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SURE > SEC Filings for SURE > Form 10-Q on 11-Apr-2014All Recent SEC Filings

Show all filings for SONORA RESOURCES CORP.

Form 10-Q for SONORA RESOURCES CORP.


11-Apr-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements and Associated Risks.

This report contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management's plans and objectives for future operations. In some cases, you can identify forward-looking statements by the use of terminology such as "may" , "should" , "expect" , "plan" , "anticipate" , "believe" , "estimate" , "predict" , "potential" or "continue" or the negative of these terms or other comparable terminology. Examples of forward-looking statements made in this report include statements about:

? our plan of operations;

? our future exploration programs and results;

? our expectations regarding the impact of various accounting policies;

? our future capital expenditures; and

? our future investments in and acquisitions of mineral resource properties.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including:

? risks and uncertainties relating to the interpretation of sampling results, the geology, grade and continuity of mineral deposits;

? risks and uncertainties that results of initial sampling and mapping will not be consistent with our expectations;

mining and development risks, including risks related to accidents, ? equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in production;

the potential for delays in exploration activities; risks related to the ? inherent uncertainty of cost estimates and the potential for unexpected costs and expenses;

? risks related to commodity price fluctuations;

? the uncertainty of profitability based upon our limited history;

? risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned exploration project;

? risks related to environmental regulation and liability;

risks that the amounts reserved or allocated for environmental compliance, ? reclamation, post- closure control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;

? risks related to tax assessments;

? political and regulatory risks associated with mining development and exploration; and

? the risks in the section entitled "Risk Factors".

Any of these risks could cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements contained in this quarterly report.

While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

In this report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares" refer to the common shares in our capital stock.


Plan of Operation

We were incorporated under the laws of the State of Nevada on December 3, 2007. We are a mining exploration company focused on the acquisition and development of prospective silver and gold opportunities in Mexico. On July 12, 2011, we established a 100% owned subsidiary, Finder Plata S.A. de C.V. ("Finder Plata") for the development of our exploration business in Mexico.

The worldwide silver market experienced a strong decline in the prices during 2013. As a result, we made the decision in September 2013 to focus on the Los Amoles Property in 2014 and the Jalisco Properties in 2015, each as further described below. As of February 28, 2014, we had cash of $73,000 and working capital deficit of $875,000, including accrued contract termination costs of $618,000 related to the Mining Option Agreement for the Ayones Property. We have incurred operating losses since inception, and this is likely to continue. We expect to cancel the Mining Option Agreement for the Ayones Property and have cancelled the Mining Option Agreement for the Corazon Property. We recorded an impairment expense of $445,000 related to the Ayones and Corazon Properties as of November 30, 2013. Another agreement, the Joint Venture and Benefits Agreement in Liz, Mexico, expired on December 15, 2013.

We require funds to enable us to address our minimum current and ongoing expenses. Presently, we do not generate any revenue and expect to incur significant operating and capital expenses. Management projects that we may require an additional approximately $133,000 to fund our operating expenditures for the next twelve month period for the exploration of the Los Amoles Property. The exploration of the Jalisco Properties is scheduled for 2015.

On March 15, 2013, we closed the Asset Purchase Agreement with Yale Resources to purchase all of the rights, title and interest in and to the Los Amoles 2 and Los Amoles 3 Fracc.1 properties, consisting of 2,166 hectares located in the State of Sonora Mexico (the "Los Amoles Property"). We purchased the Los Amoles Property from Yale by issuing 1,000,000 of restricted common shares and paying $200,000 in cash. We commenced an underground work program at the Los Amoles Property and completed a geologic report to define the potential vein structure and outcroppings and prepare for a planned drilling program in 2014.

We also have a Mining Option Agreement with First Majestic, an existing shareholder and creditor of the Company for the Jalisco Group of Properties. The Jalisco Properties consist of mining claims totaling 5,240 hectares located in Jalisco, Mexico. As of February 21, 2014, we have not spent any funds on the properties. We are required to spend $3,000,000 by April 15, 2014 to earn 50% interest in the Jalisco Properties and an additional $2,000,000 to earn an additional 20% interest by April 15, 2016 on exploration expenses. An additional 20% interest in and to the Jalisco Properties can be earned by completing a bankable feasibility study no later than the seventh anniversary of the Agreement. We expect to amend the Mining Option Agreement with First Majestic and delay our required expenditures.

