural gas companies in all areas of operation. In particular, we
compete for property acquisitions and for the equipment and labor required to
operate and develop these properties. Most of our competitors have
substantially greater financial and other resources than we have. In addition,
larger competitors may be able to absorb the burden of any changes in
federal, state and local laws and regulations more easily than we can, which
could adversely affect our competitive position. These competitors may be
able to pay more for exploratory prospects and may be able to define,
evaluate, bid for and purchase a greater number of properties and prospects than
we can. Further, our competitors may have technological advantages and may
be able to implement new technologies more rapidly than we can. Our ability to
explore for natural gas and oil prospects and to acquire additional
properties in the future will depend on our ability to conduct operations, to
evaluate and select suitable properties and to consummate transactions in
this highly competitive environment. In addition, most of our competitors have
operated for a much longer time than we have and have demonstrated the
ability to operate through industry cycles.





At
various times we may experience occasional or prolonged shortages or
unavailability of drilling rigs, drill pipe and other material used in oil
and natural gas drilling. Such unavailability could result in increased costs,
delays in timing of anticipated development or cause interests in
undeveloped oil and natural gas leases to lapse.





Regulation





Exploration and Production.The exploration, production and sale of oil and natural gas are subject
to various types of local, state and federal laws and regulations. These
laws and regulations govern a wide range of matters, including the drilling and
spacing of wells, allowable rates of production, restoration of surface
areas, plugging and abandonment of wells and requirements for the operation of
wells. Our operations are also subject to various conservation
requirements. These include the regulation of the size and shape of drilling and
spacing units or proration units and the density of wells that may be
drilled and the unitization or pooling of oil and natural gas properties. In
this regard, some states allow forced pooling or integration of tracts to
facilitate exploration, while other states rely on voluntary pooling of lands
and leases. In addition, state conservation laws establish maximum rates of
production from oil and natural gas wells, generally prohibit the venting or
flaring of natural gas and impose certain requirements regarding the
ratability of production. All of these regulations may adversely affect the rate
at which wells produce oil and natural gas and the number of wells we may
drill. All statements in this report about the number of locations or wells
reflect current laws and regulations.


Laws and
regulations relating to our business frequently change, and future laws and
regulations, including changes to existing laws and regulations, could
adversely affect our business.


7





Environmental Matters.The
discharge of oil, gas or other pollutants into the air, soil or water may give
rise to liabilities to the government and third parties and may require us
to incur costs to remedy discharges. Natural gas, oil or other pollutants,
including salt water brine, may be discharged in many ways, including from
a well or drilling equipment at a drill site, leakage from pipelines or other
gathering and transportation facilities, leakage from storage tanks and
sudden discharges from damage or explosion at natural gas facilities of oil and
natural gas wells. Discharged hydrocarbons may migrate through soil to
water supplies or adjoining property, giving rise to additional
liabilities. A variety of federal and state laws and regulations govern the
environmental aspects of natural gas and oil production, transportation
and processing and may, in addition to other laws, impose liability in the
event of discharges, whether or not accidental, failure to notify the
proper authorities of a discharge, and other noncompliance with those laws.
Compliance with such laws and regulations may increase the cost of oil
and natural gas exploration, development and production, although we do not
anticipate that compliance will have a material adverse effect on
our capital expenditures or earnings. Failure to comply with the
requirements of the applicable laws and regulations could subject us to
substantial civil and/or criminal penalties and to the temporary or
permanent curtailment or cessation of all or a portion of our
operations.





The
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”),
also known as the “superfund law,” imposes liability, regardless of fault
or the legality of the original conduct, on some classes of persons that are
considered to have contributed to the release of a “hazardous substance”
into the environment. These persons include the owner or operator of a disposal
site or sites where the release occurred and companies that dispose or
arrange for disposal of the hazardous substances found at the time. Persons who
are or were responsible for releases of hazardous substances under CERCLA
may be subject to joint and severable liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances
released into the environment. We could be subject to the liability under
CERCLA because our drilling and production activities generate relatively
small amounts of liquid and solid waste that may be subject to
classification as hazardous substances under CERCLA.





The
Resource Conservation and Recovery Act of 1976, as amended (“RCRA”), is the
principal federal statute governing the treatment, storage and disposal of
hazardous wastes. RCRA imposes stringent operating requirements, and liability
for failure to meet such requirements, on a person who is either a
“generator” or “transporter” of hazardous waste or an “owner” or “operator” of a
hazardous waste treatment, storage or disposal facility. At present, RCRA
includes a statutory exemption that allows most oil and natural gas exploration
and production waste to be classified as nonhazardous waste. A similar
exemption is contained in many of the state counterparts to RCRA. As a result,
we are not required to comply with a substantial portion of RCRA’s
requirements because our operations generate minimal quantities of hazardous
wastes. At various times in the past, proposals have been made to amend
RCRA to rescind the exemption that excludes oil and natural gas exploration
and production wastes from regulation as hazardous waste.  Repeal or
modification of the exemption by administrative, legislative or judicial
process, or modification of similar exemptions in applicable state
statutes, would increase the volume of hazardous waste we are required to manage
and dispose of and would cause us to incur increased operating
expenses. Recent legislative and regulatory proposals have focused, among
other topics, on climate change initiatives and the downhole injection
of various fluids and chemicals for reservoir stimulation and similar
purposes. There is a possibility of additional regulation in these and
other environmental areas, and any such regulation could require us to
change the manner in which we operate or to incur increased
operating expenses.


8





There are
numerous state laws and regulations in the states in which we operate that
relate to the environmental aspects of our business. These state laws and
regulations generally relate to requirements to remediate spills of deleterious
substances associated with oil and natural gas activities, the conduct of
salt water disposal operations, and the methods of plugging and abandonment of
oil and natural gas wells that have been unproductive. Numerous state laws
and regulations also relate to air and water quality. We do not believe
that our environmental risks will be materially different from those of
comparable companies in the oil and natural gas industry. We believe our
present activities substantially comply, in all material respects, with existing
environmental laws and regulations. Nevertheless, there can be no assurance
that environmental laws will not result in a curtailment of production or
material increase in the cost of production, development or exploration or
otherwise adversely affect our financial condition and results of
operations.  Even though liability insurance is available to cover
unanticipated consequences of operations, environmental risks generally are not
fully insurable. In addition, because we have acquired and may acquire
interests in properties that have been operated in the past by others, we may
be liable for environmental damage, including historical contamination,
caused by such former operators. Additional liabilities could also arise
from continuing violations or contamination not discovered during our
assessment of the acquired properties.





Marketing and Transportation. Sales of
natural gas are affected by the availability, terms and cost of transportation.
The price and terms for access to pipeline transportation are subject to
extensive federal and state regulation. From 1985 to the present, several
major regulatory changes have been implemented by Congress and the Federal
Energy Regulatory Commission (“FERC”) that affect the economics of natural
gas production, transportation and sales. In addition, FERC is continually
proposing and implementing new rules affecting segments of the natural gas
industry, most notably interstate natural gas transmission companies, that
remain subject to FERC’s jurisdiction. These initiatives may also affect
the intrastate transportation of gas under certain circumstances. The stated
purpose of many of these regulatory changes is to promote competition among
the various sectors of the natural gas industry and these initiatives generally
reflect more light-handed regulation. The ultimate impact of the
complex rules and regulations issued by FERC since 1985 cannot be predicted. We
cannot predict what further action FERC will take on these matters. We do
not believe that we will be affected by any action taken materially differently
than other natural gas producers, gatherers and marketers with which we
compete. Additional proposals and proceedings that might affect the natural
gas industry are frequently made before Congress, FERC and the courts. The
natural gas industry historically has been very heavily regulated; therefore,
there is no assurance that the less stringent regulatory approach recently
pursued by FERC and Congress will continue.





Our sales
of crude oil and condensate are currently not regulated and are made at market
prices. In a number of instances, however, the ability to transport and
sell such products are dependent on pipelines whose rates, terms and conditions
of service are subject to FERC jurisdiction under the Interstate Commerce
Act. However, we do not believe that these regulations affect us any differently
than other crude oil producers.


9





Financial Information About
Geographic Areas





Our
business is generated from within the United States and we have no long-lived
assets located outside the United States.





Governmental Regulations and
Environmental Laws





We are
subject to stringent federal, state, and local laws and regulations governing
the discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations may require the acquisition
of permits before drilling commences, limit or prohibit operations on
environmentally sensitive lands such as wetlands or wilderness areas, result in
capital expenditures to limit or prevent emissions or discharges, and place
restrictions on the management of wastes. Failure to comply with these laws and
regulations may result in the assessment of administrative, civil and criminal
penalties, the imposition of remedial obligations, and the issuance of
injunctive relief. Any changes in environmental laws and regulations that result
in more stringent and costly waste handling, disposal or cleanup requirements
could have a material adverse effect on our operations. While we believe that we
are in substantial compliance with current environmental laws and regulations
and that continued compliance with existing requirements would not materially
affect us, there is no assurance that this trend will continue in the
future.





The
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, also known as “CERCLA” or “Superfund,” and comparable state laws impose
liability without regard to fault or the legality of the original conduct on
certain classes of persons who are considered to be responsible for the release
of a hazardous substance into the environment. Under CERCLA, these “responsible
persons” may be subject to joint and several liability for the costs of cleaning
up the hazardous substances that have been released into the environment, for
damages to natural resources, and for the costs of certain health studies, and
it is not uncommon for neighboring landowners and other third parties to file
claims for personal injury and property damage allegedly caused by the release
of hazardous substances into the environment. We also may incur liability under
the Resource Conservation and Recovery Act (“RCRA”), which imposes requirements
relating to the management and disposal of solid and hazardous wastes. While
there exists an exclusion from the definition of hazardous wastes for “drilling
fluids, produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas or geothermal energy,” in
the course of our operations, we may generate ordinary industrial wastes,
including paint wastes, waste solvents, and waste compressor oils that may be
regulated as hazardous waste.





The
Federal Water Pollution Control Act of 1972, as amended (the “Clean Water Act”),
and analogous state laws impose restrictions and strict controls regarding the
discharge of pollutants, including produced waters and other oil and gas wastes,
into state or federal waters. The discharge of pollutants into regulated waters
is prohibited, except in accordance with the terms of a permit issued by United
States





Environmental
Protection Agency (the “EPA”) or the state. The Clean Water Act provides civil
and criminal penalties for any discharge of oil in harmful quantities and
imposes liabilities for the costs of removing an oil spill.





The Clean
Air Act, as amended (the “CAA”), restricts the emission of air pollutants from
many sources, including oil and gas operations. New facilities may be required
to obtain permits before work can begin, and existing facilities may be required
to incur capital costs in order to remain in compliance. In addition, the EPA
has promulgated more stringent regulations governing emissions of toxic air
pollutants from sources in the oil and gas industry, and these regulations may
increase the costs of compliance for some facilities.


10





In
response to scientific studies suggesting that emissions of certain gases,
commonly referred to as “greenhouse gases” and including carbon dioxide and
methane, may be contributing to the warming of the Earth’s atmosphere, there are
a number of parallel initiatives to restrict or regulate emissions of greenhouse
gases. On June 26, 2009, the United States House of Representatives passed
the “American Clean Energy and Security Act of 2009,” or “ACESA,” which would
establish an economy-wide “cap and trade” program to reduce domestic emissions
of greenhouse gases. ACESA would require a 17 percent reduction in
greenhouse gas emissions from 2005 levels by 2020 and just over an
80 percent reduction of such emissions by 2050. Under this legislation, EPA
would issue a capped and steadily declining number of tradable emissions
allowances to certain major sources of greenhouse gas emissions or suppliers of
carbon-based fuels so that such sources could continue to emit greenhouse gases
into the atmosphere or market such fuels. The market price of these allowances
would be expected to increase significantly over time, thereby encouraging the
use of alternative energy sources or greenhouse gas emission control
technologies by imposing ever-increasing costs on the use of carbon-based fuels,
including natural gas and refined petroleum products. The United States Senate
has begun work on its own legislation for restricting domestic greenhouse gas
emissions and President Obama has indicated his support of legislation to reduce
greenhouse gas emissions through an emission allowance system. At the state
level, more than one-third of the states, either individually or through
multi-state regional initiatives, already have begun implementing legal measures
to reduce emissions of greenhouse gases, primarily through the planned
development of emission inventories or regional greenhouse gas “cap and trade”
programs. These programs operate similarly to the program contemplated by ACESA.
Depending on the particular state or regional program, we could be required to
purchase and surrender emission allowances, either forgreenhouse
gas emissions resulting from our operations (e.g., compressor stations) or from
the combustion of fuels (e.g., natural gas) that we process.





Also, as
a result of the United States Supreme Court’s decision on April 2, 2007 in
Massachusetts, et al.v. EPA, EPA was required to determine whether greenhouse
gas emissions posed an endangerment to human health and the environment and
whether emissions from mobile sources, such as cars and trucks contributed to
that endangerment. On December 7, 2009, the EPA announced its findings that
emissions of greenhouse gases present an endangerment to human health and the
environment because emissions of such gases are, according to the EPA,
contributing to warming of the earth’s atmosphere and causing other climatic
changes and that mobile sources are contributing to such endangerment. These
findings by the EPA allow the agency to proceed with the adoption and
implementation of regulations that would restrict emissions of greenhouse gases
under existing provisions of the federal Clean Air Act. In late
September 2009, EPA proposed two sets of regulations in anticipation of
finalizing its endangerment finding: one to reduce emissions of greenhouse gases
from motor vehicles and the other to control emissions of greenhouse gases from
stationary sources. Although the motor vehicle rules are expected to be adopted
in March 2010, it may take EPA several years to impose regulations limiting
emissions of greenhouse gases from stationary sources. In addition, on
September 22, 2009, the EPA issued a final rule requiring the annual
reporting of greenhouse gas emissions from specified large greenhouse gas
emission sources in the United States, and these sources are expected to include
some of our facilities when EPA amends its reporting rule, probably in 2010. Any
federal greenhouse gas legislation is expected to prevent EPA from regulating
greenhouse gases under existing Clean Air Act regulatory programs to some
extent, but if Congress fails to pass greenhouse gas legislation, the EPA is
expected to continue its announced greenhouse gas regulatory actions under the
Clean Air Act. Any limitation on emissions of greenhouse gases from our
equipment and operations or the requirement that we obtain allowances for such
emissions, could require us to incur significant costs to reduce emissions of
greenhouse gases associated with our operations or acquire allowances at the
prevailing rates in the marketplace.


11





Some have
suggested that one consequence of climate change could be increased severity of
extreme weather, such as increased hurricanes and floods. If such effects were
to occur, our operations could be adversely affected in various ways, including
damages to our facilities from powerful winds or rising waters, or increased
costs for insurance. Another possible consequence of climate change is increased
volatility in seasonal temperatures. The ultimate market for some of our natural
gas is generally improved by periods of colder weather and impaired by periods
of warmer weather, so any changes in climate could affect the market the fuels
that we produce. Despite the use of the term “global warming” as a shorthand for
climate change, some studies indicate that climate change could cause some areas
to experience substantially colder temperatures than their historical averages.
As a result, it is difficult to predict how the market for our fuels would be
affected by increased temperature volatility, although if there is an overall
trend of warmer temperatures, it could have an adverse effect on our
business.





Under the
National Environmental Policy Act (the “NEPA”), a federal agency, in conjunction
with a permit holder, may be required to prepare an environmental assessment or
a detailed environmental impact statement (“EIS”) before issuing a permit that
may significantly affect the quality of the environment. We are currently
working with the U.S. Bureau of Land Management (“BLM”) regarding the
preparation of an EIS in connection with certain proposed exploration and
production operations in the Uinta Basin of Utah. We expect that the EIS will be
approved no earlier than the second half of 2010 and will potentially allow us
to drill approximately 1,500 wells in the development phase. Until the EIS is
completed and issued by the BLM, we will be limited in the number of oil and gas
wells that we can drill in the areas undergoing EIS review. While we do not
expect that the EIS process will result in a significant curtailment in future
oil and gas production from this particular area, we can provide no assurance
regarding the outcome of the EIS process.





Available
Information





We file
annual, quarterly and current reports, proxy statements and other information
electronically with the Securities and Exchange Commission (“SEC”). You may read
and copy any materials we file with the SEC at the SEC’s Public Reference Room
at 100 F. Street, NE, Washington, DC 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an internet site (www.sec.gov) that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC, including our filings.





Our
internet address is www.sunriverenergy.com. We make available free of charge on
or through our internet site our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC.


12





GLOSSARY OF NATURAL GAS AND OIL
TERMS





The
following is a description of the meanings of some of the natural gas and oil
industry terms used in this Annual Report on Form 10-K.





Bbl. One stock tank barrel, or 42
U.S. gallons liquid volume, used in reference to crude oil or other liquid
hydrocarbons.





Bbl/d. One Bbl per
day.





Bcf.
Billion cubic feet of natural gas.





Bcfe. Billion cubic feet
equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of
crude oil, condensate or natural gas liquids.





Btu or British
Thermal Unit. The
quantity of heat required to raise the temperature of one pound of water by one
degree Fahrenheit.





Completion. The installation of
permanent equipment for the production of natural gas or oil, or in the case of
a dry well, the reporting of abandonment to the appropriate agency.





Condensate. A mixture of hydrocarbons
that exists in the gaseous phase at original reservoir temperature and pressure,
but that, when produced, is in the liquid phase at surface pressure and
temperature.





Developed
acreage. The
number of acres that are allocated or assignable to productive wells or wells
capable of production.




Development
well. A well
drilled within the proved area of an oil or gas reservoir to the depth of a
stratigraphic horizon known to be productive.





Dry
well. An
exploratory or development well that proves to be incapable of producing either
oil or gas in sufficient quantities to justify completion as an oil or gas
well.





Exploratory
well. A well
drilled to find a new field or to find a new reservoir in a field previously
found to be productive of oil and gas in another reservoir.





Farm-in or
farm-out. An
agreement under which the owner of a working interest in a natural gas and oil
lease assigns the working interest or a portion of the working interest to
another party who desires to drill on the leased acreage. Generally, the
assignee is required to drill one or more wells in order to earn its interest in
the acreage. The assignor usually retains a royalty or reversionary interest in
the lease. The interest received by an assignee is a “farm-in” while the
interest transferred by the assignor is a “farm-out.”





Field. An
area consisting of either a single reservoir or multiple reservoirs, all grouped
on or related to the same individual geological structural feature and/or
stratigraphic condition.





Gross acres or
gross wells. The total acres or wells, as the case may be, in which a
working interest is owned.


13





Lead. A specific geographic area
which, based on supporting geological, geophysical or other data, is deemed to
have potential for the discovery of commercial hydrocarbons.





MBbls.Thousand barrels of crude
oil or other liquid hydrocarbons.





Mcf. Thousand cubic feet of
natural gas.





Mcfe. Thousand cubic feet
equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of
crude oil, condensate or natural gas liquids.





MMBls. Million barrels of crude oil
or other liquid hydrocarbons.





MMBtu. Million British Thermal
Units.





MMcf.
Million cubic feet of natural gas.





MMcf/d. One MMcf per
day.





MMcfe. Million cubic feet
equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of
crude oil, condensate or natural gas liquids.





Net acres or net
wells. The sum of the fractional working interest owned in gross acres or
wells, as the case may be.





Net feet of
pay. The true vertical thickness of reservoir rock estimated to both
contain hydrocarbons and be capable of contributing to producing
rates.





Present value of
future net revenues or present value of discounted future net cash flows or
present value or PV-10. The pre-tax present value of
estimated future revenues to be generated from the production of proved reserves
calculated in accordance with SEC guidelines, net of estimated production and
future development costs, using average prices during the 12-month period prior
to the ending date of the period covered by the report, determined as an
unweighted arithmetic average of the first-day-of-the-month price for each month
within such period, and costs as of the date of estimation without future
escalation, without giving effect to non-property related expenses such as
general and administrative expenses, debt service and depreciation, depletion
and amortization, and discounted using an annual discount rate of
10%.




