Telco Cuba, Inc. - Quarter Report: 2011 May (Form 10-Q)

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2011

[ ] 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: 000-53157

SUNGRO MINERALS, INC.
(Exact name of registrant as specified in its charter)

111 Airport Rd. – Unit 5, Warwick, RI  02889
(Address of principal executive offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code:   401- 648-0805

_______________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

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 (§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 [ ]

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.

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

The number of shares of common stock outstanding as of July 14, 2011 was 104,499,857

The number of shares of preferred stock outstanding as of July 14, 2011 was 3,000

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

Forward Looking Statements

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risks and Uncertainties” beginning on page 13 and the risks set out below, any of which may cause our company’s 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 these forward-looking statements. These risks include, by way of example and not in limitation:

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the uncertainty that we will not be able to successfully identify and evaluate a suitable business opportunity;

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risks related to the large number of established and well-financed entities that are actively seeking suitable business opportunities;

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risks related to the failure to successfully manage or achieve growth of a new business opportunity; and

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other risks and uncertainties related to our business strategy.

This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.

Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. 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.

Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

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

As used in this quarterly report, the terms “we”, “us”, “our”, “our company” and “Sungro” mean Sungro Minerals Inc., unless otherwise stated.

Sungro Minerals Inc.

(An Exploration Stage Company)

Notes to the Unaudited Financial Statements

 For the six months ended May 31, 2011 and 2010

1.

Nature of Operations and Going Concern

Sungro Minerals Inc. (the “Company”) was incorporated in the State of Nevada on August 10, 2007. The Company is engaged in the exploration, development, and acquisition of mineral properties.

The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern; accordingly, they do not give effect to adjustment that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and retire its liabilities in other than the normal course of business and at amounts different from those in the accompanying financial statements. As shown in the accompanying financial statements, the Company incurred a net loss of $772,558 for the six months ended May 31, 2011, and has an accumulated deficit of $9,059,804.  Management plans to raise cash from public or private debt or equity financing, on an as needed basis and in the longer term, to generate revenues from the acquisition, exploration and development of mineral interests, if found. The Company's ability to continue as a going concern is dependent upon achieving profitable operations and/or upon obtaining additional financing. The outcome of these matters cannot be predicted at this time.    

2.

Basis of Presentation

These interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles for financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended May 31, 2011 are not necessarily indicative of the results that may be expected for any interim period or an entire year. The Company applies the same accounting policies and methods in its interim financial statements as those in the most recent audited annual financial statements.  The financial statements and notes included herein should be read in conjunction with the annual financial statements and notes for the year ended November 30, 2011 included in the Company’s filing of Form 10K.

3.

Summary of Significant Accounting Policies

a)   Exploration Stage Company

The Company is considered to be in the exploration stage. The Company is devoting substantially all of its present efforts to exploring and identifying mineral properties suitable for development.

b)   Accounting Principles

The accounting and reporting policies of the Company conform to United States generally accepted accounting principles applicable to exploration stage enterprises.

c)   Mineral Property Exploration

The Company is in the exploration stage and has not yet realized any revenue from its planned operations.  Mineral property acquisition costs are capitalized. Additionally, mine development costs incurred either to develop new ore deposits and constructing new facilities are capitalized until operations commence.  All such capitalized costs are amortized using a straight-line basis, based on the minimum original license term at acquisition, but do not exceed the useful life of the capitalized costs.  Upon commercial development of an ore body, the applicable capitalized costs would then be amortized using the units-of-production method.  Exploration costs, costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations.  Costs of abandoned projects are charged to operations upon abandonment.  The Company evaluates, at least quarterly, the

carrying value of capitalized mining costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded.  The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected cash flows and/or estimated salvage value in accordance with guidance issued by the FASB, "Accounting for Impairment or Disposal of Long-Lived Assets."

d)   Foreign Currency Translation

The Company's functional and reporting currency is the U.S. Dollar. All transactions initiated in foreign currencies are translated into U.S. dollars in accordance with guidelines issued by the FASB as follows:

1.

monetary assets and liabilities at the rate of exchange in effect at the balance sheet date; and

2.

non-monetary assets at historical rates; and

3.

revenue and expense items at the average rate of exchange prevailing during the period.