Our principal executive office is located at Cerro del Padre # 11 Rinconada de los Pirules, Guadalupe, Zacatecas Mexico, 98619. The Company's US mailing address is PO Box 12616, Seattle, WA 98111 and our telephone number is 1-877-513-7873.

We are currently in the exploration stage as defined in ASC 915 "Accounting and Reporting for Development Stage Enterprises" and have minimal operations.

We have incurred a cumulative net loss since inception on December 3, 2007 to February 28, 2014 of $3,740,000 and has no source of operating revenue. While the Company's management believes that the Company will be successful in its planned operating activities under our business plan and capital raising activities, there can be no assurance that it will be successful in the mining development and exploration business or the raising of sufficient capital such that it will generate adequate revenues to earn a profit or sustain its operations. These and other factors raise doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates our continuation as a going concern. We have not established a source of revenues sufficient to cover its operating costs, and as such, have incurred an operating loss since inception. Further, as of February 28, 2014, we have a working capital deficit of $875,000, including accrued contract termination costs of $618,000 related to the Mining Option Agreement for the Ayones Property. These and other factors raise doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.

Key Market Priorities

Our primary key market priority will be to explore our Los Amoles and Jalisco Properties in order to determine whether they possess commercially exploitable quantities of gold, silver, and other metals. We cannot guarantee that the Los Amoles or Jalisco Properties will be successful or that any project that we embark upon will be successful. Our goal is to build our Company into a successful mineral exploration and development company.

Primary Market Risks

We are exposed to various risks related to our need for additional financing, the volatility of the price of silver, our reserve estimates, operating as a going concern, unique difficulties and uncertainties in mining exploration ventures, and a volatile market price for our common stock. These risks and uncertainties are discussed in more detail below in this item.


Results of Operations

The following table presents certain consolidated statement of operations
information and presentation of that data as a percentage of change from
period-to-period.

(dollars in thousands)

                                                 Three months Ended February 28,
                                        2014         2013      $ Variance       % Variance

Revenue                               $      -      $    -     $         -
Cost of sales                                -           -               -
Gross profit                                 -           -               -
General and administrative expenses         95          96               1             -1.0 %
Exploration expenses                         -           5               5           -100.0 %
Accrued contract termination costs         618           -            (618 )         -100.0 %
operating loss                             713         101            (612 )         -605.9 %
Other income (expense):

Interest expense                             -           -               -              0.0 %
Total other expense                          -           -               -              0.0 %
Net loss                                  (713 )      (101 )          (612 )         -605.9 %

For the Three Months ended February 28, 2014 compared to the Three Months ended February 28, 2013

We have not generated any revenues during the three months ended February 28, 2014 and 2013. The worldwide silver market has experienced a strong decline in the prices during 2013. As a result, we made the decision in September 2013 to focus on the Los Amoles Property in 2014 and the Jalisco Properties in 2015.

General and administrative expenses for the three months ended February 28, 2014 decreased $1,000 to $95,000 as compared to $96,000 for the three months ended February 28, 2013. This decrease related to reduced expenses during the three months ended February 28, 2014.

Exploration expenses for the three months ended February 28, 2014 decreased $5,000 to $0 as compared to $5,000 for the three months ended February 28, 2013. This decrease related to reduced exploration activities during the three months ended February 28, 2014.

The net loss for the three months ended February 28, 2014 was $713,000 as compared to a net loss of $101,000 for the three months ended February 28, 2013. The increase related to accrued contract termination costs of $618,000 during the three months ended February 28, 2014 related to the expected cancellation of the Mining Option Agreement for the Ayones Property.