Productive
well. A producing well and a well that is found to be mechanically
capable of production.





Prospect. A specific geographic area
which, based on supporting geological, geophysical or other data and also
preliminary economic analysis using reasonably anticipated prices and costs, is
deemed to have potential for the discovery of commercial
hydrocarbons.





Proved
area. The part of
a property to which proved reserves have been specifically
attributed.


14





Proved developed
oil and gas reserves. Proved developed oil and gas reserves are reserves
that can be expected to be recovered: (i) through existing wells with
existing equipment and operating methods or in which the cost of the required
equipment is relatively minor compared to the cost of a new well; and
(ii) through installed extraction equipment and infrastructure operational
at the time of the reserves estimate if the extraction is by means not involving
a well.





Proved oil and
gas reserves.
Proved oil and gas reserves are those quantities of oil and gas, which, by
analysis of geoscience and engineering data, can be estimated with reasonable
certainty to be economically producible—from a given date forward, from known
reservoirs, and under existing economic conditions, operating methods, and
government regulations—prior to the time at which contracts providing the right
to operate expire, unless evidence indicates that renewal is reasonably certain,
regardless of whether deterministic or probabilistic methods are used for the
estimation. The project to extract the hydrocarbons must have commenced or the
operator must be reasonably certain that it will commence the project within a
reasonable time. (i) The area of the reservoir considered as proved
includes: (A) The area identified by drilling and limited by fluid
contacts, if any, and (B) Adjacent undrilled portions of the reservoir that
can, with reasonable certainty, be judged to be continuous with it and to
contain economically producible oil or gas on the basis of available geoscience
and engineering data. (ii) In the absence of data on fluid contacts, proved
quantities in a reservoir are limited by the lowest known hydrocarbons
(LKH) as seen in a well penetration unless geoscience, engineering, or
performance data and reliable technology establishes a lower contact with
reasonable certainty. (iii) Where direct observation from well penetrations
has defined a highest known oil (HKO) elevation and the potential exists
for an associated gas cap, proved oil reserves may be assigned in the
structurally higher portions of the reservoir only if geoscience, engineering,
or performance data and reliable technology establish the higher contact with
reasonable certainty. (iv) Reserves which can be produced economically
through application of improved recovery techniques (including, but not limited
to, fluid injection) are included in the proved classification when:
(A) Successful testing by a pilot project in an area of the reservoir with
properties no more favorable than in the reservoir as a whole, the operation of
an installed program in the reservoir or an analogous reservoir, or other
evidence using reliable technology establishes the reasonable certainty of the
engineering analysis on which the project or program was based; and (B) The
project has been approved for development by all necessary parties and entities,
including governmental entities. (v) Existing economic conditions include
prices and costs at which economic producibility from a reservoir is to be
determined. The price shall be the average price during the 12-month period
prior to the ending date of the period covered by the report, determined as an
unweighted arithmetic average of the first-day-of-the-month price for each month
within such period, unless prices are defined by contractual arrangements,
excluding escalations based upon future conditions.





Proved
properties.
Properties with proved reserves.





Proved
undeveloped reserves. Undeveloped oil and gas
reserves are reserves of any category that are expected to be recovered from new
wells on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion. (i) Reserves on undrilled acreage
shall be limited to those directly offsetting development spacing areas that are
reasonably certain of production when drilled, unless evidence using reliable
technology exists that establishes reasonable certainty of economic
producibility at greater distances. (ii) Undrilled locations can be classified
as having undeveloped reserves only if a development plan has been adopted
indicating that they are scheduled to be drilled within five years, unless the
specific circumstances, justify a longer time. (iii) Under no circumstances
shall estimates for undeveloped reserves be attributable to any acreage for
which an application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual
projects in the same reservoir or an analogous reservoir, as defined in
paragraph (a)(2) of this section, or by other evidence using reliable technology
establishing reasonable certainty.


15





Reservoir. A porous and permeable
underground formation containing a natural accumulation of producible natural
gas and/or oil that is confined by impermeable rock or water barriers and is
individual and separate from other reservoirs.





Service
well. A well drilled or completed for the purpose of supporting
production in an existing field. Specific purposes of service wells include gas
injection, water injection, steam injection, air injection, salt-water disposal,
water supply for injection, observation, or injection for in-situ
combustion.





Standardized
Measure of Discounted Future Net Cash Flows.The discounted future net
cash flows relating to proved reserves based on average prices during the
12-month period prior to the ending date of the period covered by the report,
determined as an unweighted arithmetic average of the first-day-of-the-month
price for each month within such period and period-end costs and statutory tax
rates (adjusted for permanent differences) and a 10-percent annual discount
rate.





Stratigraphic
test well. A
drilling effort, geologically directed, to obtain information pertaining to a
specific geologic condition. Such wells customarily arc drilled without the
intent of being completed for hydrocarbon production. This classification also
includes tests identified as core tests and all types of expendable holes
related to hydrocarbon exploration. Stratigraphic test wells are classified as
(a) “exploratory type,” if not drilled in a proved area, or (b) “development
type,” if drilled in a proved area.





Undeveloped
acreage. Lease
acreage on which wells have not been drilled or completed to a point that would
permit the production of economic quantities of natural gas and oil regardless
of whether such acreage contains proved reserves.





Unproved
properties.
Properties with no proved reserves.





Working
interest. The
operating interest that gives the owner the right to drill, produce and conduct
operating activities on the property and receive a share of
production.





ITEM 1A. Risk
Factors





Described
below are certain risks that we believe are applicable to our business and the
oil and gas industry in which we operate. There may be additional risks that are
not presently material or known. You should carefully consider each of the
following risks and all other information set forth in this Annual Report on
Form 10-K.





If any of
the events described below occur, our business, financial condition, results of
operations, liquidity or access to the capital markets could be materially
adversely affected. In addition, the current global economic environment
intensifies many of these risks.


16





Future economic
conditions in the US and key international markets may materially adversely
impact our operating results.





The US
and other world economies are slowly recovering from a recession which began in
2008 and which has extended into 2010.  Growth has resumed, but is
modest. There are likely to be significant long-term effects resulting from the
recession and credit market crisis, including a future global economic growth
rate that is slower than what was experienced in recent years. In addition, more
volatility may occur before a sustainable, yet lower, growth rate is achieved.
Global economic growth drives demand for energy from all sources, including
fossil fuels. A lower future economic growth rate will result in decreased
demand growth for our crude oil and natural gas production as well as lower
commodity prices, which will reduce our cash flows from operations and our
profitability.





We have incurred
losses and may continue to incur losses in the future.





Historically,
we have generated losses which have not provided any cash flows to provide
working capital for our ongoing overhead, the funding of our exploration and
development of our properties. As such, and in light of the current economic
environment and commodity price levels, we may not be able to successfully
develop any prospects that we have or may acquire in the future without adequate
additional financing.  We may not achieve profitability from
operations in the near future under any circumstances if at all.





During
the years ended April 30, 2010 and 2009, we incurred a net loss of
$2,361,447 and $2,827,376, respectively. As of April 30, 2010, we had an
accumulated deficit of $8,737,313. Our failure to achieve profitability in the
future could adversely affect the trading price of our common stock or our
ability to raise additional capital. Any of these circumstances could have a
material adverse effect on our business, financial condition and results of
operations.





Oil and natural
gas prices are volatile. The extended decline in commodity prices has adversely
affected, and in the future will adversely affect, our financial condition and
results of operations, cash flows, access to the capital markets, and ability to
grow.





Our
financial condition, operating results, and future rate of growth depend upon
the prices that we receive for our oil and natural gas.  Prices may
also affect our future cash flow available for capital expenditures and our
ability to access funds through a credit facility.  In the event we
enter into a borrowing facility, the facility maybe subject to a borrowing base,
which would be determined by our lenders taking into account our estimated
proved reserves and subjected to scheduled periodic redeterminations, as well as
unscheduled discretionary redeterminations, based on pricing models and other
economic assumptions determined by the lenders at such
time.  Declining oil and natural gas prices could adversely affect the
value of our estimated future proved reserves and, in turn, the pricing
assumptions used by lenders to determine a borrowing base.  If
commodity prices remain at current levels or decline in 2010, it will have
similar adverse effects on our reserves and global borrowing base. Further,
because we have elected to use the full-cost accounting method, we must perform
each quarter a “ceiling test” that is affected by declining
prices.  Significant price declines could cause us to take one or more
ceiling test write-downs, which would be reflected as non-cash charges against
current earnings.


17





In
addition, significant or extended price declines may also adversely affect the
amount of oil and natural gas that we can produce economically. A reduction in
production could result in a shortfall in our expected cash flows and require us
to reduce our capital spending or borrow funds to cover any such
shortfall.  Any of these factors could negatively impact our ability
to replace our production and our future rate of growth.  We intend to
fund our 2010 capital expenditures budget from a combination of debt, sale of
equity and/or cash flows generated from operations in anticipation of continuing
current or declining commodity prices.





The
markets for oil and natural gas have been volatile historically and are likely
to remain volatile in the future. Oil spot prices reached historical highs in
July 2008, peaking at more than $145 per barrel, and natural gas spot
prices reached near historical highs in July 2008, peaking at more than $13
per MMBtu. These prices have declined significantly since that time and may
continue to fluctuate widely in the future, either collectively or independent
of one another, in response to a variety of additional factors that are beyond
our control, such as:





•
            changes
      in global supply and demand for natural gas and
  oil;


•
            commodity
      processing, gathering and transportation
  availability;


•
            domestic
      and global political and economic
conditions;


•
            the
      ability of members of the Organization of Petroleum Exporting Countries to
      agree to and maintain oil price and production
  controls;


•
            weather
      conditions, including hurricanes;


•
            technological
      advances affecting energy
consumption;


•
            an
      increase in alternative fuel
sources;


•
            higher
      fuel taxes and other regulatory
actions;


•
            an
      increase in fuel economy;


•
            additional
      domestic and foreign governmental regulations;
  and


•
            the
      price and availability of alternative
fuels.





Lower
natural gas and oil prices may not only decrease our future revenues, but also
may reduce the amount of natural gas and oil that we can produce
economically.  This reduction may result in our having to make
substantial downward adjustments to our estimated proved reserves.





Our
future natural gas production is anticipated to be located in, the Rocky
Mountain Region of the United States and selected areas of the State of
Texas.  Gas prices we may receive may be at a discount to gas prices
in other parts of the country.  Additional factors that can cause
price volatility for crude oil and natural gas within this region
are:





•
            the
      availability of gathering systems with sufficient capacity to handle local
      production;


•
            seasonal
      fluctuations in local demand for
production;


•
            local
      and national gas storage capacity;


•
            interstate
      pipeline capacity; and


•
            the
      availability and cost of gas transportation facilities from the Rocky
      Mountain region.





It is
impossible to predict natural gas and oil price movements with
certainty.  A substantial or extended decline in natural gas and oil
prices would materially and adversely affect our future business, financial
condition, results of operations, liquidity and ability to finance planned
capital expenditures.


18





We may not be
able to maintain adequate cash flow from operations or obtain adequate financing
to grow our operations.





We will
require significant additional capital to fund our anticipated future drilling
activities.  A significant reduction in cash flows from operations or
the availability of credit could materially and adversely affect our ability to
service our indebtedness or achieve our planned growth and operating results. We
have relied in the past primarily on the sale of equity capital, the issuance of
equity, and borrowings or other similar types of transactions to fund working
capital and the acquisition of our prospects and related
leases.  Issuing equity securities to satisfy our financing
requirements could cause substantial dilution to our
stockholders.  Failure to generate operating cash flow or to obtain
additional financing for the development of our properties could result in
substantial dilution of our property interests, or delay or cause indefinite
postponement of further exploration and development of our prospects with the
possible loss of our properties.





During
the fourth quarter of 2008 and continuing through 2010, the severe disruptions
in the credit markets and reductions in global economic activity had significant
adverse impacts on stock markets and oil and gas-related commodity prices, which
contributed to a significant decline in the our stock price and negatively
impacted our liquidity.  We expect our liquidity will continue to be
negatively affected in 2010 by the effects of this activity. In particular, we
face uncertainties relating to our ability to generate sufficient cash flows
from operations to fund the level of capital expenditures required for oil and
gas exploration and production activities beyond our planned recompletion
activities.  Accordingly, an inability to refinance, restructure or
repay convertible notes prior to their maturity on terms acceptable to us may
impair our ability to execute on future growth plans.  Furthermore,
the failure to refinance, restructure or repay such convertible notes or other
debt facilities prior to their maturities may impair our ability to obtain
alternate sources of financing.  Any refinancing, restructuring or
repayment could cause substantial dilution to our stockholders either through
the issuance of additional equity or the sale of assets.





Our
failure to find the financial resources necessary to fund our planned activities
and service our debt and other obligations could materially and adversely affect
our business, financial condition and results of operations.  Should
our obligation to repay indebtedness under our convertible notes be accelerated,
we would be in default, which would require repayment of the outstanding
principal, interest and any other amounts then due.





Pipeline
constraints may limit our ability to sell production and may negatively affect
the price at which we sell our production.





At this
time, future production from our New Mexico mineral interests, would be
transported through a single interstate pipeline.  Any constraints on
the capacity of this pipeline could adversely affect our ability to sell
production and, in certain circumstances, may limit our ability to sell any or
all of our production in a given period.  Pipeline capacity constraint
could also lead to heightened price competition on such pipeline, which would
reduce the price at which we are able to sell the production that does flow. A
reduction in the amount of natural gas that we can sell or the price at which
such natural gas can be sold could have a material adverse effect on our
business, financial condition or results of operations.


19





Future reserve
estimates depend on many assumptions. Any material inaccuracies in these
assumptions could cause the quantity and value of our oil and gas reserves, and
our revenue, profitability, and cash flow, to be materially different from our
estimates.





Estimating
accumulations of gas and oil is complex and inexact because of the numerous
uncertainties inherent in the process.  The process relies on
interpretations of available geological, geophysical, engineering and production
data. The extent, quality and reliability of this technical data can vary. The
process also requires certain economic assumptions, some of which are mandated
by the SEC, such as gas and oil prices, drilling and operating expenses, capital
expenditures, taxes and availability of funds. The accuracy of a reserve
estimate is a function of:





•
            the
      quality and quantity of available
data;


•
            the
      interpretation of that data;


•
            the
      accuracy of various mandated economic assumptions;
  and


•
            the
      judgment of the persons preparing the
estimate.





The most
accurate method of determining proved reserve estimates is based upon a decline
analysis method, which consists of extrapolating future reservoir pressure and
production from historical pressure decline and production data. The accuracy of
the decline analysis method generally increases with the length of the
production history.





Actual
future production, gas and oil prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable gas and oil
reserves most likely will vary from our estimates. Any significant variance
could materially affect the quantities and present value of our reserves. In
addition, we may adjust estimates of proved reserves to reflect production
history, results of exploration and development and prevailing gas and oil
prices. Our reserves may also be susceptible to drainage by operators on
adjacent properties.





It should
not be assumed that the present value of future net cash flows included herein
is the current market value of our estimated proved gas and oil reserves. In
accordance with SEC requirements, we base the estimated discounted future net
cash flows from proved reserves on the unweighted arithmetic average of the
first day of the month commodity prices for the trailing twelve months and
development and production costs on the date of estimate. Actual future prices
and costs may be materially higher or lower than the prices and costs as of the
date of the estimate.





Lower oil
and gas prices and other factors have resulted, and in the future may result, in
ceiling test write-downs and other impairments of our asset carrying
values.





We may be
required to write down the carrying value of our gas and oil properties when gas
and oil prices are low or if there are substantial downward adjustments to the
estimated proved reserves, increases in the estimates of development costs or
deterioration in the exploration results.





We follow
the full cost method of accounting under which capitalized gas and oil property
costs less accumulated depletion and net of deferred income taxes may not exceed
an amount equal to the present value, discounted at 10%, of estimated future net
revenues from proved gas and oil reserves less the future cash outflows
associated with the asset retirement obligations that have been accrued on the
balance sheet plus the cost, or estimated fair value, if lower of unproved
properties and the costs of any property not being amortized.


20





Should
capitalized costs exceed this ceiling, an impairment is recognized. The present
value of estimated future net revenues is computed by applying the twelve month
trailing average first of month prices of gas and oil to estimated future
production of proved gas and oil reserves as of period-end, less estimated
future expenditures to be incurred in developing and producing the proved
reserves assuming the continuation of existing economic conditions. Once an
impairment of gas and oil properties is recognized, it is not reversible at a
later date even if oil or gas prices increase.





The
development of oil and gas properties involves substantial risks that may
materially and adversely affect us.





The
business of exploring for and producing oil and gas involves a substantial risk
of investment loss that even a combination of experience, knowledge and careful
evaluation may not be able to overcome. Drilling oil and gas wells involves the
risk that the wells will be unproductive or that, although productive, the wells
do not produce oil and/or gas in economic quantities. Other hazards, such as
unusual or unexpected geological formations, pressures, fires, blowouts, loss of
circulation of drilling fluids or other conditions may substantially delay or
prevent completion of any well. Adverse weather conditions can also hinder
drilling operations.





A
productive well may become uneconomic in the event water or other deleterious
substances are encountered, which impair or prevent the production of oil and/or
gas from the well. In addition, production from any well may be unmarketable if
it is contaminated with water or other deleterious substances.





If we
experience any one or more of these risks, our business, financial condition and
results of operations could be materially and adversely affected.





Delays
in obtaining drilling permits could have a materially adverse effect on our
ability to develop our properties in a timely manner.





Drilling
permits may be delayed up to 24 months in certain areas of our acreage due to
environmental issues, contest to permits, or new regulations which may be
imposed.





We may have
difficulty managing any growth in our business.





Because
of our small size, growth in accordance with our business plans, if achieved,
will place a significant strain on our financial, technical, operational and
management resources. If we expand our activities and increase the number of
projects we are evaluating or in which we participate, there will be additional
demands on our financial, technical and management resources. The failure to
continue to upgrade our technical, administrative, operating and financial
control systems or the occurrence of unexpected expansion difficulties,
including the recruitment and retention of experienced managers, geoscientists
and engineers, could have a material adverse effect on our business, financial
condition and results of operations and our ability to timely execute our
business plan.


21





Our competitors
may have greater resources which could enable them to pay a higher price for
properties and to better withstand periods of low market prices for
hydrocarbons.





The
petroleum and natural gas industry is intensely competitive, and we compete with
other companies with greater resources. Many of these companies not only explore
for and produce crude petroleum and natural gas but also carry on refining
operations and market petroleum and other products on a regional, national or
worldwide basis. Such companies may be able to pay more for productive petroleum
and natural gas properties and exploratory prospects or define, evaluate, bid
for and purchase a greater number of properties and prospects than our financial
or human resources permit. In addition, such companies may have a greater
ability to continue exploration activities during periods of low hydrocarbon
market prices. Our ability to acquire additional properties and to discover
reserves in the future will be dependent upon our ability to evaluate and select
suitable properties and to consummate transactions in a highly competitive
environment. In addition, we are required to obtain drilling and right of way
permits for our wells, and there is no assurance that such permits will be
available on a timely basis or at all. We do not believe that our competitive
position in the petroleum and natural gas industry is significant.





We may suffer losses or incur
liability for events that we have, or that the operator of a property has,
chosen not to insure against.





Insurance
against every operational risk is not available at economic rates. We may suffer
losses from uninsurable hazards that we have, or the operator thereof has,
chosen not to insure against because of high premium costs or other reasons. We
may become subject to liability for pollution, fire, explosion, blowouts,
cratering and oil spills against which we cannot insure or against which we may
elect not to insure. Such events could result in substantial damage to oil and
gas wells, producing facilities and other property and personal injury. The
payment of any such liabilities may have a material adverse effect on our
business, financial condition and results of operations.





We may incur
losses as a result of title deficiencies in the properties in which we
invest.





If an
examination of the title history of a property that we have purchased reveals a
petroleum and natural gas lease that has been purchased in error from a person
who is not the owner of the mineral interest desired, our interest would be
worthless. In such an instance, the amount paid for such petroleum and natural
gas lease or leases would be lost.





It is our
practice, in acquiring petroleum and natural gas leases, or undivided interests
in petroleum and natural gas leases, not to undergo the expense of retaining
lawyers to examine the title to the mineral interest to be placed under lease or
already placed under lease. Rather, we will rely upon the judgment of petroleum
and natural gas lease brokers or landmen who perform the fieldwork in examining
records in the appropriate governmental office before attempting to acquire a
lease in a specific mineral interest.


If there
are any title defects in the properties in which we hold an interest, we may
suffer a monetary loss, including as a result of performing any necessary
curative work prior to the drilling of a petroleum and natural gas
well.


22





Our ability to
market the oil and gas that we produce is essential to our
business.





Several
factors beyond our control may adversely affect our ability to market the oil
and gas that we discover. These factors include the proximity, capacity and
availability of oil and gas pipelines and processing equipment, market
fluctuations of prices, taxes, royalties, land tenure, allowable production and
environmental protection. The extent of these factors cannot be accurately
predicted, but any one or a combination of these factors may result in our
inability to sell our oil and gas at prices that would result in an adequate
return on our invested capital. For example, we currently distribute the gas
that we produce through a single pipeline. If this pipeline were to become
unavailable, we would incur additional costs to secure a substitute facility in
order to deliver the gas that we produce. In addition, although we currently
have access to firm transportation for the majority of our current gas
production, there is no assurance that we will be able to procure additional
transportation on terms satisfactory to us, or at all, if we increase our
production through our drilling program or acquisitions.





Environmental
costs and liabilities and changing environmental regulation could materially
affect our cash flow.





Our
operations are subject to stringent federal, state and local laws and
regulations relating to environmental protection. These laws and regulations may
require the acquisition of permits or other governmental approvals, limit or
prohibit our operations on environmentally sensitive lands, and place burdensome
restrictions on the management and disposal of wastes. Failure to comply with
these laws may result in the assessment of administrative, civil and criminal
penalties, the imposition of remedial obligations, and the issuance of
injunctions that may delay or prevent our operations. Any stringent changes to
these environmental laws and regulations may result in increased costs to us
with respect to the disposal of wastes, the performance of remedial activities,
and the incurrence of capital expenditures. Please read “Item 1
—Business—Governmental Regulations and Environmental Laws” above.





Our operations
may incur substantial liabilities to comply with climate change legislation and
regulatory initiatives.





Recent
scientific studies have suggested that emissions of certain gases, commonly
referred to as “greenhouse gases” and including carbon dioxide and methane, may
be contributing to warming of the Earth’s atmosphere. In response to such
studies, the U.S. Congress is considering legislation to reduce emissions of
greenhouse gases and more than one-third of the states, either individually or
through multi-state initiatives, already have begun implementing legal measures
to reduce emissions of greenhouse gases. Also, the U.S. Supreme Court’s holding
in its 2007 decision, Massachusetts, et al. v. EPA, that carbon dioxide may be
regulated as an “air pollutant” under the federal Clean Air Act could result in
future regulation of greenhouse gas emissions from stationary sources, even if
Congress does not adopt new legislation specifically addressing emissions of
greenhouse gases. In July 2008, EPA released an “Advance Notice of Proposed
Rulemaking” regarding possible future regulation of greenhouse gas emissions
under the Clean Air Act. Although the notice did not propose any specific, new
regulatory requirements for greenhouse gases, it indicates that federal
regulation of greenhouse gas emissions could occur in the near future. Although
it is not possible at this time to predict how legislation or new regulations
that may be adopted to address greenhouse gas emissions would impact our
business, any such future laws and regulations could result in increased
compliance costs or additional operating restrictions, and could have a material
adverse effect on our business or demand for the natural gas we expect to
produce.


23





We are subject to
complex governmental regulations which may adversely affect the cost of our
business.





Petroleum
and natural gas exploration, development and production are subject to various
types of regulation by local, state and federal agencies. We may be required to
make large expenditures to comply with these regulatory requirements.
Legislation affecting the petroleum and natural gas industry is under constant
review for amendment and expansion. Also, numerous departments and agencies,
both federal and state, are authorized by statute to issue and have issued rules
and regulations binding on the petroleum and natural gas industry and its
individual members, some of which carry substantial penalties for failure to
comply. Any increases in the regulatory burden on the petroleum and natural gas
industry created by new legislation would increase our cost of doing business
and adversely affect our profitability.





Because our
reserves and production maybe concentrated in a small number of properties,
production problems or significant changes in reserve estimates related to any
property could have a material impact on our business.





In the
future, we could experience a significant decline in our production, which could
have a material adverse effect on our cash flows, financial condition and
results of operations. In addition, if the actual reserves associated with any
one of our properties are less than estimated, our overall reserve estimates
could be materially and adversely affected.





Our operations
may be interrupted by severe weather or drilling
restrictions.





Our
operations are conducted in the Rocky Mountain region of the United States. The
weather in this area can be extreme and can cause interruption in our
exploration and production operations. Severe weather can result in damage to
our facilities entailing longer operational interruptions and significant
capital investment. Additionally, our operations are subject to disruption from
winter storms and severe cold, which can limit operations involving fluids and
impair access to our facilities.





Shortages of
supplies, equipment and personnel may adversely affect our
operations.





The
natural gas and oil industry is cyclical and, from time to time, there are
shortages of drilling rigs, equipment, supplies or qualified personnel. During
these periods, the costs of rigs, equipment and supplies may be substantially
increased and their availability may be limited. In addition, the demand for,
and wage rates of, qualified personnel, including drilling rig crews, may rise
as the number of rigs in service increases. If drilling rigs, equipment,
supplies or qualified personnel are unavailable to us due to excessive costs or
demand or otherwise, our ability to execute our exploration and development
plans could be materially and adversely affected and, as a result, our business,
financial condition and results of operations could be materially and adversely
affected.





Hedging our
production may result in losses.





In order
to manage our exposure to price volatility in marketing our oil and natural gas,
we may enter into oil and natural gas price risk management arrangements for a
portion of our expected production.


24


Economically
hedging the commodity price may limit the prices we actually realize and
therefore reduce oil and natural gas revenues in the future.  In
addition, commodity price risk management transactions may expose us to the risk
of financial loss in certain circumstances, including instances in
which:


•
            reduction
      is less than expected;


•
            the
      counterparty to the contract defaults on its obligations;
    or


•
            there
      is a change in the expected differential between the underlying price in
      the hedging agreement and actual prices
  received.





In
addition, economic hedging may limit the benefit we would otherwise receive from
increases in the prices of oil and gas.





Our success
depends on our key management personnel, the loss of any of whom could disrupt
our business.





The
success of our operations and activities is dependent to a significant extent on
the efforts and abilities of our management. The loss of services of any of our
key managers — including Mr. Schmidt, our President and Chief Financial Officer
and Mr. Wafford, our Chief Operating Officer — could have a material
adverse effect on our business, financial condition and results of
operations.  At this time, we have obtained “key man” insurance
through Sun River Operating, Inc. for Mr. Schmidt and Mr.
Wafford.  This coverage may not exist in the future based upon
insurance markets and/or the health of Mr. Schmidt or Mr. Wafford and/or our
ability to funds such coverage.





Our directors are
engaged in other businesses which may result in conflicts of
interest.





Certain
of our directors also serve as directors of other companies or have significant
shareholdings in other companies operating in the oil and gas
industry.





To the
extent that such other companies participate in ventures in which we may
participate, or compete for prospects or financial resources with it, these
officers and directors will have a conflict of interest in negotiating and
concluding terms relating to the extent of such participation. In the event that
such a conflict of interest arises at a meeting of the board of directors, a
director who has such a conflict must disclose the nature and extent of his
interest to the board of directors and abstain from voting for or against the
approval of such participation or such terms.





In
accordance with the laws of the State of Colorado, our directors are required to
act honestly and in good faith with a view to our best interests. In determining
whether or not we will participate in a particular program and the interest
therein to be acquired by it, the directors will primarily consider the degree
of risk to which we may be exposed and our financial position at that
time.


25





Certain U.S.
federal income tax deductions currently available with respect to oil and gas
exploration and development may be eliminated as a result of future
legislation.





President
Obama’s Proposed Fiscal Year 2011 Budget includes proposed legislation that
would, if enacted into law, make significant changes to United States tax laws,
including the elimination of certain key U.S. federal income tax incentives
currently available to oil and natural gas exploration and production companies.
These changes include, but are not limited to, (i) the repeal of the percentage
depletion allowance for oil and natural gas properties, (ii) the elimination of
current deductions for intangible drilling and development costs, (iii) the
elimination of the deduction for certain domestic production activities, and
(iv) an extension of the amortization period for certain geological and
geophysical expenditures.  It is unclear whether any such changes will
be enacted or how soon any such changes could become effective.  The
passage of any legislation as a result of these proposals or any other similar
changes in U.S. federal income tax laws could eliminate certain tax deductions
that are currently available with respect to oil and gas exploration and
development, and any such change could negatively affect our financial condition
and results of operations.





The adoption of
climate change legislation by Congress could result in increased operating costs
and reduced demand for the oil and natural gas we produce.





On
December 15, 2009, the EPA officially published its findings that emissions of
carbon dioxide, methane and other “greenhouse gases” present an endangerment to
human health and the environment because emissions of such gases are, according
to the EPA, contributing to warming of the earth’s atmosphere and other climatic
changes. These findings by the EPA allow the agency to proceed with the adoption
and implementation of regulations that would restrict emissions of greenhouse
gases under existing provisions of the federal Clean Air Act. In late
September 2009, the EPA had proposed two sets of regulations in
anticipation of finalizing its findings that would require a reduction in
emissions of greenhouse gases from motor vehicles and that could also lead to
the imposition of greenhouse gas emission limitations in Clean Air Act permits
for certain stationary sources. In addition, on September 22, 2009, the EPA
issued a final rule requiring the reporting of greenhouse gas emissions from
specified large greenhouse gas emission sources in the United States beginning
in 2011 for emissions occurring in 2010. The adoption and implementation of any
regulations imposing reporting obligations on, or limiting emissions of
greenhouse gases from, our equipment and operations could require us to incur
costs to reduce emissions of greenhouse gases associated with our operations or
could adversely affect demand for the oil, natural gas and NGLs that we
produce.





Also, on
June 26, 2009, the U.S. House of Representatives passed the “American Clean
Energy and Security Act of 2009,” or “ACESA,” which would establish an
economy-wide cap-and-trade program to reduce U.S. emissions of greenhouse gases,
including carbon dioxide and methane. ACESA would require a 17 percent reduction
in greenhouse gas emissions from 2005 levels by 2020 and just over an 80 percent
reduction of such emissions by 2050. Under this legislation, the EPA would issue
a capped and steadily declining number of tradable emissions allowances to
certain major sources of greenhouse gas emissions so that such sources could
continue to emit greenhouse gases into the atmosphere. These allowances would be
expected to escalate significantly in cost over time. The net effect of ACESA
will be to impose increasing costs on the combustion of carbon-based fuels such
as oil, refined petroleum products, and natural gas. The U.S. Senate has begun
work on its own legislation for restricting domestic greenhouse gas emissions
and the Obama Administration has indicated its support of legislation to reduce
greenhouse gas emissions through an emission allowance system.





Although
it is not possible at this time to predict when the Senate may act on climate
change legislation or how any bill passed by the Senate would be reconciled with
ACESA, any future federal laws or implementing regulations that may be adopted
to address greenhouse gas emissions could require us to incur increased
operating costs and could adversely affect demand for the oil, natural gas and
NGLs that we produce.


26





Even if
such legislation is not adopted at the national level, more than one-third of
the states, either individually or as part of regional initiatives, have begun
taking actions to control and/or reduce emissions of greenhouse gases, as have a
number of local governments. Although most of the regional and state-level
initiatives have to date been focused on large sources of greenhouse gas
emissions, such as coal-fired electric power plants, smaller sources of
emissions could become subject to greenhouse gas emission limitations, allowance
purchase requirements or other restrictions or costs. Any one of these climate
change regulatory and legislative initiatives could have a material adverse
effect on our business, financial condition and results of
operations.





Finally,
it should be noted that some scientists have concluded that increasing
concentrations of greenhouse gases in the Earth’s atmosphere may produce climate
changes that have significant physical effects, such as increased frequency and
severity of storms, droughts, and floods and other climatic events; if any such
effects were to occur, they could have an adverse effect on our assets and
operations.





The adoption of
derivatives legislation by Congress could have an adverse impact on our ability
to hedge risks associated with our business.





Congress
currently is considering broad financial regulatory reform legislation that
among other things would impose comprehensive regulation on the over-the-counter
(OTC) derivatives marketplace and could affect the use of derivatives in
hedging transactions. The financial regulatory reform bill adopted by the House
of Representatives on December 11, 2009, would subject swap dealers and
“major swap participants” to substantial supervision and regulation, including
capital standards, margin requirements, business conduct standards, and
recordkeeping and reporting requirements. It also would require central clearing
for transactions entered into between swap dealers or major swap participants.
For these purposes, a major swap participant generally would be someone other
than a dealer who maintains a “substantial” net position in outstanding swaps,
excluding swaps used for commercial hedging or for reducing or mitigating
commercial risk, or whose positions create substantial net counterparty exposure
that could have serious adverse effects on the financial stability of the U.S.
banking system or financial markets. The House-passed bill also would provide
the Commodity Futures Trading Commission (CFTC) with express authority to
impose position limits for OTC derivatives related to energy commodities.
Separately, in late January, 2010, the CFTC proposed regulations that would
impose speculative position limits for certain futures and option contracts in
natural gas, crude oil, heating oil, and gasoline. These proposed regulations
would make an exemption available for certain bona fide hedging of commercial
risks. Although it is not possible at this time to predict whether or when
Congress will act on derivatives legislation or the CFTC will finalize its
proposed regulations, any laws or regulations that subject us to additional
capital or margin requirements relating to, or to additional restrictions on,
our trading and commodity positions could have an adverse effect on our ability
to hedge risks associated with our business or on the cost of our hedging
activity.


27





Federal and state
legislation and regulatory initiatives relating to hydraulic fracturing could
result in increased costs and additional operating restrictions or
delays.





Congress
is currently considering legislation to amend the federal Safe Drinking Water
Act to require the disclosure of chemicals used by the oil and gas industry in
the hydraulic fracturing process. Hydraulic fracturing involves the injection of
water, sand and chemicals under pressure into rock formations to stimulate
natural gas production. Sponsors of bills currently pending before the Senate
and House of Representatives have asserted that chemicals used in the fracturing
process could adversely affect drinking water supplies. The proposed legislation
would require the reporting and public disclosure of chemicals used in the
fracturing process, which could make it easier for third parties opposing the
hydraulic fracturing process to initiate legal proceedings based on allegations
that specific chemicals used in the fracturing process could adversely affect
groundwater. In addition, these bills, if adopted, could establish an additional
level of regulation at the federal level that could lead to operational delays
or increased operating costs and could result in additional regulatory burdens
that could make it more difficult to perform hydraulic fracturing and increase
our costs of compliance and doing business.





Risks Related to Our Capital
Stock





Our common stock
has experienced, and may continue to experience, price volatility and a low
trading volume.





The
trading price of our common stock has been and may continue to be subject to
large fluctuations, which may result in losses to investors. Our stock price may
increase or decrease in response to a number of events and factors,
including:





•
            the
      results of our exploratory
drilling;


•
            trends
      in our industry and the markets in which we
  operate;


•
            changes
      in the market price of the commodities we
sell;


•
            changes
      in financial estimates and recommendations by securities
      analysts;


•
            acquisitions
      and financings;


•
            quarterly
      variations in operating results;


•
            the
      operating and stock price performance of other companies that investors
      may deem comparable to us;


•
            an
      inability to regain compliance with the listing requirements of the NYSE
      AMEX; and


•
            issuances,
      purchases or sales of blocks of our common
  stock.





This
volatility may adversely affect the price of our common stock regardless of our
operating performance. See “Item 5 — Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities” for
further discussion.





Shares eligible
for future sale may cause the market price for our common stock to drop
significantly, even if our business is doing well.





If our
existing shareholders sell our common stock in the market, or if there is a
perception that significant sales may occur, the market price of our common
stock could drop significantly. In such case, our ability to raise additional
capital in the financial markets at a time and price favorable to us might be
impaired. In addition, our board of directors has the authority to issue
additional shares of our authorized but unissued common stock without the
approval of our shareholders, subject to certain limitations under the rules of
the exchange on which our common stock is listed. Additional issuances of our
common stock would dilute the ownership percentage of existing shareholders and
may dilute the earnings per share of our common stock. As of August 10, 2010, we
had 23,585,819 shares of common stock issued and outstanding and warrants to
purchase an additional 220,000 shares of common stock.


28





We have not
previously paid dividends on our common stock and we do not anticipate doing so
in the foreseeable future.





We have
not in the past paid, and do not anticipate paying in the foreseeable future,
cash dividends on our common stock.  Future credit facilities may
contain covenants that restrict our ability to pay dividends on our common
stock.  Additionally, any future decision to pay a dividend and the
amount of any dividend paid, if permitted, will be made at the discretion of our
board of directors.





ITEM
1B. UNRESOLVED STAFF COMMENTS





Not
Applicable.





ITEM
2. DESCRIPTION OF PROPERTIES/ASSETS/OIL AND GAS PROSPECTS





(a)
Real
Estate.          None.





(b)
Description of properties.





The
Company owns fee title to various minerals under approximately 158,000 gross
acres in Colfax County, New Mexico subject to a 10% royalty interest. These
mineral interests constitute oil, gas and coalbed methane on 120,000 acres,
approximately, and 50% of oil and/or gas rights on approximately 22,000 acres
and approximately 20,000 acres of other miscellaneous mineral
rights.


29


(c)
Oil and Gas Leases and Interests





At
April 30, 2010, the Company held undeveloped acreage as set forth
below:








Developed Acres
                        
                        
                        Undeveloped Acres
                        
                        
                        Total AcresLocation
                        
                        Gross
                        
                        
                        Net
                        
                        
                        Gross
                        
                        
                        Net
                        
                        
                        Gross
                        
                        
                        NetColfax
      Co.New
      Mexico
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        4,400
                        
                        
                        
                        3,280
                        
                        
                        
                        4,400
                        
                        
                        
                        3,280Colfax
      Co.New
      Mexico
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        120,000
                        
                        
                        
                        104,440
                        
                        
                        
                        120,000
                        
                        
                        
                        104,440Colfax
      Co.New
      Mexico
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        22,000
                        
                        
                        
                        9,900
                        
                        
                        
                        22,000
                        
                        
                        
                        9,900Colfax  Co.
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        10,000
                        
                        
                        
                        8,600
                        
                        
                        
                        10,000
                        
                        
                        
                        8,600New
      MexicoWyoming
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        2,560
                        
                        
                        
                        2,137
                        
                        
                        
                        2,560
                        
                        
                        
                        2,137Total
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        158,960
                        
                        
                        
                        128,357
                        
                        
                        
                        158,960
                        
                        
                        
                        128,537




Historical
Oil or Gas Production for Company for the fiscal years ended April 30, 2010,
2009 and 2008.