Liquidity and Capital Resources

As of February 28, 2014, we had cash of $73,000 and working capital deficit of $875,000, including accrued contract termination costs of $618,000. We have incurred operating losses since inception, and this is likely to continue. We expect to cancel the Mining Option Agreement for the Ayones Property and have cancelled the Mining Option Agreement for the Corazon Property. We recorded an impairment expense of $445,000 related to the Ayones and Corazon properties as of November 30, 2013 Anetler agreement. The Joint Venture and Benefits Agreement in Liz, Mexico, expired on December 15, 2013.

We require funds to enable us to address our minimum current and ongoing expenses. Presently, we do not generate any revenue and expect to incur significant operating and capital expenses. Management projects that we may require an additional approximately $433,000 to fund our operating expenditures for the next twelve month period for the Los Amoles Property. The exploration of the Jalisco Properties is scheduled for 2015.


Operating Activities

Net cash used in operating activities for the three months ended February 28, 2014 was $40,000, compared with net cash used of $64,000 for the three months ended February 28, 2014. This amount was primarily related to a net loss of $713,000, offset by non-cash expenses of $629,000.

Financing Activities

Net cash provided by financing activities for the three months ended February 28, 2014 was $100,000. This is due to the issuance of demand promissory note for $100,000 to First Majestic.

We must raise additional funds or achieve profitable operations in order to continue as a going concern. We may not be successful in our efforts to raise additional funds. Even if we are able to raise additional funds through the sale of our securities or through the issuance of debt securities, or loans from our director or financial institutions, our cash needs could be greater than anticipated in which case we could be forced to raise additional capital. At the present time, we have no commitments for any additional financing, and there can be no assurance that, if needed, additional capital will be available to us on commercially acceptable terms or at all.

These conditions raise substantial doubt as to our ability to continue as a going concern, which may make it more difficult for us to raise additional capital when needed. If we cannot get the needed capital, we may have to curtail or cease our operations.

Our unaudited contractual cash obligations as of February 28, 2014 are summarized in the table below:

                                                 Less Than                                       Greater Than 5
Contractual Cash Obligations        Total          1 Year       1-3 Years        3-5 Years            Years
Operating leases                  $        0     $        0     $        0     $           0     $             0
Capital lease obligations                  0              0              0                 0                   0
Note payable                         300,000        300,000              0                 0                   0
Mining expenditures                  246,000        123,000        123,000                 0                   0
Acquisitions                               0              0              0                 0                   0
                                  $ 546,000      $  423,000     $ 123,000      $           0     $             0

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Critical Accounting Policies

The application of GAAP involves the exercise of varying degrees of judgment. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies (see summary of significant accounting policies more fully described in Note 2 to the financial statements set forth in this report), the following policies involve a higher degree of judgment and/or complexity:

Foreign Currency Translation

We maintain our accounting records in U.S. Dollars. Our Finder Plata records are maintained in Mexican Pesos. At the transaction date, each asset, liability, revenue and expense involving foreign currencies is translated into U.S. dollars by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities involving foreign currencies are re-measured by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations. Our currency exposure is insignificant and immaterial and we do not use derivative instruments to reduce our potential exposure to foreign currency risk.

Mineral Properties

Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims. Costs to maintain the mineral rights and leases and explore are expensed as incurred. When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves.

Mineral properties are periodically assessed for impairment of value and any diminution in value.


Stock-Based Compensation

The Company adopted ASC 718, Compensation - Stock-Based Compensation, to account for its stock options and similar equity instruments issued. Accordingly, compensation costs attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and expensed over the expected vesting period. ASC 718 requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid.

Impairment of Long-lived Assets

Long-lived assets are reviewed for impairment in accordance with FASB ASC 360, Property, Plant, and Equipment. Under FASB ASC 360, these assets are tested for recoverability annually or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. An impairment charge is recognized for the amount, if any, when the carrying value of the asset exceeds the fair value. The Company expects to cancel the Mining Option Agreement for the Ayones Property and has cancelled the Mining Option Agreement for the Corazon Property. We recorded an impairment expense of $445,000 related to the Ayones and Corazon Properties as of November 30, 2013.

Going Concern

Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on the annual financial statements for the year ended November 30, 2013, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further financing. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further funds required for our continued operations or for our entry into the mining exploration and development industry. We are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due.

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