2010
                  
                  
                  2009
                  
                  
                  2008Natural Gas
                  
                  
                  Oil
                  
                  
                  Natural Gas
                  
                  
                  Oil
                  
                  
                  Natural Gas
                  
                  
                  OilLocation
                  
                  (MMcf)
                  
                  
                  (Mbbl)
                  
                  
                  (MMcf)
                  
                  
                  (Mbbl)
                  
                  
                  (MMcf)
                  
                  
                  (Mbbl)New
      Mexico
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0Wyoming
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0Total
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0





Productive
Wells





During
the year ended April 30, 2010, the Company did not have any gross or net
producing wells.





(d)
Patents. None


30


Subsequent
Material Events





As a
result of the acquisition of the FTP assets described herein, the following
addition acreage has been added as of August1, 2010.





Developed Acres
                      
                      
                      Undeveloped Acres
                      
                      
                      Total AcresLocation
                      
                      Gross
                      
                      
                      Net
                      
                      
                      Gross
                      
                      
                      Net
                      
                      
                      Gross
                      
                      
                      NetTom
      Green Co.Texas
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      2,148
                      
                      
                      
                      1,610
                      
                      
                      
                      2,148
                      
                      
                      
                      1,610





ITEM
3. LEGAL PROCEEDINGS





LPC
Litigation





On
September 24, 2009, LPC Investments filed suit against the Company in a case
titled: LPC Investment, LLC v Sun
River Energy, Inc. Case No. 2009CV4859 the District Court of Jefferson
County, Division 8, Colorado.





Among
other things, the suit requested the Court issue a declaratory that 2.2 million
shares previously purchased by LPC Investments (“LPC”) were owned by LPC, and to
direct the Company to co-operate with LPC’s outstanding legend removal requests
submitted to the Company's transfer agent by LPC.  LPC also sought
payment of attorney fees and costs.  The Company counterclaimed and
filed a third party claim against Kevin Paul as a co-defendant.  The
Company counter-claimed for fraud, breach of contract and declaratory
judgment.





Spencer
Edwards Litigation





On March
10, 2010, the Company filed an Original Petition and Application for Temporary
Injunction and Permanent Injunctive Relief in the County Court of Dallas County,
Texas.  The case is styled: Sun River Energy, Inc., JH Brech, and
Richard L. Toupal v. Spencer Edwards, Inc. Cause No. cc-10—1676-E, in the County
Court at Law # 5, Dallas County, Texas.





The suit
alleges among other things Spencer Edwards, Inc. has repeatedly violated Rule
144 of the U.S. Securities Act of 1933 in the selling of common shares of the
Company on the open market which was a basis of the underlying litigation
against Kevin Paul in Case No. 2009CV4859 the District Court of Jefferson
County, Division 8, Colorado.  This case is in the discovery
phase.  The Company is seeking actual damages and costs and attorney’s
fees.





Subsequent
Material Legal Evens





On June
23, 2010, the Company entered into a confidential settlement agreement regarding
its litigation with LPC and Kevin Paul described herein which require the
purchase of 1,900,139 shares of common from LPC and Paul over a specific period
of time.  As July 23, 2010, 526,788 shares of stock have been
purchased by third party investors consistent with the terms of the settlement
agreement.


31


The
Company has made demand on its former legal counsel, Holme, Roberts & Owen
(“HRO”), and asserted that HRO committed malpractice with respect to HRO’s
representation of the Company against LPC and Paul in the case set forth
herein.  This case is not yet in litigation.  Presently, the
parties are in talks regarding a settlement to resolve all claims with HRO
having made numerous offers of compromise.  The Company is seeking
approximately $300,000 in damages.





ITEM
4 – RESCINDED AND REMOVED.


32





PART
II





ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.





Our
common stock is currently traded on the OTC Bulletin Board maintained by the
Financial Industry Regulatory Authority (the "FINRA") under the symbol "SNRV".
The following table sets forth the range of high and low bid quotations for our
common stock of each full quarterly period during the two most recently
completed fiscal years. The quotations were obtained from information published
by FINRA and reflect interdealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.





The Quarter Ended
                        
                        HIGH
                        
                        
                        LOWApril
      30, 2010
                        
                        $
                        2.05
                        
                        
                        $
                        1.40January
      31, 2010
                        
                        
                        2.01
                        
                        
                        
                        1.40October
      31, 2009
                        
                        
                        2.73
                        
                        
                        
                        2.05July
      31, 2009
                        
                        
                        2.60
                        
                        
                        
                        1.65The Quarter Ended
                        
                        HIGH
                        
                        
                        LOWApril
      30, 2009
                        
                        $
                        1.65
                        
                        
                        $
                        1.58January
      31, 2009
                        
                        
                        0.65
                        
                        
                        
                        0.65October
      31, 2008
                        
                        
                        0.495
                        
                        
                        
                        0.495July
      31, 2008
                        
                        
                        0.20
                        
                        
                        
                        0.20





As of
August 10, 2010, there were 94 holders of record of our common stock. A
significant number of the shares are held in street name and, as such, we
believe that the actual number of beneficial owners is higher.





Dividends





To date,
we have not paid any dividends on our common stock nor established a policy
concerning payment of regular dividends.  Any payment of dividends in
the future will be determined by the Board of Directors in light of conditions
then existing, including restrictions imposed by our preferred stock then
outstanding, if any, our earnings, financial condition, capital requirements and
debt covenants, if any, and the tax treatment of any such
dividends.





Unregistered
Sales of Equity





The
Company made the following unregistered sales of its securities from May 1, 2009
to April 30, 2010.


33





DATE OF
                                                                    SALE
                                                                  
                                                                  TITLE OF
                                                                    SECURITIES
                                                                  
                                                                  NO. OF
                                                                    SHARES
                                                                  
                                                                  CONSIDERATION
                                                                  
                                                                  CLASS OF PURCHASER2/2/10
                                                                  
                                                                  Common Stock
                                                                  
                                                                  20,000
                                                                  
                                                                  Consulting Fee
                                                                  
                                                                  Business Associate2/3/10
                                                                  
                                                                  Common Stock
                                                                  
                                                                  50,000
                                                                  
                                                                  Consulting Fees
                                                                  
                                                                  Officers2/28/10
                                                                  
                                                                  Warrant
                                                                  
                                                                  20,000
                                                                  
                                                                  Consulting Fee
                                                                  
                                                                  Business Associate3/10/10
                                                                  
                                                                  Common Stock
                                                                  
                                                                  20,000
                                                                  
                                                                  Consulting Fee
                                                                  
                                                                  Business Associate3/29/10
                                                                  
                                                                  Common Stock
                                                                  
                                                                  80,000
                                                                  
                                                                  Promissory Note Conversion
                                                                  
                                                                  Business Associate3/31/10
                                                                  
                                                                  Warrant
                                                                  
                                                                  20,000
                                                                  
                                                                  Consulting Fee
                                                                  
                                                                  Business Associate4/5/10
                                                                  
                                                                  Common Stock
                                                                  
                                                                  20,000
                                                                  
                                                                  Consulting Fee
                                                                  
                                                                  Business Associate4/5/10
                                                                  
                                                                  Common Stock
                                                                  
                                                                  200,000
                                                                  
                                                                  Promissory Note Conversion
                                                                  
                                                                  Business Associate4/9/10
                                                                  
                                                                  Common Stock
                                                                  
                                                                  25,000
                                                                  
                                                                  Promissory Note Conversion
                                                                  
                                                                  Business Associate4/30/10
                                                                  
                                                                  Warrant
                                                                  
                                                                  20,000
                                                                  
                                                                  Consulting Fee
                                                                  
                                                                  Business Associate





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
6. SELECTED FINANCIAL DATA





Subsequent
Material Event





On August
5, 2010, Sun River Energy, Inc. (the "Company") issued an aggregate 1,530,597
shares of its common stock, par value $0.0001 per share, to the holders of
certain promissory notes. The shares were issued upon conversion of an aggregate
of $1,416,340.76 of principal and accrued but unpaid interest due under various
promissory notes issued by the Company. The principal and accrued but unpaid
interest due on the promissory notes was converted at conversion prices ranging
from $0.25 per share to $1.50 per share based on the original terms of the
promissory notes. The Company issued the shares pursuant to exemptions from the
registration requirements under Section 4(2) of Securities Act of 1933, as
amended.


34





ITEM
7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF
OPERATIONS.





CAUTIONARY
AND FORWARD LOOKING STATEMENTS





In
addition to statements of historical fact, this Annual Report on Form 10-K for
the year ended April 30, 2010 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.





There is no assurance that the
Company will be profitable, the Company may not be able to successfully develop,
manage or market its products and services, the Company may not be able to
attract or retain qualified executives and technology personnel, the Company's
products and services may become obsolete, government regulation may hinder the
Company's business, additional dilution in outstanding stock ownership may be incurred due
to the issuance of more shares, warrants and stock options, or the exercise of
warrants and stock options, and other risks inherent in the Company's
businesses.


35





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.





Plan of
Operations





We had no
revenues during the years ended April 30, 2010 and 2009. We have minimal capital
and minimal cash.  The primary source of funds for the Company was
debt.  Future funding is anticipated to be commercial debt supported
by production obtained by drilling or acquisition and the issuance of equity for
cash.





The
Company’s anticipated future development includes, but is not limited to,
further development of its New Mexico mineral interests, continued operations
and production of the Lora # 1 well and of the Stansberry # 1
well.  Additionally, the Company intends to identify and acquire
additional mineral interest and production in geological and geographical areas
in which management has technical and administrative experience.





We will
need substantial additional capital to support our proposed future
operations.  We have no revenues.  We have no committed
source for any funds as of the date hereon.  No representation is made
that any funds will be available when needed.  In the event funds
cannot be raised when needed, we may not be able to carry out our business plan,
may never achieve sales or royalty income, and could fail in business as a
result of these uncertainties.





The
independent registered public accounting firm's report on the Company's
financial statements as of April 30, 20010, 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.





Results of Operations - Year Ended
April 30, 2010 Compared To Year Ended April 30, 2009
 
 During the years ended April
30, 2010 and 2009, the Company did not recognize any revenues from it
operational activities.
 
 During the year ended April
30, 2010, the Company incurred operational expenses of $2,339,802 compared to
$2,655,423 during the year ended April 30, 2009.  The decrease of
$315, 621 was a result of the decrease of $250,000 in litigation expense and the
$1,070,463 decrease in consulting expenses, offset by a $778,025 increase in
general and administrative expenses and a $234,695 increase in officer and
directors fees.
 
 During the year ended April
30, 2010, the Company recognized a net loss of $2,377,427 compared to a net loss
of $2,827,376 during the year ended April 30, 2009.  The decrease of
$449,949 was a result of the $315,621 decrease in operational expenses,
discussed above, combined with the $134,328 decrease in other income
(expenses)


36





Liquidity and Capital
Resources





At April
30, 2010, the Company had total current assets of $39,817 consisting solely of
cash, and total current liabilities of $2,373,808, consisting of $876,055 in
accounts payables, $213,893 in accrued interest, $550,000 in accrued litigation
expense, $(470,435) in stock deliverable as payment for debt, $37,508 in bonds
payable and $1,166,787 in notes payable.  At April 30, 2010, the
Company had a working capital deficit of $2,333,991.





Conversion





On August
6, 2010, the Company converted an aggregate of $1,416,341 of outstanding
promissory notes into 1,530,597 shares of the Company’s common
stock.  The promissory notes were converted at rates of $0.25 per
share to $1.50 per share depending upon the terms of the individual promissory
notes.  The Company anticipates converting all or a majority of the
remaining debt to equity under the terms of the Agreements set forth
herein.





The
Company has only common stock as its capital resource.





The
Company was reliant on loans and advances from non affiliates to sustain any
operations.





The
Company has no material commitments for capital expenditures within the next
year, however if operations are commenced, substantial capital will be needed to
pay for participation, investigation, exploration, acquisition and working
capital.





Need
for Additional Financing





The
Company does not have capital sufficient to meet its cash needs. The Company
will have to seek loans or equity placements to cover such cash needs. Once
exploration commences, its needs for additional financing is likely to increase
substantially.





No
commitments to provide additional funds have been made by the Company's
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 the
Company's expenses as they may be incurred.





Critical Accounting Policies and
Estimates





The
preparation of the Company’s consolidated financial statements in conformity
with generally accepted accounting principles in the United States requires
management to make assumptions and estimates that affect the reported amounts of
assets, liabilities, revenues and expenses as well as the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
following is a summary of the significant accounting policies and related
estimates that affect the Company’s financial disclosures.


37





Oil and Gas Properties and
Reserves





We follow
the full cost method of accounting whereby all costs related to the acquisition
and development of oil and gas properties are capitalized into a single cost
center referred to as a full cost pool. Depletion of exploration and development
costs and depreciation of production equipment is computed using the
units-of-production method based upon estimated proved oil and gas reserves.
Under the full cost method of accounting, capitalized oil and gas property costs
less accumulated depletion and net of deferred income taxes may not exceed an
amount equal to the present value, discounted at 10%, of estimated future net
revenues from proved oil and gas reserves less the future cash outflows
associated with the asset retirement obligations that have been accrued on the
balance sheet plus the cost, or estimated fair value if lower, of unproved
properties.  Should capitalized costs exceed this ceiling, an
impairment would be recognized.





Estimating
accumulations of gas and oil is complex and is not exact because of the numerous
uncertainties inherent in the process. The process relies on interpretations of
available geological, geophysical, engineering and production data. The extent,
quality and reliability of this technical data can vary. The process also
requires certain economic assumptions, some of which are mandated by the
Securities and Exchange Commission (“SEC”), such as gas and oil prices, drilling
and operating expenses, capital expenditures, taxes and availability of funds.
The accuracy of a reserve estimate is a function of the quality and quantity of
available data; the interpretation of that data; the accuracy of various
mandated economic assumptions; and the judgment of the persons preparing the
estimate.


The most
accurate method of determining proved reserve estimates is based upon a decline
analysis method, which consists of extrapolating future reservoir pressure and
production from historical pressure decline and production data. The accuracy of
the decline analysis method generally increases with the length of the
production history. Since most of our wells have been producing less than seven
years, their production history is relatively short, so other (generally less
accurate) methods such as volumetric analysis and analogy to the production
history of wells of other operators in the same reservoir were used in
conjunction with the decline analysis method to determine the estimates of our
proved reserves including developed producing, developed non-producing and
undeveloped. As our wells are produced over time and more data is available, the
estimated proved reserves will be redetermined on an annual basis and may be
adjusted based on that data.





Actual
future production, gas and oil prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable gas and oil
reserves most likely will vary from any estimates.





Impairment of Long-lived
Assets





The cost
of our unproved properties is withheld from the depletion base as described
above, until it is determined whether or not proved reserves can be assigned to
the properties. These properties are reviewed periodically for possible
impairment. Our management reviews all unproved property each quarter. If a
determination is made that acreage will be expiring or that we do not plan to
develop some of the acreage that is no longer considered to be prospective, we
record an impairment of the acreage and reclassify the costs to the full cost
pool. We estimate the value of these acres for the purpose of recording the
related impairment. The impairments that we have recorded were estimated by
calculating a per acre value from the total unproved costs incurred for the
applicable acreage divided by the total net acres owned by us. This per acre
estimate is then applied to the acres that we do not plan to develop in order to
calculate the impairment. A change in the estimated value of the acreage could
have a material impact on the total impairment recorded by us, calculation of
depletion expense and the ceiling test analysis.


38





Stock-Based
Compensation





We
account for stock option grants and restricted stock awards by recognizing
compensation cost for stock-based awards based on the estimated fair value of
the award. Compensation cost is measured at the grant date based on the fair
value of the award and is recognized as an expense over the service period,
which generally represents the vesting period. We use the Black-Scholes option
valuation model to calculate the fair value of option awards. This model
requires us to estimate a risk free interest rate and the volatility of our
common stock price. The use of a different estimate for any one of these
components could have a material impact on the amount of calculated compensation
expense.





Recent
Accounting Pronouncements




In June
2009, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Codification (“ASC”) 105, “Generally Accepted Accounting Principles”
(formerly Statement of Financial Accounting Standards (“SFAS”) No. 168,
“The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles”). ASC 105 establishes the FASB ASC as the single
source of authoritative nongovernmental U.S. GAAP. The standard is effective for
interim and annual periods ending after September 15, 2009. We adopted the
provisions of the standard on September 15, 2009, which did not have a
material impact on our financial statements.




In July
2010, the Financial Accounting Standards Board (“FASB”) issued Proposed Accounting Standard
Update (Topic 450) –
Disclosure of Certain Loss Contingencies. This amendment would lower the
current disclosure threshold and broaden the current disclosure requirements to
provide adequate and timely information to assist users in assessing the
likelihood, potential magnitude, and potential timing (if known) of future cash
outflows associated with loss contingencies.  For public entities, the
new guidance would be effective for fiscal years ending after December 15, 2010,
and interim and annual periods in subsequent fiscal years. The Company is
currently evaluating the impact of the future adoption of the
Update.





There
were various other accounting standards and interpretations issued in 2009 and
2010, none of which are expected to have a material impact on the Company’s
financial position, operations or cash flows.





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 April 30, 2010, the
off-balance sheet arrangements and transactions that we had entered into
included undrawn letters of credit, operating lease agreements and gas
transportation commitments. 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.





Commodity Price
Risk





We have
entered into no commodities sales or swap agreements in past
year.


39





Interest Rate
Risk





We do not
currently use interest rate derivatives to mitigate our exposure, including
under our revolving credit facility, to the volatility in interest
rates.





ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The
Company’s operations do not employ financial instruments or derivatives which
are market sensitive. Short term funds are held in non-interest bearing accounts
and funds held for longer periods are placed in interest bearing accounts. Large
amounts of funds, if available, will be distributed among multiple financial
institutions to reduce risk of loss. The Company's cash holdings do not generate
interest income.





Reduced Commodity
Prices May Result in Ceiling Test Write-Downs and Other
Impairments





We may be
required to write down the carrying value of our gas and oil properties as a
result of low gas and oil prices or if there are substantial downward
adjustments to the estimated proved reserves, increases in the estimates of
development costs or deterioration in the exploration results.





Investments
in unproved properties are also assessed periodically to ascertain whether
impairment has occurred. Our evaluation of impairment of unproved properties
incorporates our expectations of developing unproved properties given current
and forward-looking economic conditions and commodity prices.





Reduced Commodity
Prices May Impact Our Ability to Produce Economically





Significant
or extended price declines may adversely affect the amount of oil and natural
gas that we can produce economically. A reduction in production could result in
a shortfall in our expected cash flows and require us to reduce our capital
spending or borrow funds to cover any such shortfall. Any of these factors could
negatively impact our ability to replace our production and our future rate of
growth.





ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The
audited consolidated financial statements and the related notes are set forth at
pages F-1 through F-17 attached hereto.





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





Not
applicable.


40


ITEM
9 A. CONTROLS AND PROCEDURES





The
Company maintains a system of disclosure controls and procedures that are
designed for the purposes of ensuring that information required to be disclosed
in the Company's SEC reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to the Company's management,
including the Chief Executive Officer as appropriate to allow timely decisions
regarding required disclosure.





Management,
after evaluating the effectiveness of the Company's disclosure controls and
procedures as defined in Exchange Act Rules 13a-14(c) as of April 30, 2009 (the
"Evaluation Date") concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were not effective to ensure that information
relating to the Company would be made known to them by individuals within those
entities, particularly during the period in which this annual report was being
prepared and that information required to be disclosed in the Company's SEC
reports is recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms.





Based on
that evaluation, the Chief Executive Officer, Redgie Green concluded that,
because of the material weakness in internal control over financial reporting
described below, the Company's disclosure controls and procedures were not
effective as of April 30, 2010.





ITEM
9A(T). CONTROLS AND PROCEDURES





Management's
Annual Report on Internal Control over Financial Reporting.





The
Company's 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. The Company's
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, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. The Company's internal control over financial
reporting includes those policies and procedures that:





(1)   pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the Company's assets;





(2)   provide  reasonable  assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
the Company's receipts and expenditures are being made only in accordance with
authorizations of the Company’s management and directors; and





(3)   provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material  effect on the Company's  financial
statements.





Management’s
assessment of the effectiveness of the small business issuer’s internal control
over financial reporting is as of the year ended April 30, 2010. We believe that
internal control over financial reporting is not effective. While 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, the fact that we are a small business with limited employees
causes a weakness in internal controls over the segregation of
duties.


41





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





There was
no change in the Company's internal control over financial reporting that
occurred during the fiscal quarter ended April 30, 2010 that has materially
affected, or is reasonably likely to materially affect, its internal control
over financial reporting.





Subsequent
Material Event





With the
acquisition of PC Operating Texas, Inc., renamed Sun River Operating, Inc. the
CEO of the Company, Donal R. Schmidt, Jr., now believes that the company is in
compliance with all applicable regulations regarding internal controls over
financial reporting.  His belief is based upon the experience and
training of the personal presently employed as a result of the acquisition of PC
Operating Texas Inc. who are responsible for accounting implementation and
oversight as well as the accounting and management systems in
place.  Specifically, Mr. Schmidt the acting CFO is a CPA with a
Masters Degree in Management and Accounting from the University of
Texas.  He also is a former Big-8 auditor with significant oil and gas
audit experience.  He is expressly familiar with all facets of
internal controls, separation of financial duties and oversight.  In
addition, the predecessor to PC Operating Texas, Inc. which employed the current
accounting staff routinely completed its independent financial audits with no
comments or weaknesses identified in internal control by it outside
CPAs.





ITEM
9B. OTHER INFORMATION





Not
applicable.


42





PART
III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





All our
directors hold office until the next annual meeting of the stockholders or until
their successors have been elected and qualified. Directors are elected for
one-year terms at the annual stockholders' meeting.  Our officers are
appointed by our Board of Directors and hold office until their death,
resignation or removal from office. Our directors and executive officers, their
ages, positions held, and the duration of their office are as
follows:








Name
                                  
                                  Age
                                  
                                  Position
                                  
                                  TermDonal R. Schmidt, Jr.(1)
                                  
                                  49
                                  
                                  Chief
      Executive Officer, President and Chairman of the Board
                                  
                                  2011Thimothy S. Wafford(2)
                                  
                                  50
                                  
                                  Chief
      Operating Officer
                                  
                                  N/ARobert B. Fields(3)
                                  
                                  72
                                  
                                  Director
                                  
                                  2011Redgie T. Green(4)
                                  
                                  56
                                  
                                  Director
                                  
                                  2011Stephen W. Weathers
                                  
                                  48
                                  
                                  Director
                                  
                                  2011Thomas Anderson
                                  
                                  42
                                  
                                  Director
                                  
                                  2011David Surgnier
                                  
                                  59
                                  
                                  Director
                                  
                                  2011Jay Leaver(5)
                                  
                                  
                                  
                                  Former President
                                  
                                  N/AJoe Kelloff(6)
                                  
                                  
                                  
                                  Former Chief Operating
    Officer
                                  
                                  N/A


(1) Mr.
Donal R. Schmidt, Jr. was appointed as our President and Chief Executive Officer
effective as of August 3, 2010.


(2) Mr.
Thimothy Wafford was appointed as our Chief Operating Officer effective as of
August 3, 2010.


(3) Mr.
Robert B. Fields was appointed to our Board of Directors as of August 3,
2010.


(4)
Mr.Redgie
Green resigned as our Chief Executive Officer on August 3, 2010.


(5) Mr.
Jay Leaver resigned as our President on of August 3, 2010.


(6) Mr.
Joe Kelloff resigned as our Chief Operating Officer on of August 3,
2010.





There is
no arrangement or understanding between the directors and officers of the
Company and any other person pursuant to which any director or officer was or is
to be selected as a director or officer.





Directors
and Executive Officers





Donal R. Schmidt,
Jr. – Chief Executive Officer, President and Chairman of the
Board





Mr.
Schmidt was appointed as Chairman of the Board and as our Chief Executive
Officer and President effective on August 3, 2010. For the last 11 years, Mr.
Schmidt has been an independent oil and gas producer. Mr. Schmidt is a managing
member of FTP Oil and Gas I LLC, the General Partner of FTP. FTP is a limited
partnership formed for the acquisition of leases in the Permian Basin located in
West Texas. Mr. Schmidt was also the managing director of PC Operating Texas
Inc., which conducted drilling and operations for FTP and other working interest
partners. From 2005 until 2008, Mr. Schmidt was Chairman of the Board of
Directors, President, Chief Executive Officer, Chief Financial Officer and
Director of Dorado Exploration Inc; Director of Dorado Operating Inc.; and
President of the Managing Member of the General Partner of Dorado Beckville
Partners I LP.  Dorado Exploration Inc., Dorado Operating Inc. and
Dorado Beckville I LP each filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in the spring of 2008.  Through the approved plans of
reorganization for each company all allowed claims were paid in full and
preferred shareholders of Dorado Exploration Inc. received $1.375 for their
$1.00 preferred stock.  From June 5, 2000 through December 31, 2004,
he served as the managing member of Fredonia East Texas Property Acquisition
Co., LLC and Longhorn Compression, LLC, where Mr. Schmidt was responsible for
the land, legal, accounting, gas marketing and management of the financial
assets of both companies.  Fredonia East Texas Property Acquisition
Co., LLC, was a non-operating working interest holding company and Longhorn
Compression, LLC, is a company that owns compressors used on oil and gas
wells.


43





Mr.
Schmidt is a licensed attorney and Certified Public Accountant in the State of
Texas. He graduated with a B.S. in Mathematics and a minor in Chemistry from
Texas Tech University in 1984. Additionally, he earned both an M.B.A. in Finance
(1988) and M.S. in Accounting (1987) from the University of Texas at Dallas. In
1987, he joined the Dallas office of KPMG Peat Marwick as an oil and gas
auditor. Mr. Schmidt, a member of law review, graduated from Texas Wesleyan
University School of Law in 1996.





Thimothy S. Wafford– Chief Operating Officer





Mr.
Wafford was appointed as our Chief Operating Officer effective on August 3,
2010.  Mr. Wafford has over 26 years of diversified experience in the
oil and gas industry, and has worked with Mr. Schmidt as an independent oil and
gas producer for the last 11 years.  He has also worked as a Petroleum
Reservoir Engineer both domestically and internationally.  Mr. Wafford
was President of Essex Energy of Texas, Inc. from August 1, 2000 through May 13,
2003.  Essex Energy of Texas, Inc., an entity in which Mr. Wafford was
the sole director, officer and owner, was an oil and gas operating company that
filed a Voluntary Petition of Bankruptcy under Chapter 7 of the Bankruptcy Code
on December 2, 2002.  Essex Energy of Texas was liquidated and
discharged from bankruptcy on May 13, 2003.  From December 2002
through the present, Mr. Wafford has been President of Waterman Oil & Gas,
Inc.  In these positions, Mr. Wafford was responsible for acquisitions
and divestitures, drilling and completions, production and pipeline operations,
gas gathering, processing and compression.  From April 1, 2003 through
January 25, 2005, Mr. Wafford was responsible for acquisitions and divestitures,
drilling and completions, production and pipeline operations, gas gathering,
processing and compression with respect to the properties that were contributed
to Dorado Beckville Partners I LP by Mr. Wafford and Mr.
Schmidt.  From January 25, 2005 to December 31, 2008, Mr. Wafford
served as Chief Operating Officer and Director of Dorado Exploration Inc. Dorado
Exploration Inc. and its affiliates filed for reorganization under Chapter 11 of
the U.S. Bankruptcy Code as described above.





While
attending Texas A&M University from 1980 to 1983, Mr. Wafford was a student
engineer for the independent petroleum reservoir engineers at Tom Calhoun &
Associates, primarily responsible for reserve estimates and valuations of
properties in the East Texas Oilfield. Upon graduation from Texas A&M
University in 1984 with a B.S. in Petroleum Engineering, Mr. Wafford served as
Reservoir Engineer for the Oil and Gas Division of the First National Bank,
Longview, Texas. Mr. Wafford returned to graduate school in 1986 and earned both
an M.B.A. Finance and M.S. Accounting from the University of Texas at Dallas in
1988. From 1988 to 1990, Mr. Wafford served as an Oil and Gas Management
Consultant with the Dallas office of PriceWaterhouse. From 1990 to 1997, Mr.
Wafford worked in various domestic and international capacities as a petroleum
reservoir engineer. In 1998, began his career as an independent oil and gas
producer.


44





Robert
B. Fields–
Director





Mr.
Fields was appointed to our Board of Directors effective as of August 3,
2010.  From July 27, 2006 to August 6, 2008, Mr. Fields served on the
Board of Directors of Dorado Exploration Inc. Dorado Exploration Inc. and its
affiliates filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code
as described above. Since 2006, Mr. Fields has served as the managing member of
PetroFields LLC, his personal oil and gas investment venture based in New York.
Since February 15, 2001, Mr. Fields has served as the Chairman of ActForex,
Inc., a New York fully hosted management service provider of proprietary
software for currency trading. From April 2008 through June 8, 2010, Mr. Fields
served on the board of Sky People Fruit Juice (SPU (on NASDAQ)). Mr. Fields has
served as a director of China Green Agriculture, a Nasdaq-listed corporation
since February 8, 2010 and serves as Chairman of its Compensation Committee and
member of its Audit Committee. From June 2005 through the annual shareholder
meeting on May 31, 2006, Mr. Fields served on the Board of Directors and as
Chairman of the Audit Committee of Genoil Inc., a corporation with its shares
traded on the OTC Bulletin Board. From 1999 to 2002, Mr. Fields was Executive
Advisor to Laidlaw Global Corp., an AMEX-listed corporation. Mr. Fields has
served on the Board of Directors of Statmon Technologies, Inc., a corporation
with its shares traded on the OTC Bulletin Board, since June 2000, and serves as
Chairman of its Audit Committee. From 1997 to 1998, Mr. Fields served as Vice
Chairman and, from 1997 to 1999, as a director of Laidlaw Ship Funding Ltd. Mr.
Fields recently served as the President of the Friars National Association
Foundation, Inc., a philanthropy of the arts based in New York, and since 1998
Mr. Fields has held various officer positions with the organization and is now a
Trustee. From 1995 to 1998, he was a director of Hospital Staffing Services,
Inc., a New York Stock Exchange-listed corporation. Prior to that Mr. Fields
also served as President and CEO of L'Express Inc., a New Orleans based
interstate regional airline, Executive Vice President of American Finance Group
in Boston, and as a director and a member of the Audit Committee of Flight
International Group of Newport News, Virginia, a public company. Additionally,
Robert Fields was managing director of Equifund, L.P. Since 1979, he has served
as the President of Tradestar Ltd., his wholly owned consulting firm that
specializes in asset appreciation.





Redgie T. Green - Director





Mr. Green
has served as one of our directors since 1998.  From January 2009 to
August 3, 2010, he served as our Chief Executive Officer.  From
January 2009 through October 2009, he served as our President.  Mr.
Green was co-owner and operator of Green's B&R Enterprises, a wholesale
donut baker since 1983. Mr. Green was a director of Colorado Gold & Silver,
Inc. in 2000. He was a director for Houston Operating Company in late 2004 until
December 2004. He served as a director for Mountains West Exploration, Inc. in
2005. He is a Director of Concord Ventures, Inc. (2006).  He has
served as a director of ASPI, Inc. from 2006 through the fall of 2009 and was
been appointed as an officer and director of Captech Financial, Inc. in May
2006. He served as a director of Baymark Technologies, Inc. from 2005 through
2006.


45


Stephen
W. Weathers – Director





Mr.
Weathers has served as one of our directors since 2006.  He has worked
as an environmental geologist both in the mining industry and oil and gas
industry. His duties included permitting, environmental compliance,
environmental remediation/reclamation and natural gas asset acquisitions both in
the United States and Canada. Mr. Weathers worked for Maxxim
Environmental/Terracon from 1995 through 1999 and currently works as a Principal
Environmental Specialist in the Environmental Remediation and Transactional
Support Group for DCP Midstream, LP (formerly Duke Energy Field Service) which
is a natural gas gathering and processing company (1999-Present). Mr. Weathers
is a Professional Geologist registered in the State of Texas and earned his B.
S. in Geology from Boise State University. Mr. Weathers also serves as a
director of Atomic Paintball.





Thomas
Anderson - Director





Mr.
Thomas Anderson, age 45, became a director of the Company in
2002.  Mr. Anderson presently works as the Chief Operating Officer for
American Capital Energy, a commercial and utility scale solar energy developer.
He has been with American Capital Energy since October 2008.  He
recently served as Managing Director of the Environmental Science and
Engineering Directorate of Qinetiq North America in Los Alamos, New Mexico. He
was with Qinetiq North America, formerly Apogen Technologies, from January,
2005, through September, 2008. Mr. Anderson worked for 19 years in the
environmental consulting field, providing consulting services in the areas of
environmental compliance, characterization and remediation services to
Department of Energy, Department of Defense, and industrial clients. He formerly
worked as a Senior Environmental Scientist at Concurrent Technologies Corp. from
November 2000 to December 2004. He earned his B.S. in Geology from Denison
University and his M.S. in Environmental Science and Engineering from Colorado
School of Mines.





David
Surgnier – Director





Mr.
Surgnier has served as one of our directors since 2006.  Mr. Surgnier
has served as President and Engineer for Delta Gas Corporation, an Oklahoma
corporation an Oil & Gas operating and consulting company and Delta
Environmental Services, a wholly owned division of Delta Gas Corporation since
1992. From 1986 to 1992, he was the Rocky Mountain Regional Manager for
Completion Technology International a Texas corporation manufacturer and service
company of external casing packers and well completions. From 1980 to 1986, Mr.
Surgnier was the Manager of Special Projects for Texas Iron Works, Inc a Texas
corporation Manufacturer, servicing and installation of deep and hostel well
equipment and completions.  From 1972 to 1980, Mr. Surgnier was the
Drilling and Production Engineer for Atlantic Richfield Oil Company, a
corporation, Worldwide Oil & Gas Company located in Houston, Texas and ARCO
Alaska, E & P and Operators of half of Alaskan North Slopes , a
corporation  Surgnier has 38 years experience as a petroleum engineer,
project and regional manager, technical writer and presenter, and developer,
inventor and co-inventor of patented and proprietary equipment and products, for
the petroleum and environmental industry. He has operated and managed projects
onshore and offshore in North and South America, the North Slope of Alaska, Cook
Inlet of Alaska and the Middle East. In addition, he has drilled and completed
domestic water supply wells for individuals, the Chickasaw, Choctaw and Seminole
Nations, and U.S. Public Health Services; oil field water supply wells for
Cities Service Co., Framers Energy Corporation, Botcher Gas Company, Cameron Oil
Company and Phillips Petroleum Corporation; and municipal water supply wells for
the Cities of Stewart, McAlister, Stonewall Ada and Tribbey, Oklahoma. He has
also served as an environmental consultant to Environmental Resource Management,
Biotreatment, Inc., Aarow Environmental, Inc., Argonne National Laboratory and
the University of Chicago. Mr. Surgnier earned his B.S. in Mathematics in 1971
from the University of Oklahoma, his B.S. in Petroleum Engineering in 1972 from
the University of Oklahoma, and his M.S. in Petroleum Engineering in 1984 from
the University of Texas.


46




Jay
Leaver – Former President




Mr.
Leaver served as our President from October 2009 through August
2010.  He will continue to serve as a consultant for us.   He has
been employed with Thomason Partners Associates, Inc. ("TPA") on prospect
development in the Rocky Mountain Region, and in the Appalachian, Michigan, and
Illinois Basins from 1991 to 2010, and worked on projects that led to economic
hydrocarbon discoveries in North Dakota, Utah, Idaho, and
Australia.  Prior to joining TPA, from 1989 to 1991 he was employed as
geologist at Western States Minerals, a small gold mining company with
properties in Utah, Nevada, and California.  From 1987 to 1989, Mr.
Leaver was employed as a geological technician and later a geologist at
Pendleton Land and Exploration, a small oil exploration company.  In 2006,
Mr. Leaver was promoted to Vice President of Geoscience at TPA, responsible for
ensuring a high degree of geophysical and geochemical technology was applied to
TPA projects.  In 2008, Mr. Leaver was promoted to Executive Vice
President at TPA, responsible for managing the flow of projects through the TPA
pipeline.  Mr. Leaver received his B.S. degree in Geological
Engineering from the Colorado School of Mines in 1986. Mr. Leaver is a member of
the American Association of Petroleum Geologists and the Society of Exploration
Geophysicists.  In 2009 he served as elected Secretary of the local AAPG
Section, the Rocky Mountain Association of Geologists.





Joe
Kelloff – Former Chief Operating Officer





Mr.
Kelloff served as our Chief Operating Officer from November 2009 through August
3, 2010.  He will continue to serve as a consultant for
us.  Prior to joining us, Mr. Kelloff spent 15 months traveling the
world while on sabbatical.  Prior to that, he served as a Director of
Western Production at Petroleum Development Corporation from 2006 to
2008.  From 2005 to 2006, he was a Manager – E&P Planning at Hess
Corporation.  He was a District Engineer for Patina Oil and Gas
Corporation from 2002 to 2005. From 2000 through 2002, Mr. Kelloff worked as an
Operations Engineer for Merit Energy Company.  From 1994 through 2000,
Mr. Kelloff held several positions with Mobil Exploration and Producing U.S.,
Inc., including among others, Production Engineer, Business Analyst and
Operations/Surveillance Engineer.   In May 1994, Mr. Kelloff
received his Bachelor of Science in Petroleum Engineering from the Colorado
School of Mines. He has been a member of the Society of Petroleum Engineers
since 1992 and has been a member of CM Production, LLC's Board of Advisors since
2008.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our directors
and executive officers, and persons who own more than 10% of a registered class
of our common stock, to file with the SEC reports of ownership and changes in
ownership of our common stock and our other equity securities. Such reporting
persons are required to furnish us with copies of all Section 16(a) forms they
file.





Based on
a review of our records or oral or written representations from certain
reporting persons subject to Section 16(a), we believe that, with respect to
fiscal 2010, all filing requirements applicable to our directors and officers
who are subject to Section 16(a) were complied with.





Code
of Ethics





Our Board
of Directors has not adopted a written code of ethics because to date we have
only had two members on our management team, both of which have been employed as
consultants and not full time employees.  Based on our recent
acquisition and the management changes we have implemented, our Board of
Directors will re-evaluate the adoption of a Code of Ethics.


47




Audit
Committee and Audit Committee Financial Expert





We
currently do not have a separately-designated Audit Committee.  Our
full Board of Directors acts as our Audit Committee.  Given our
operations to date, our Board of Directors believes that all of its members
collectively have the adequate capabilities to discharge its function as an
Audit Committee.  As a result, our Board of Directors has not
designated an "audit committee financial expert."


48


ITEM
11. EXECUTIVE COMPENSATION.





Summary
Compensation Table





The
following table sets forth the cash and non-cash compensation paid by or
incurred on our behalf to our Chief Executive Officer, Redgie Green, and certain
other executive officers (our "Name Executive Officers") for the fiscal years
ended April 30, 2010 and 2009.





Name & Position
                          
                          Year
                          
                          
                          Salary
                            ($)
                          
                          
                          Bonus
                            ($)
                          
                          
                          Stock
                            awards
                            ($)
                          
                          
                          Option
                            awards
                            ($)
                          
                          
                          Non-equity
                            incentive plan
                            compensation
                            ($)
                          
                          
                          Non-qualified
                            deferred
                            compensation
                            earnings
                            ($)
                          
                          
                          All other
                            compensation
                            ($)
                          
                          
                          Total
                            ($)Redgie
      Green, Former CEO, President (1)
                          
                          2010
                            2009
                          
                          
                          
                          0
                            0
                          
                          
                          
                          0
                            0
                          
                          
                          $
                          0
                            11,250
                          
                          
                          $
                          0
                            490,000
                          
                          
                          
                          0
                            0
                          
                          
                          
                          0
                            0
                          
                          
                          
                          0
                            0
                          
                          
                          $
                          0
                            501,250Jay
      Leaver, Former President (2)
                          
                          2010
                          
                          
                          $
                          42,000
                          
                          
                          
                          0
                          
                          
                          $
                          103,500
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          $
                          145,500Joe
      Kelloff, Former Chief Operating Officer (3)
                          
                          2010
                          
                          
                          $
                          49,999
                          
                          
                          
                          0
                          
                          
                          $
                          82,500
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          $
                          82,500
                          
                          
                          $
                          132,499





(1)  Mr.
Green was appointed as our CEO in January 8, 2009 and resigned as our CEO on
August 3, 2010.  During the year ended April 30, 2009, we issued Mr.
Green 25,000 shares of our restricted common stock valued at $11,250 based on a
closing market price of $0.45 per share on the date of the issuance. The shares
were issued for services as a director.  During the year ended April
30, 2009, we issued Mr. Green a warrant exercisable for 350,000 shares of our
common stock. The Warrant has a term of three years, an exercise price of $1.65
per share and provides for a cashless exercise. Using the Black-Scholes method
of valuation, the warrant has a value of $490,000.


(2)  Mr.
Leaver was appointed as our President on October 21, 2009 and resigned on August
3, 2010.  Pursuant to the terms of a consulting agreement, we paid Mr.
Leaver a monthly consulting fee equal to $6,000. In addition, we issued Mr.
Leaver a total of 50,000 shares of our common stock at prices ranging from $1.60
to $2.50 per share based on the market value of the stock on the date of
issuance.


(3) Mr.
Kelloff was appointed as our Chief Operating Officer on October 21, 2009 and
resigned on August 3, 2010.  Pursuant to the terms of a consulting
agreement, we paid Mr. Kelloff a monthly consulting fee of $8,333 per
month.  In addition, we issued Mr. Kelloff a total of 45,000 shares of
our common stock at prices ranging from $1.60 to $1.95 per share based on the
market value of the stock on the date of issuance.





Consulting
Agreements





Effective
October 1, 2009, we entered into a consultant engagement agreement with Mr. Jay
Leaver our former President.  Pursuant to the terms of the consultant
engagement agreement, Mr. Leaver served as our President and received a monthly
cash fee of $6,000.  Pursuant to the terms of the consultant
engagement agreement, we issued Mr. Leaver 10,000 shares of our restricted
common stock upon execution of the agreement and 10,000 shares of our common
stock on a quarterly basis thereafter which have been issued.  Prior
to the execution of the consultant engagement agreement, in July 2009, we issued
Mr. Leaver 35,000 shares of our common stock under a then existing corporate
advisor agreement, which agreement was superseded by the consultant engagement
agreement. On August 3, 2010, Mr. Leaver resigned as our
President.  We continue to retain Mr. Leaver as a consultant pursuant
to the terms of the consultant engagement agreement.


49





Effective
November 1, 2009, we entered into a consultant engagement agreement with Mr.
Kelloff, our former Chief Operating Officer.  Pursuant to the terms of
the consultant engagement agreement, Mr. Kelloff served as Chief Operating
Officer and received a monthly cash fee of $8,333.  Pursuant to the
terms of the consultant engagement agreement, we issued Mr. Kelloff 30,000
shares of the Company’s restricted common stock upon execution of the consultant
engagement agreement. On August 3, 2010, Mr. Kelloff resigned as our Chief
Operating Officer.  We continue to retain Mr. Kelloff as a consultant
pursuant to the terms of the consultant engagement agreement.





Subsequent
Material Event —Employment Agreements





Effective
August 3, 2010, we entered into employment agreements with each of Messrs. Donal
R. Schmidt, Jr., our Chief Executive Officer and President and Thimothy S.
Wafford, our Chief Operating Officer.  The employment agreements
provided for an initial term of three years and will automatically renew for
additional one year unless either party gives notice 90 days prior to the end of
the then current term of its intent to terminate the
agreement.  Pursuant to the terms of the employment agreements, each
of Messrs. Schmidt and Wafford will not receive any salary during the first year
of their employment and thereafter shall be entitled to receive an annual
minimum base salary of $300,000 during the second and third year of their
employment, which amount is subject to increase upon approval by our Board of
Directors.  In addition, each of Messrs. Schmidt and Wafford is
entitled to receive a bonus, in cash or in shares of our common stock, as
determined by our Board of Directors; provided, however, that bonuses payable
for the period ending April 30, 2013 shall be based upon the increase in
reserves as computed under SEC rules and regulations from the prior fiscal year
end reserves with a maximum bonus of $2,500,000 payable in any given fiscal
year.  Lastly, each of Messrs. Schmidt and Wafford is entitled to
receive stock options to purchase 1,000,000, which options shall vest in equal
monthly installments over a period of 36 months and have an exercise price equal
to the fair market value of our common stock on the effective date of our
acquisition of PC Operating.





In the
event either of Messrs. Schmidt and Wafford is terminated by us other than for
"Cause" as defined in the employment agreements or by the executive for "Good
Reason" as defined in the employment agreements, the executive shall be entitled
to receive all compensation earned through the date of the termination plus a
lump sum payment equal to two times the executive's base salary at the time of
such termination, if such termination occurs in the first or second year of the
term, or a lump sum payment equal to two time the executive's base salary at the
time of such termination for the remainder of the term, if such termination
occurs in the third year or any subsequent renewal.


50




Outstanding
Equity Awards at Fiscal Year End




The
following table sets forth certain information concerning outstanding equity
awards held by the officers for the fiscal year ended April 30, 2010 (the "Named
Executive Officers"):





Warrant Awards
                  
                  
                  Stock awardsName
                  
                  Number of
                    securities
                    underlying
                    unexercised
                    warrants (#)
                    exercisable
                  
                  
                  Number of
                    securities
                    underlying
                    unexercised
                    warrants (#)
                    unexercisable
                  
                  
                  Equity
                    incentive
                    plan
                    awards:
                    Number of
                    securities
                    underlying
                    unexercised
                    unearned
                    warrants
                    (#)
                  
                  
                  Warrant
                    exercise
                    price
                    ($)
                  
                  
                  Warrant
                    expiration
                    date
                  
                  
                  Number of
                    shares or
                    units of
                    stock that
                    have not
                    vested
                    (#)
                  
                  
                  Market
                    value of
                    shares of
                    units of
                    stock that
                    have not
                    vested
                    ($)
                  
                  
                  Equity
                    incentive plan
                    awards:
                    Number of
                    unearned
                    shares, units or
                    other rights
                    that have not
                    vested (#)
                  
                  
                  Equity
                    incentive plan
                    awards:
                    Market or
                    payout value
                    of unearned
                    shares, units
                    or others
                    rights that
                    have not
                    vested
                    ($)Redgie
      Green
                  
                  
                  350,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  1.65
                  
                  
                  4/30/2012
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Jay
      Leaver
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Joe
      Kelloff
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -





(1)   During
the year ended April 30, 2010, we granted Mr. Green a warrant exercisable for
350,000 shares of our restricted common stock.  The warrant has a term
of three years, an exercise price of $1.65 per share and provides for a cashless
exercise. The warrant was valued using the Black-Scholes Valuation Method and
was determined to have a value of $490,000.





Directors
Compensation





The
Company does not currently pay any cash fees to its directors, nor does the
Company pay directors' expenses in attending board meetings.





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





Beneficial
Ownership





The
following table sets forth information with respect to the beneficial ownership
of our outstanding common stock by:




·
            each
      person who is known to us to be the beneficial owner of five percent (5%)
      or more of our common stock;




·
            each
      of our directors,  Named Executive Officers and executive
      officers ; and




·
            all
      of our directors and executive officers as a
  group.




51


Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities.  Shares of common stock underlying options,
warrants and convertible securities that are currently exercisable or
convertible within 60 days of the date of this document into shares of our
common stock are deemed to be outstanding and to be beneficially owned by the
person holding the options, warrants or convertible securities for the purpose
of computing the percentage ownership of the person, but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person.





Title of Class
                                
                                Name and Address of Beneficial Owner(1)
                                
                                Amount and
                                  Nature of
                                  Beneficial
                                  Owner
                                
                                
                                Percent of
                                  Class (2)Common
      Stock
                                
                                Donal
      R. Schmidt, Jr. (3)
                                
                                
                                2,129,667
                                
                                
                                
                                8.78
                                %Common
      Stock
                                
                                Thimothy
      S. Wafford(4)
                                
                                
                                2,281,678
                                
                                
                                
                                9.41
                                %Common
      Stock
                                
                                Robert
      B. Fields
                                
                                
                                0
                                
                                
                                
                                *Common
      Stock
                                
                                Redgie
      Green(5)
                                
                                
                                538,500
                                
                                
                                
                                2.25
                                %Common
      Stock
                                
                                Thomas
      Anderson(6)
                                
                                
                                500,000
                                
                                
                                
                                2.09
                                %Common
      Stock
                                
                                David
      Surgnier(7)
                                
                                
                                500,000
                                
                                
                                
                                2.09
                                %Common
      Stock
                                
                                Stephen
      Weathers(8)
                                
                                
                                500,000
                                
                                
                                
                                2.09
                                %Common
      Stock
                                
                                Jay
      Leaver(9)
                                
                                
                                65,000
                                
                                
                                
                                *Common
      Stock
                                
                                Joe
      Kelloff(10)
                                
                                
                                75,000
                                
                                
                                
                                *Common
      Stock
                                
                                FTP
      Oil and Gas, LP (11)
                                
                                
                                2,004,667
                                
                                
                                
                                8.27
                                %Common
      Stock
                                
                                LPC
      Investments, LLC
                                  200
      S. Wilcox St. #154
                                  Castle
      Rock, CO 80104
                                
                                
                                1,373,350
                                
                                
                                
                                5.82
                                %Common
      Stock
                                
                                Robert
      Doak (12)
                                  PO
      Box 754
                                  Trinidad,
      NM 81082
                                
                                
                                6,117,233
                                
                                
                                
                                25.94
                                %Common
      Stock
                                
                                New
      Mexico Energy, LLC (13)
                                  PO
      Box 754
                                  Trinidad,
      NM 81082
                                
                                
                                2,941,666
                                
                                
                                
                                12.47
                                %Common
      Stock
                                
                                Cicerone
      Corporate Development, LLC (14)
                                  501
      Trophy Lake Drive, Suite 314
                                  PMB
      116
                                  Trophy
      Club, TX 76262
                                
                                
                                7,363,356
                                
                                
                                
                                30.93
                                %All
      Directors and Executive Officers as a Group (7
persons)(15)
                                
                                
                                4,445,178
                                
                                
                                
                                17.33
                                %




* Less
than 1%




(1)
            Expect
      as otherwise note, the address for each of the beneficial ownership is our
      address at 5950 Berkshire Lane, Suite 1650, Dallas, Texas
      75225.


(2)
            Based
      upon 23,585,819 shares of common stock issued and outstanding on August
      10, 2010.


(3)
            Includes
      (a) 125,000 shares owned by Mr. Schmidt directly and (b) 2,004,667 shares
      owned by FTP Oil and Gas, LP of which he is the managing member and owner
      of 50% of the membership interest of its general partner and the owner of
      a 49.5% limited partnership interest.  Mr. Schmidt was appointed
      as our President and Chief Executive Officer and as a director on August
      3, 2010.


52


(4)
            Includes
      (a) 125,000 shares owned by Mr. Wafford directly, (b) 2,004,667 shares
      owned by FTP Oil and Gas, LP of which he is the owner of 50% of the
      membership interest of its general partner and the owner of a 49.5%
      limited partnership interest, (c) 152,011 shares, which represent his
      proportionate share of the common stock owned by a limited liability
      company of which Mr. Wafford is a member.  Mr. Wafford was
      appointed as our Chief Operating Officer on August 3,
  2010.


(5)
            Includes
      (a) 188,500 shares of common stock and (b) 350,000 shares of common stock
      issuable upon exercise of a
warrant.


(6)
            Includes
      (a) 150,000 shares of common stock and (b) 350,000 shares of common stock
      issuable upon exercise of a
warrant.


(7)
            Includes
      (a) 150,000 shares of common stock and (b) 350,000 shares of common stock
      issuable upon exercise of a
warrant.


(8)
            Includes
      (a) 150,000 shares of common stock and (b) 350,000 shares of common stock
      issuable upon exercise of a
warrant.


(9)
            Mr.
      Leaver resigned as our President on August 3,
  2010.


(10)
            Includes
      (a) 30,000 shares of common stock owned directly by Mr. Kelloff and (b)
      45,000 shares of common stock owned by Kelloff Oil & Gas, LLC of which
      Mr. Kelloff is a member.  Mr. Kelloff resigned as our Chief
      Operating Agreement on August 3,
2010.


(11)
            Includes
      (a) 1,338,000 shares of common stock and (b) 666,667 shares of common
      stock issuable upon conversion of a $1,000,000 convertible promissory
      note.


(12)
            Includes
      (a) 3,175,567 shares of common stock owned directly by him, and (b)
      2,941,666 shares of owned by New Mexico Energy, LLC of which he is a
      member.  Each of Robert Doak and New Mexico Energy, LLC have
      granted options to  Cicerone Corporate Development, LLC
      ("Cicerone") to purchase the shares owned by Mr. Doak and New Mexico
      Energy, LLC, respectively, at a price of $1.50 per
  share.


(13)
            Includes
      (a) 1,006,123 shares of common stock, (b) 220,000 shares of common stock
      issuable upon exercise of options, (c) 3,175,567 shares of common stock
      purchaseable upon exercise of an option granted to Cicerone by Mr. Robert
      Doak, and (d) 2,941,666 shares of common stock purchaseable upon exercise
      of an option granted to Cicerone by New Mexico Energy,
  LLC.


(14)
            Includes
      (a) 2,378,511 shares of common stock, (b) 1,400,000 shares of common stock
      issuable upon exercise of warrants and options owned by the officers and
      directors, and (c) 666,667 shares of common stock issuable upon conversion
      of a $1,000,000 convertible promissory
note.





ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.





In July
2009, we entered into a consulting agreement with Cicerone.  Pursuant
to the terms of the consulting agreement, in exchange for services under the
consulting agreement, we issue to Cicerone 20,000 shares of our common stock and
a warrant to purchase 20,000 shares of common stock, which warrant has an
exercise price equal to the closing price of our common stock on the date of
grant and is exercisable for a period of two years from the date of
grant.  During the year ended April 30, 2010, the Company issued
180,000 shares of our common stock and warrants to purchase an aggregate of
180,000 shares of our common stock with exercise prices ranging from $1.54 to
$2.73 per share.  The Company recognized an expense of $456,340 (a
range of $1.54 to $2.73 per share, based on closing market prices on the date of
issuance). The warrants were valued using the Black-Scholes model. The total
fair value of the options at the date of grant was $216,320 and was recorded as
consulting expense.  Effective July 15, 2010, we extended the existing
Consulting Agreement with Cicerone for an additional three years.





On July
27, 2010, we executed a commercial promissory note in the principal amount of
$629,105.96 to Cicerone.  The note was unsecured, due on demand and
bore interest at the rate of 4 % per annum and convertible into shares of our
common stock at the rate of $1.45 per share.  On August 3, 2010,
Cicerone converted the note into 433,867 shares of our common
stock.





Note
Payable - LPC Investments, LLC





On
October 24, 2008, the Company received notice from LPC Investment, LLC ("LPC"),
a greater than 10% shareholder of the Company, of a demand of payment in
connection with $74,600 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


53





On
December 12, 2008, LPC Investments, 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 an
unsecured, 8.75% promissory note and conversion of 2,200,000 shares of the
Company's common stock into a preferred note. LPC Investments is seeking not
only payment of the unsecured, 8.75% promissory note and accrued interest but
also attorney fees.





On June
23, 2010, the Company entered into a Settlement Agreement regarding its
litigation with LPC Investment, LLC and its equity holder, Kevin Paul which
require the purchase of 1,900,139 shares of common stock under the terms of a
Settlement Agreement.  As July 23, 2010, 526,788 shares of stock have
been purchased by third party investors consistent with the terms of the
settlement agreement.


54


ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.





Larry O'
Donnell, CPA, PC ("O'Donnell") has served as our independent registered
accounting firm since November 13, 2008.





The
following table represents aggregate fees billed to us during the fiscal years
ended April 30, 2010 and 2009.


Year Ended April 30,2010
                  
                  
                  2009Audit
      Fees
                  
                  $
                  8,300
                  
                  
                  $
                  1,100Audit-related
      Fees
                  
                  
                  0
                  
                  
                  
                  0Tax
      Fees
                  
                  
                  0
                  
                  
                  
                  0All
      Other Fees
                  
                  
                  0
                  
                  
                  
                  0Total
      Fees
                  
                  $
                  8,300
                  
                  
                  $
                  1,100





We do not
have an Audit Committee.  As a result, the duties the Audit Committee
are fulfilled by our full Board of Directors.  Our Board of Directors
pre-approves all audit services and permitted non-audit services (including the
fees and terms thereof) to be performed by our independent registered public
accounting firm.


55


PART
IV





ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.





The
following is a complete list of exhibits filed as part of this Form
10K.  Exhibit number corresponds to the numbers in the Exhibit table
of Item 601 of Regulation S-K.





Exhibit
      No.
            
            Description
      of Exhibit2.1
            
            Share
      Purchase Agreement by and among Sun River Energy, Inc., Donal R. Schmidt
      and Thimothy S. Wafford(1)2.2
            
            Purchase
      and Sale Agreement by and between Sun River Energy, Inc. and FTP Oil &
      Gas LP (1)3.1
            
            Articles
      of Incorporation(2)3.2
            
            Bylaws(2)10.1
            
            Consultant
      Engagement Agreement dated October 1, 2009 by and between Sun River
      Energy, Inc. and Jay Leaver10.2
            
            Consultant
      Engagement Agreement dated October 20, 2009 by and between Sun River
      Energy, Inc. and Joe Kelloff10.1
            
            Employment
      Agreement by and between Sun River Energy, Inc. and Donal
      R.          Schmidt(1)10.2
            
            Employment
      Agreement by and between Sun  River Energy, Inc. and Thimothy
      Wafford(1)10.3
            
            Convertible
      Promissory Note dated August 3, 2010 in favor of FTP Oil & Gas
      LP(3)10.4
            
            Consulting
      Agreement dated July 15, 2010 by and between Sun River Energy, Inc. and
      Cicerone Corporate Development, LLC21.1
            
            List
      of Subsidiaries(3)31.1
            
            Certification
      by Principal Executive and Financial Officer(3)32.1
            
            Section
      906 Certification by Principal Executive and Financial
      Officer(3)





(1)
Previously filed as an exhibit to the registrant's Current Report on Form 8-K
filed on July 16, 2010 and incorporated herein by reference.


(2)
Previously filed as an exhibit to 8-K-12G3 filed May 3, 2006 and incorporated
herein by reference.


(3) Filed
herewith.


56





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





SUN
      RIVER ENERGY, INC.Date:
      August 13, 2010
                  By:
                  /s/ Donal R. Schmidt,
Jr.Donal
      R. Schmidt, Jr. Chief Executive Officer and President(Principal
      Executive and Financial
Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Date:
      August 13, 2010
                            By:
                            / s/Donal R. Schmidt,
Jr.Donal
      Schmidt, Chief Executive Officer, President and Chairman
                              of
      the Board(Principal
      Executive and Financial Officer)Date:
      August 13, 2010
                            By:
                            /s/Robert B. FieldsRobert B. Fields and DirectorDate:
      August 13, 2010
                            By:
                            /s/Redgie GreenRedgie
      Green, DirectorDate:
      August 13, 2010
                            By:
                            /s/ Stephen W. WeathersStephen W. Weathers, DirectorDate:
      August  13, 2010
                            By:
                            /s/ Thomas AndersonThomas Anderson, DirectorDate:
      August 13, 2010
                            By:
                            /s/David SurgnierDavid Surgnier,
Director




57


Larry
O'Donnell, CPA, P.C.


Telephone
      (303) 745-4545
            2228
      South Fraser StreetFax
      (303) 369-9384
            Unit
      IEmail
      larryodonnellcpa@msn.com
            Aurora,
      Colorado    80014www.larryodonnellcpa.com





INDEPENDENT AUDITOR’S
REPORT


Board of
Directors


Sun River
Energy, Inc.





I have
audited the accompanying balance sheets of Sun River Energy, Inc. as of April
30, 2010 and 2009, and the related statements of operations, stockholders’
equity(deficit) and cash flows for each of the years then ended and for the
period from inception  October 22, 2002 to April 30,
2010.  These financial statements are the responsibility of the
Company’s management.  My responsibility is to express an opinion on
these financial statements based on my audits.





I
conducted my audits in accordance with standards of the Public Company
Accounting Oversight Board (United States).   Those standards
require that I plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  I believe
that my audits provide a reasonable basis for my opinion.





The
accompanying 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 has an accumulated
deficit of $8,753,293 at April 30, 2010. Additionally, for the year ended April
30, 2010, they had a net loss of $2,377,427. These matters raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s
plans in regards to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





/s/
Larry O’Donnell, CPA, P.C.





Larry
O'Donnell, CPA, P.C.


April 13,
2010


F-1





SUN
RIVER ENERGY, INC.


(A
Development Stage Company)


BALANCE
SHEETS





April 30,
                        
                        
                        April 30,2010
                        
                        
                        2009AssetsCurrent
      Assets:Cash
      and cash equivalents
                        
                        $
                        39,817
                        
                        
                        $
                        38,851Total
      Current Assets
                        
                        
                        39,817
                        
                        
                        
                        38,851Fixed
      Assets, net of depreciation $1,740 and $1,200,
respectively
                        
                        
                        -
                        
                        
                        
                        540Other
      assets:Leases
                        
                        
                        220,000
                        
                        
                        
                        220,000Mineral
      rights
                        
                        
                        100,000
                        
                        
                        
                        100,000Wells
      in process and advances
                        
                        
                        678,781
                        
                        
                        
                        675,310Total
      Other Assets
                        
                        
                        998,781
                        
                        
                        
                        995,310Total
      Assets
                        
                        $
                        1,038,598
                        
                        
                        $
                        1,034,701Liabilities
      and Stockholders' DeficitCurrent
      liabilitiesAccounts
      payable
                        
                        $
                        876,055
                        
                        
                        $
                        320,589Accrued
      interest payable
                        
                        
                        213,893
                        
                        
                        
                        168,866Accrued
      litigation expense
                        
                        
                        550,000
                        
                        
                        
                        400,000Stock
      to delivered for debt
                        
                        
                        (470,435
                        )
                        
                        
                        -Drilling
      bonds payable
                        
                        
                        37,508
                        
                        
                        
                        37,508Notes
      payable
                        
                        
                        1,166,787
                        
                        
                        
                        1,350,780Total
      Current Liabilities
                        
                        
                        2,373,808
                        
                        
                        
                        2,277,743Stockholders'  DeficitCommon
      stock, $0.0001 par value; 100,000,000 sharesauthorized,
      19,373,995 and 16,317,423 shares issued andoutstanding
      at April 30, 2010 and  2009, respectively
                        
                        
                        1,937
                        
                        
                        
                        1,632Additional
      paid-in capital
                        
                        
                        5,171,705
                        
                        
                        
                        3,135,132APIC
      unexercised warrants
                        
                        
                        2,244,440
                        
                        
                        
                        1,996,060Deficit
      accumulated during the development stage
                        
                        
                        (8,753,293
                        )
                        
                        
                        (6,375,866
                        )Total
      Stockholders' Deficit
                        
                        
                        (1,335,211
                        )
                        
                        
                        (1,243,042
                        )Total
      Liabilities and Stockholders' Deficit
                        
                        $
                        1,038,598
                        
                        
                        $
                        1,034,701





See the
notes to these financial statements.


F-2





SUN
RIVER ENERGY, INC.


(A
Development Stage Company)


STATEMENTS
OF OPERATIONS





For the Year Ended
                
                
                October 22, 2002April 30,
                
                
                (inception) to2010
                
                
                2009
                
                
                April 30, 2010Revenue:
                
                $
                -
                
                
                $
                -
                
                
                $
                -Operational
      expenses:Consulting
      expenses
                
                
                1,049,227
                
                
                
                2,119,690
                
                
                
                3,988,053Officer
      and Director fees
                
                
                347,195
                
                
                
                112,500
                
                
                
                459,695Depreciation
                
                
                540
                
                
                
                420
                
                
                
                1,200Lease
      expenses
                
                
                -
                
                
                
                7,998
                
                
                
                689,521Litigation
      expense
                
                
                150,000
                
                
                
                400,000
                
                
                
                550,000General
      and administrative expenses
                
                
                792,840
                
                
                
                14,815
                
                
                
                952,438Total
      operational expenses
                
                
                2,339,802
                
                
                
                2,655,423
                
                
                
                6,640,907Net
      loss from operations
                
                
                (2,339,802
                )
                
                
                (2,655,423
                )
                
                
                (6,640,907
                )Other
      Income (Expenses)Interest
      income
                
                
                920
                
                
                
                1,347
                
                
                
                3,032Interest
      expense
                
                
                (114,318
                )
                
                
                (170,030
                )
                
                
                (1,076,494
                )Debt
      relief
                
                
                75,773
                
                
                
                -
                
                
                
                505,418Loss
      on claim release
                
                
                -
                
                
                
                -
                
                
                
                (1,298,603
                )Realized
      loss on sale of assets
                
                
                -
                
                
                
                (44,035
                )
                
                
                (245,739
                )Unrealised
      gain (loss) on investments
                
                
                -
                
                
                
                40,765
                
                
                
                -(37,625
                )
                
                
                (171,953
                )
                
                
                (2,112,386
                )Net
      loss
                
                $
                (2,377,427
                )
                
                $
                (2,827,376
                )
                
                $
                (8,753,293
                )Per
      share informationNet
      loss per common shareBasic
                
                $
                (0.09
                )
                
                $
                (0.18
                )Fully
      diluted
                
                $
                (0.09
                )
                
                $
                (0.18
                )Weighted
      average number of common stock outstanding
                
                
                17,479,385
                
                
                
                15,555,940





See the
notes to these financial statements.


F-3





SUN
RIVER ENERGY, INC.


(A
Development Stage Company)


Statement
of Stockholders' Equity (Deficit)


From
October 22, 2002 (Inception) through April 30, 2010





DeficitAdditonal
                                                                        
                                                                        
                                                                        APIC
                                                                        
                                                                        
                                                                        Accum. During
                                                                        
                                                                        
                                                                        TotalCOMMON STOCK
                                                                        
                                                                        
                                                                        Paid-in
                                                                        
                                                                        
                                                                        Unexercised
                                                                        
                                                                        
                                                                        Development
                                                                        
                                                                        
                                                                        Stockholders'# of Shares
                                                                        
                                                                        
                                                                        Amount
                                                                        
                                                                        
                                                                        Capital
                                                                        
                                                                        
                                                                        Warrants
                                                                        
                                                                        
                                                                        Stage
                                                                        
                                                                        
                                                                        DeficitBalance
      - October 22, 2002
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        -Stock
      issued for cash
                                                                        
                                                                        
                                                                        1,000
                                                                        
                                                                        
                                                                        
                                                                        1
                                                                        
                                                                        
                                                                        
                                                                        49
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        50Net
      Loss for Period
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (50
                                                                        )
                                                                        
                                                                        
                                                                        (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
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        437,666Merger
      accounting
                                                                        
                                                                        
                                                                        484,500
                                                                        
                                                                        
                                                                        
                                                                        48
                                                                        
                                                                        
                                                                        
                                                                        (20,923
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (20,875
                                                                        )Value
      of subsidiary in excessof
      related party's basis
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (866,667
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (866,667
                                                                        )Net
      Loss for Year
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (350,050
                                                                        )
                                                                        
                                                                        
                                                                        (350,050
                                                                        )Balance
      - April 30, 2006
                                                                        
                                                                        
                                                                        9,518,833
                                                                        
                                                                        
                                                                        
                                                                        952
                                                                        
                                                                        
                                                                        
                                                                        (450,778
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (350,100
                                                                        )
                                                                        
                                                                        
                                                                        (799,926
                                                                        )Issuance
      of Stock for Cash
                                                                        
                                                                        
                                                                        795,000
                                                                        
                                                                        
                                                                        
                                                                        80
                                                                        
                                                                        
                                                                        
                                                                        397,420
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        397,500at
      $0.50 per share plus warrant at $0.75Issuance
      of Stock for Debt
                                                                        
                                                                        
                                                                        242,935
                                                                        
                                                                        
                                                                        
                                                                        24
                                                                        
                                                                        
                                                                        
                                                                        149,976
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        150,000at
      $0.62 per shareIssuance
      of Stock for Marketable Securities
                                                                        
                                                                        
                                                                        800,000
                                                                        
                                                                        
                                                                        
                                                                        80
                                                                        
                                                                        
                                                                        
                                                                        399,920
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        400,000at
      $0.50 per shareIssuance
      of Stock for Services
                                                                        
                                                                        
                                                                        309,000
                                                                        
                                                                        
                                                                        
                                                                        31
                                                                        
                                                                        
                                                                        
                                                                        154,469
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        154,500at
      $0.50 per shareIssuance
      of Stock for Lease acquisition
                                                                        
                                                                        
                                                                        880,000
                                                                        
                                                                        
                                                                        
                                                                        88
                                                                        
                                                                        
                                                                        
                                                                        439,912
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        440,000Issuance
      of Stock for Cash
                                                                        
                                                                        
                                                                        2,200,000
                                                                        
                                                                        
                                                                        
                                                                        220
                                                                        
                                                                        
                                                                        
                                                                        1,099,780
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        1,100,000Net
      Loss for Year
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (661,339
                                                                        )
                                                                        
                                                                        
                                                                        (661,339
                                                                        )Balance
      - April 30, 2007
                                                                        
                                                                        
                                                                        14,745,768
                                                                        
                                                                        
                                                                        
                                                                        1,475
                                                                        
                                                                        
                                                                        
                                                                        2,190,699
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (1,011,439
                                                                        )
                                                                        
                                                                        
                                                                        1,180,735Issuance
      of Stock for Services
                                                                        
                                                                        
                                                                        310,000
                                                                        
                                                                        
                                                                        
                                                                        31
                                                                        
                                                                        
                                                                        
                                                                        468,969
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        469,000at
      $1.51 per shareIssuance
      of Stock for Interest
                                                                        
                                                                        
                                                                        20,000
                                                                        
                                                                        
                                                                        
                                                                        2
                                                                        
                                                                        
                                                                        
                                                                        50,998
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        51,000at
      $2.55 per shareOptions
      issued
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        43,340
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        43,340Net
      Loss for Year
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (2,537,051
                                                                        )
                                                                        
                                                                        
                                                                        (2,537,051
                                                                        )Balance
      - April 30, 2008
                                                                        
                                                                        
                                                                        15,075,768
                                                                        
                                                                        
                                                                        
                                                                        1,508
                                                                        
                                                                        
                                                                        
                                                                        2,754,006
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (3,548,490
                                                                        )
                                                                        
                                                                        
                                                                        (792,976
                                                                        )Issuance
      of Stock for Servicesat
      average price of $0.47
                                                                        
                                                                        
                                                                        485,000
                                                                        
                                                                        
                                                                        
                                                                        48
                                                                        
                                                                        
                                                                        
                                                                        228,202
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        228,250Issuance
      of Stock for Interestat
      average price of $0.28
                                                                        
                                                                        
                                                                        100,000
                                                                        
                                                                        
                                                                        
                                                                        10
                                                                        
                                                                        
                                                                        
                                                                        27,990
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        28,000Issuance
      of Stock in exchange fordebt
      at an average price of $0.25
                                                                        
                                                                        
                                                                        500,000
                                                                        
                                                                        
                                                                        
                                                                        50
                                                                        
                                                                        
                                                                        
                                                                        124,950
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        125,000Exchange
      stock for cashless warrants
                                                                        
                                                                        
                                                                        156,655
                                                                        
                                                                        
                                                                        
                                                                        16
                                                                        
                                                                        
                                                                        
                                                                        (16
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -Warrants
      issued for services
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        36,060
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        36,060Warrants
      issued to directors
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        1,960,000
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        1,960,000Net
      loss for year
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (2,827,376
                                                                        )
                                                                        
                                                                        
                                                                        (2,827,376
                                                                        )Balance
      - April 30, 2009
                                                                        
                                                                        
                                                                        16,317,423
                                                                        
                                                                        
                                                                        
                                                                        1,632
                                                                        
                                                                        
                                                                        
                                                                        3,135,132
                                                                        
                                                                        
                                                                        
                                                                        1,996,060
                                                                        
                                                                        
                                                                        
                                                                        (6,375,866
                                                                        )
                                                                        
                                                                        
                                                                        (1,243,042
                                                                        )Issuance
      of stock for conversionof
      promissory notes
                                                                        
                                                                        
                                                                        2,290,036
                                                                        
                                                                        
                                                                        
                                                                        229
                                                                        
                                                                        
                                                                        
                                                                        572,280
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        572,509Issuance
      of stock for debt payment
                                                                        
                                                                        
                                                                        287,545
                                                                        
                                                                        
                                                                        
                                                                        29
                                                                        
                                                                        
                                                                        
                                                                        572,250
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        572,279Issuance
      of stock for services
                                                                        
                                                                        
                                                                        324,500
                                                                        
                                                                        
                                                                        
                                                                        32
                                                                        
                                                                        
                                                                        
                                                                        644,058
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        644,090Issuance
      of stock for services - officers
                                                                        
                                                                        
                                                                        125,000
                                                                        
                                                                        
                                                                        
                                                                        12
                                                                        
                                                                        
                                                                        
                                                                        247,988
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        248,000Issuance
      of stock for cashless
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        -warrant
      exercise
                                                                        
                                                                        
                                                                        29,491
                                                                        
                                                                        
                                                                        
                                                                        3
                                                                        
                                                                        
                                                                        
                                                                        (3
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -Issance
      of warrants for services
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        248,380
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        248,380Net
      loss for period
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (2,377,427
                                                                        )
                                                                        
                                                                        
                                                                        (2,377,427
                                                                        )Balance
      - April 30, 2010
                                                                        
                                                                        
                                                                        19,373,995
                                                                        
                                                                        
                                                                        $
                                                                        1,937
                                                                        
                                                                        
                                                                        $
                                                                        5,171,705
                                                                        
                                                                        
                                                                        $
                                                                        2,244,440
                                                                        
                                                                        
                                                                        $
                                                                        (8,753,293
                                                                        )
                                                                        
                                                                        $
                                                                        (1,335,211
                                                                        )





See the
notes to these financial statements.


F-4





SUN
RIVER ENERGY, INC.


(A
Development Stage Company)


STATEMENT
OF CASH FLOWS





October 22, 2002For the Year Ended
                                              
                                              
                                              (Inception) toApril 30,
                                              
                                              
                                              April 30,2010
                                              
                                              
                                              2009
                                              
                                              
                                              2010Cash
      Flows from Operating Activities:Net
      Loss
                                              
                                              $
                                              (2,377,427
                                              )
                                              
                                              $
                                              (2,827,376
                                              )
                                              
                                              $
                                              (8,753,293
                                              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                                              
                                              
                                              540
                                              
                                              
                                              
                                              420
                                              
                                              
                                              
                                              1,200Unrealized
      gain on marketale securities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (40,765
                                              )
                                              
                                              
                                              40,765Equity
      issued for services and interest
                                              
                                              
                                              1,140,470
                                              
                                              
                                              
                                              2,252,310
                                              
                                              
                                              
                                              3,995,620Amortization
      of consulting stock
                                              
                                              
                                              -
                                              
                                              
                                              
                                              7,880
                                              
                                              
                                              
                                              115,000Litigation
      expense
                                              
                                              
                                              150,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              550,000Gain
      on debt
                                              
                                              
                                              (75,773
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (75,773
                                              )Changes
      in current assets and liabilities:Decrease
      in current assets
                                              
                                              
                                              -
                                              
                                              
                                              
                                              52,600
                                              
                                              
                                              
                                              -Increase
      in accounts payable and accrued liabilities
                                              
                                              
                                              1,140,094
                                              
                                              
                                              
                                              349,351
                                              
                                              
                                              
                                              1,626,493Net
      Cash (Used) Received by Operating Activities
                                              
                                              
                                              (22,096
                                              )
                                              
                                              
                                              (205,580
                                              )
                                              
                                              
                                              (2,499,988
                                              )Cash
      Flows from Investing Activities:Increase
      in fixed assets
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1,200
                                              )Increase
      in other assets
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (423,833
                                              )
                                              
                                              
                                              (611,311
                                              )Sale
      of marketable securities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              52,600Acquisition
      - net of cash acquired
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (813,001
                                              )Net
      Cash used in investing activities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (423,833
                                              )
                                              
                                              
                                              (1,372,912
                                              )Cash
      Flows from Financing Activities:Common
      stock issued for cash
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,444,750Comon
      stock issued for debt/assets
                                              
                                              
                                              -
                                              
                                              
                                              
                                              125,000
                                              
                                              
                                              
                                              1,115,000Proceeds
      (Payments) from advances
                                              
                                              
                                              43,062
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              43,062Proceeds
      (Payments) from notes payable
                                              
                                              
                                              (20,000
                                              )
                                              
                                              
                                              531,226
                                              
                                              
                                              
                                              1,330,780Merger
      accounting
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (20,875
                                              )Net
      Cash Provided by Financing Activities
                                              
                                              
                                              23,062
                                              
                                              
                                              
                                              656,226
                                              
                                              
                                              
                                              3,912,717Net
      increase (decrease) in Cash
                                              
                                              
                                              966
                                              
                                              
                                              
                                              26,813
                                              
                                              
                                              
                                              39,817Cash
      and Cash Equivalents - Beginning of Period
                                              
                                              
                                              38,851
                                              
                                              
                                              
                                              12,038
                                              
                                              
                                              
                                              -Cash
      and Cash Equivalents - End of Period
                                              
                                              $
                                              39,817
                                              
                                              
                                              $
                                              38,851
                                              
                                              
                                              $
                                              39,817SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for interest expense
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -Cash
      paid for income taxes
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -SUPPLEMENTAL
      DISCLOSURE OF NON-CASH ACTIVITIES:Issuance
      of common stock for payment of debt
                                              
                                              $
                                              572,279
                                              
                                              
                                              $
                                              125,000
                                              
                                              
                                              $
                                              847,279Issuance
      of common stock for payment of promissory notes
                                              
                                              $
                                              572,509
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              847,509Issuance
      of common stock for marketable securities
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              400,000Issuance
      of common stock for other assets
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              440,000Issuance
      of equity for services
                                              
                                              $
                                              892,090
                                              
                                              
                                              $
                                              228,250
                                              
                                              
                                              $
                                              1,274,840





See the
notes to these financial statements.


F-5


SUN
RIVER ENERGY, INC.


(A
Development Stage Company)


Notes
To The Financial Statements


April
30, 2010





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





Organization





Sun River
Energy, Inc. (the “Company”) was incorporated on October 22, 2002, under the
laws of the State of Colorado.




Sun River
is an oil and gas exploration, development and production company engaged in
locating and developing petroleum resources primarily in the Raton Basin in
Colfax County, N.M. The Company’s past activities have targeted the
Mississippian and Pennsylvanian formations on the Company’s property in Colfax
County, N.M. As of April 30, 2010, Sun River held oil and gas mineral interests
in 158,960 gross acres (132,417 net acres) located in New Mexico. There are no
producing wells and three shut-in wells located on these
properties.




See
Subsequent Material Events set forth in Note 7 below, which identifies
significant material changes to the ownership and management of the
Company.




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”. Among the disclosures required 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.





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.


F-6




SUN
RIVER ENERGY, INC.


(A
Development Stage Company)


Notes
To The Financial Statements


April
30, 2010




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 Momentum
BioFuels, Inc. (“Momentum”) from a non-affiliate. At the time of the
acquisition, the Momentum 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).





During
the six months ended October 31, 2008, the Company had liquidated all of the
shares of common stock of Momentum. 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 year ended April 30,
2009.





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 year ended
April 30, 2009.





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





Under the
fair value recognition provisions, 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.





Prior to
May 1, 2009, the Company entered into a Consulting Agreement with a third party
for services. Payment for such services includes a monthly payment of 20,000
shares of the Company’s common stock and a warrant exercisable for 20,000 shares
of the Company’s common stock (see below). During the year ended April 30, 2010,
the Company issued 240,000 shares of the Company’s common stock to such
consultant. The Company recognized an expense of $456,340 (a range of $1.54 to
$2.73 per share, based on closing market prices on the date of issuance.) During
the year ended April 30, 2010, warrants exercisable for 240,000 shares were
issued by the Company. During the year ended April 30, 2010, the warrants
exercisable for 240,000 shares had exercise prices ranging from $1.54 to $2.73
per share. The total fair value of the options at the date of grant was $248,380
and was recorded as consulting expense. The warrants have a term of two years.
The warrants were valued using the Black-Scholes model.





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.


F-7




SUN
RIVER ENERGY, INC.


(A
Development Stage Company)


Notes
To The Financial Statements


April
30, 2010




Loss
Per Share





The
Company provides a 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 June
2009, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Codification (“ASC”) 105, “Generally Accepted Accounting Principles”
(formerly Statement of Financial Accounting Standards (“SFAS”) No. 168, “The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles”). ASC 105 establishes the FASB ASC as the single source
of authoritative nongovernmental U.S. GAAP. The standard is effective for
interim and annual periods ending after September 15, 2009. We adopted the
provisions of the standard on September 15, 2009, which did not have a material
impact on our financial statements.




In July
2010, the Financial Accounting Standards Board (“FASB”) issued Proposed Accounting Standard
Update (Topic 450) –
Disclosure of Certain Loss Contingencies. This amendment would lower the
current disclosure threshold and broaden the current disclosure requirements to
provide adequate and timely information to assist users in assessing the
likelihood, potential magnitude, and potential timing (if known) of future cash
outflows associated with loss contingencies. For public entities, the new
guidance would be effective for fiscal years ending after December 15, 2010, and
interim and annual periods in subsequent fiscal years. The Company is currently
evaluating the impact of the future adoption of the Update.





There
were various other accounting standards and interpretations issued in 2009 and
2010, none of which are expected to have a material impact on the Company’s
financial position, operations or cash flows.





Note
2 – Going Concern and Management’s Plan of Operations





Going
Concern





The
Company’s financial statements for the year ended April 30, 2010 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 $2,377,427 for the year ended April
30, 2010 and an accumulated deficit during the development stage of $8,753,293
as of April 30, 2010. At April 30, 2010, the Company’s total current liabilities
exceed total current assets by $2,333,991.


F-8




SUN
RIVER ENERGY, INC.


(A
Development Stage Company)


Notes
To The Financial Statements


April
30, 2010




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 support the
ongoing operations of the Company.





Note
3 – Leases and Mineral Rights





Mineral
Rights - New Mexico





The
Mineral rights in New Mexico are valued at $100,000 on the financial statements
based on the predecessor’s cost basis.





Note
4 – Notes Payable





Outstanding
Notes Payable





In April
2010, the Company issued a 4.0% unsecured corporate promissory note to a vender
for outstanding amounts totaling $300,759. The note is due on demand. At April
30, 2010, the note has a principal balance of $300,750 and accrued interest of
$329. In August 2010, the principal and accrued interest where both converted
into shares of the Company’s restricted common stock.





In April
2010, the Company issued a 4.0% unsecured corporate promissory note to an
individual for outstanding advances of $44,112. The note is due on demand. At
April 30, 2010, the note has a principal balance of $44,112 and accrued interest
of $48.34. In August 2010, the principal and accrued interest where both
converted into shares of the Company’s restricted common stock.





In April
2010, the Company issued a 4.0% unsecured corporate promissory note in exchange
for a prior promissory note for outstanding accrued interest on promissory notes
that’s principal had been converted into shares of the Company’s restricted
common stock. The promissory note had a principal balance of $37,412. The note
is due on demand. At April 30, 2010, the note has a principal balance of $37,412
and accrued interest of $41. In August 2010, the principal and accrued interest
where both converted into shares of the Company’s restricted common
stock.





In March
2009, the Company issued a 4.0% unsecured corporate promissory note to a vendor
for outstanding amounts owed totaling $88,230. The note is due on demand and
requires a monthly payment of $10,000. At April 30, 2010, the note has a
principal balance of $68,230 and accrued interest of $3,186.79. In August 2010,
the principal and accrued interest where both converted into shares of the
Company’s restricted common stock.





In
February 2008, the Company issued an 18% unsecured corporate promissory note to
a vendor for outstanding amounts owed totaling $373,540. The note is due on
demand. At October 31, 2009, the note had a principal balance of $373,540 and
accrued interest of $96,895. On October 31, 2009, the Board of Directors
approved the issuance of 241,249 shares of the Company’s restricted common stock
as payment of the principal and accrued interest. While such stock has been
issued, the holder of the promissory note has not accepted the shares as
settlement and so the Company has continued to accrue interest on the promissory
note. At April 30, 2010, there was accrued interest of
$130,237.


F-9


SUN
RIVER ENERGY, INC.
 (A
Development Stage Company)
 Notes
To The Financial Statements
 April
30, 2010


In
October 2007, the Company issued a 7.5% unsecured corporate promissory note for
$211,855. The note is due on demand. During the three months ended July 31,
2009, $69,154 in principal of the promissory note was converted into 324,036
shares of the Company’s common stock ($0.25 per share). At April 30, 2010, the
note has an outstanding balance of $142,701 and accrued interest of $23,510. In
August 2010, the principal and accrued interest where both converted into shares
of the Company’s restricted common stock.





In April
2006, in exchange for $150,000, the Company issued a 6% secured corporate
promissory note. The note is secured by certain leases held by the Company. At
April 30, 2010, the note has an outstanding principal balance of $6,637 and
accrued interest of $1,195.





In
December 2007, the Company issued a 7.5% unsecured corporate promissory note in
exchange for $75,000 to support operations. In June 2009, the Company issued
100,000 shares of its common stock in payment of $25,000 of the outstanding
principal ($0.25 per share). The note is due on demand. At September 16, 2009,
the note has an outstanding principal balance of $50,000 and accrued interest of
$6,916. On September 16, 2009, the Company issued 200,000 shares its common
stock in payment of the remaining $50,000 in principal ($0.25 per
share).





In
October 2007, the Company issued a 7.5% unsecured corporate promissory note in
exchange for $40,627 to support operations. The note has a due on demand. At
November 16, 2009, the note had an outstanding principal $40,627 and accrued
interest $1,696. On November 16, 2009, the Company issued 162,508 shares of
common stock in payment of the $40,627 in principal ($0.25 per share.) At
January 31, 2010, there was accrued interest of $1,696.





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 and it has been
assigned to unrelated parties, the due date extended several times and now been
divided into several notes. The new unsecured promissory notes have an annual
interest rate of 7.5% and are due on demand. During the year ended April 30,
2010, principal and accrued interest of $340,263 was converted into 1,303,092
shares of the Company’s common stock. At April 30, 2010, principal of $152,057
was outstanding with accrued interest of $4,213. In August 2010, the principal
and accrued interest where both converted into shares of the Company’s
restricted common stock.





Note
5 – 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. No shares have been issued at this time, nor have any classes been
established.


F-10


SUN
RIVER ENERGY, INC.
 (A
Development Stage Company)
 Notes
To The Financial Statements
 April
30, 2010


Common
Stock





Prior to
May 1, 2009, the Company entered into a Consulting Agreement with a third party
for services. Payment for such services includes a monthly payment of 20,000
shares of the Company’s common stock and a warrant exercisable for 20,000 shares
of the Company’s common stock (see Warrants below). During the year ended April
30, 2010, the Company issued 240,000 shares of the Company’s common stock to
such consultant. The Company recognized an expense of $456,340 (a range of $1.54
to $2.73 per share, based on closing market prices on the date of issuance.) In
addition, the Consulting Agreement provides for a one-time payment of 50,000
shares of the Company’s restricted common stock. These shares were issued during
the three months ended July 31, 2009 and the Company recognized an expense of
$110,000 ($2.20 per share based on closing market prices on the date of
issuance.)





During
the year ended April 30, 2010, the Company issued 65,000 shares of its
restricted common stock to individuals in return for their services on the
Company’s advisory board. The Company recognized an expense of $151,500 (at
prices ranging from $1.95 to $2.50 per share based on closing market prices at
the date of issuance.)





During
the year ended April 30, 2010, the Company issued 40,000 shares of its
restricted common stock to Mr. Kelloff and Mr. Leaver for their services as
officers of the Company (30,000 and 10,000 shares, respectively). The Company
recognized an expense of $83,500 ($1.95 and $2.50 per share based on closing
market prices at the date of issuance.)





During
the year ended April 30, 2010, the Company issued 4,500 shares of its restricted
common stock to an unrelated third party for services in the maintenance of the
Company’s website. The Company has recognized an expense of $11,250 ($2.50 per
share based on closing market prices at the date of issuance.)





During
the year ended April 30, 2010, the Company issued 2,290,036 shares of its common
stock to holders of promissory notes as payment of principal of $560,654 and
accrued interest of $11,855 ($0.25 per share.) (See Note 4)





During
the year ended April 30, 2010, the Company issued 287,545 shares of its
restricted common stock to vendors as payment for outstanding amounts totaling
$560,712 ($1.95 per share based on closing market price at the date of
issuance.)





During
the year ended April 30, 2010, the Company issued 29,491 shares of its
restricted common stock as a result of the cashless exercise of a warrant for
40,000 shares of the Company’s common stock.





Warrants





During
the year ended April 30, 2009, the Company entered into a Consulting Services
Agreement with a third party for services. Payment for such services includes a
monthly payment of 20,000 shares of the Company’s common stock and a warrant
exercisable for 20,000 shares of the Company’s common stock. During the year
ended April 30, 2010, the Company issued 240,000 shares of the Company’s common
stock to such consultant. During the year ended April 30, 2010, warrants
exercisable for 240,000 shares were issued by the Company. The warrants have a
term of 2 years, exercises prices based on closing market price on the last day
of the month of issuance and provide for a cashless exercise.


F-11




SUN
RIVER ENERGY, INC.
 (A
Development Stage Company)
 Notes
To The Financial Statements
 April
30, 2010


During
the year ended April 30, 2010, the warrants exercisable for 240,000 shares had
exercise prices ranging from $1.54 to $2.73 per share. The total fair value of
the options at the date of grant was $248,380 and was recorded as consulting
expense. The Company used the following assumptions to determine the fair value
of warrant grants during the year ended April 30, 2010:





2010Expected
      life
              1
      yearVolatility
              62%
      - 151%Risk-free
      interest rate
              4.5%
      - 4.75%Dividend
      yield
              0





The
expected term of the warrants represents the period of time that the stock
options granted are expected to be outstanding based on historical exercise
trends. The expected volatility is based on the historical price volatility of
the Company’s common stock. The risk-free interest rate represents the U.S.
Treasury bill rate for the expected life of the related warrants.





The
dividend yield represents our anticipated cash dividend over the expected life
of the warrants.





A summary
of warrant activity for the year ended April 30, 2010 is presented
below:





Shares
                  Under
                  Warrant
                
                
                Weighted
                  Average
                  Exercise
      Price
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
      Life
                
                
                Aggregate
                  Intrinsic
                  ValueOutstanding
      at May 1, 2009
                
                
                1,460,000
                
                
                $
                2.00
                
                
                1.93
      years
                
                
                $
                -Granted
                
                
                240,000
                
                
                
                -
                
                
                1.55
      years
                
                
                
                -Exercised
                
                
                (40,000
                )
                
                
                0.54
                
                
                
                -
                
                
                
                -Expired
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Outstanding
      at April 30, 2010
                
                
                1,660,000
                
                
                $
                2.00
                
                
                1.54 years
                
                
                $
                -





During
the year ended April 30, 2010, the Company issued 29,491 shares of its
restricted common stock in connection with the cashless exercise of warrants
exercisable for 40,000 shares.





Note
6 – Litigation





LPC Investments, LLC
Litigation





On
December 12, 2008, LPC Investments, 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 an
unsecured, 8.75% promissory note and conversion of 2,200,000 shares of the
Company’s common stock into a preferred note. LPC Investments sought not only
payment of the unsecured, 8.75% promissory note and accrued interest but also
attorney fees. A payment of $75,645 has been made on the promissory
note.


F-12




SUN
RIVER ENERGY, INC.
 (A
Development Stage Company)
 Notes
To The Financial Statements
 April
30, 2010


On August
18, 2009, the Court granted the Motion to Dismiss filed by LPC in July 2009. The
case has been dismissed without prejudice and all claims against the Company
have been dropped, however LPC has not withdrawn its conversion notice and
demand. Therefore, the Company has recorded a $550,000 litigation liability in
connection with the conversion notice and demand.





On
September 24, 2009, LPC Investments filed suit in the District Court of
Jefferson County, Colorado against the Company. Among other things, the suit
asks the Court to issue a declaratory judgment in requesting that 2.2 million
shares previously purchased by LPC Investments (the Disputed Shares) are indeed
owned by LPC Investments, and to direct the Company to co-operate with LPC
Investment's outstanding legend removal requests submitted to the Company's
transfer agent by LPC Investments. LPC Investments is also seeking payment of
attorney fees and costs. In that same litigation, on October 2, 2009, the
Company filed Counterclaims and Third Party Claims in the District Court of
Jefferson County, Colorado against LPC Investments and Kevin Paul. The claims
and the relief sought by the Company are substantially similar to the claims and
relief previously sought in the Douglas County litigation.





On June
23, 2010, the Company entered into a confidential settlement agreement regarding
its litigation with LPC and Kevin Paul described herein which require the
purchase of 1,900,139 shares of common from LPC and Paul over a specific period
of time. As July 23, 2010, 526,788 shares of stock have been purchased by third
party investors consistent with the terms of the settlement
agreement.





Spencer
Edwards Litigation





On March
10, 2010, the Company filed an Original Petition and Application for Temporary
Injunction and Permanent Injunctive Relief in the County Court of Dallas County,
Texas. The case is styled: Sun River Energy, Inc., JH Brech, and Richard L.
Toupal v. Spencer Edwards, Inc. Cause No. cc-10—1676-E, in the County Court at
Law # 5, Dallas County, Texas.





The suit
alleges among other things Spencer Edwards, Inc. has repeatedly violated Rule
144 of the U.S. Securities Act of 1933 in the selling of common shares of the
Company on the open market which was a basis of the underlying litigation
against Kevin Paul in Case No. 2009CV4859 the District Court of Jefferson
County, Division 8, Colorado. This case is in the discovery phase. The Company
is seeking actual damages and costs and attorney’s fees.





Note
7 – Subsequent Events





Acquisition
Activity




On August
3, 2010, the Company acquired all of the outstanding capital stock of PC
Operating Texas Inc. (“PC Operating”), a Texas corporation, pursuant to the
terms of a Share Purchase Agreement among the Company, Donal R. Schmidt Jr. and
Thimothy Wafford. In connection with the acquisition of PC Operating, the
Company issued a total of 250,000 shares of its restricted common stock, to each
of Messrs. Schmidt and Wafford, the shareholders of PC Operating.




Subsequently,
the Company changed the name of PC Operating to Sun River Operating, Inc. Sun
River Operating, Inc. is a full service oil & gas operating company located
in Dallas Texas. It owns office equipment, software, furniture and personal
property that allow it to conduct operations in multiple geographic areas. In
addition, it employees a staff of two attorneys, a CPA, two accountants, a land
technical, a geologist and two petroleum engineers.


F-13




SUN
RIVER ENERGY, INC.


(A
Development Stage Company)


Notes
To The Financial Statements


April
30, 2010




On August
3, 2010, the Company also acquired leasehold and well bore interests from FTP
Oil & Gas LP (“FTP”), pursuant to the terms of a Purchase and Sale Agreement
between the Company and FTP. In consideration for the acquisition, the Company
issued an aggregate of 1,388,000 restricted shares of its common stock to FTP
owned by Mssrs. Schmidt and Wafford and a convertible note in the principal
amount of $1,000,000.00 was issued to FTP. The convertible note has a term of
one year, bears interest at the rate of 8.0% per annum, and is convertible into
shares of the Company's Common Stock at a conversion rate of $1.50 per
share.




The
acquisition of assets from FTP include approximately 2,148 gross acres (1,610
net acres) in Tom Green County, Texas, which consists of four prospects
developed by industry partner Fairchild Petroleum of Midland, Texas. In
addition, the Company acquired a 39% working interest with a 29.25% net revenue
interest in two wells on the acreage as described below. Additionally, FTP
assigned to the Company its rights, title and interest in certain participation
agreements and a surface use agreement.




Effective
August 1, 2010, Mr. Schmidt was employed by the Company as the Chief Executive
Officer, President. In addition, he was appointed as a director of the Company
where he serves as the Chairman of the Board of Directors consistent with the
bylaws of the Company. At the same time, Mr. Wafford was employed the Chief
Operating Officer of the Company and Mr. Robert Fields was appointed to the
Board of Directors.





Issuance
and Conversion of Promissory Notes





On July
27, 2010, the Company issued to Cicerone Corporate Development, LLC, a
Commercial Promissory Note for $629,105 in connection with their outstanding
accounts payable balance. The Promissory Note is unsecured due on demand, bears
a 4 % per annum interest rate and provides for a conversion into shares of the
Company's common stock at $1.45 per share. On August 3, 2010 the note was
converted to common stock in the amount of 434,200 restricted s common
shares.





As set
forth in Note 4 above, on August 6, 2010, the Company converted an aggregate of
$1,416,341 of outstanding promissory notes into 1,530,597 shares of the
Company’s common stock. The promissory notes were converted at rates of $0.25
per share to $1.50 per share depending upon the terms of the individual
promissory notes.





Stock
Issuance





In July
2010, the Company issued 325,000 shares of its restricted common stock to its
officers and directors for services.





The
Company has evaluated it activities subsequent to the year ended April 30, 2010
through August 10, 2010 and found no other reportable subsequent events, then
those disclosed above.


F-14