Gains and losses from foreign currency transactions are included in the statement of operations.

As of May 31, 2011, the Company only operates in the United States.

e)   Cash and Cash Equivalents

For purposes of the statement of cash flows, cash includes demand deposits, saving accounts and money market accounts. The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents.

f)   Use of Estimates

The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those reported.

g)   Accounts receivable and concentration of credit risk

The Company currently has no accounts receivable, no customers, and therefore, does not currently foresee a concentrated credit risk associated with trade receivables.  If and when the Company commences operations that generate revenue, the Company will evaluate the receivable in light of the collectability in the normal course of business.  

h)   Fair Value Measurements

Valuation Hierarchy

ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring and non-recurring basis as of May 31, 2011:

The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors based on historical quoted market prices for the Company’s common stock, and are classified within Level 3 of the valuation hierarchy.

The following is a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

The fair value of the derivative liability at May 31, 2011 and November 30, 2010, totaling $309,812 and $139,233, respectively, was calculated using the Black-Scholes Option Pricing model under the assumptions detailed in Note 4. Gains and losses (realized and unrealized) included in earnings (to change in fair value of derivative liability) for the six months ended May 31, 2011 and six months ended May 31, 2010, are reported in other expenses as follows:

i)   Loss per Common Share

Net loss per common share is based on the weighted average number of shares outstanding. Potential common shares includable in the computation of fully diluted per share results are not presented in the financial statements as their effect would be anti-dilutive.

j)   Reclassifications

Certain prior year financial statement balances have been reclassified to conform to the current year presentation. These reclassifications had no effect on the recorded net loss.

k)   Recently Adopted Accounting Pronouncements

There are several new accounting pronouncement issued or proposed by the Financial Accounting Standards Board (“FASB”).  Each of these pronouncements, as applicable, has been or will be adopted by the Company.  Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or operating results.  

4.

 Derivative Liabilities

In June 2008, the FASB finalized ASC 815, “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” Under ASC 815, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has determined that it needs to account for 10 convertible debentures (see note 3h) issued for its shares of common stock, as derivative liabilities, and apply the provisions of ASC 815. The instruments have a ratchet provision that adjust either the exercise price and/or quantity of the shares as the conversion price equals to 60% of the "market price" at the time of conversion, which "market price" will be calculated as the average of the three lowest "trading prices" for the Company's common stock during the ten day trading period prior to the date the conversion note is sent to the Company.

As a result, the instruments need to be accounted for as derivative liabilities. In accordance with ASC 815, these convertible debentures have been re-characterized as derivative liabilities. ASC 815, “Accounting for Derivative Instruments and Hedging Activities” (“ASC 815”) requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in fair value reported in the consolidated statement of operations.

The fair value of the derivative liabilities was measured using the Black-Scholes option pricing model and the following assumptions:

*(1) – Debentures converted to shares during the first quarter

**(2) – Debentures converted to shares during the second quarter

The discount rate was based on rates established by the Federal Reserve. The Company based expected volatility on the historical volatility for its common stock. The expected life of the debentures was based on their full term. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

During the six months ended May 31, 2011 the Company recorded $231,383 as debt discount on $347,076 in convertible debt that it had entered into during the six months ended May 31, 2011, due to the beneficial conversion feature of the debt being convertible into shares of the Company’s common stock at a conversion price below that of market on the date of entry into the convertible debt agreement. This debt will be amortized over the life of the debt, or until such time that the debt is converted with any unamortized debt discount being expensed at such time of early conversion. The convertible debt is presented net of the debt discount.

In addition to the debt discount, the Company recorded a derivative liability associated with the convertible debts, as the conversion price of most debentures is variable with a conversion threshold of 60% of the market value of the Company’s common stock on the date of conversion except for the debenture for $147,076 which has a conversion threshold of 70% of the market value of the Company’s common stock on the date of conversion. The initial measurement of this derivative liability is based on the value of the shares that could be issued upon entry into the convertible debt agreement. Such valuation is determined using a fair value valuation model of the potential shares that could be issued. The difference between the initial value of the derivative liability and the debt discount is charged as an expense on the change in fair value of derivative liabilities upon entry in the debt agreement. The derivative liability is adjusted at each reporting period date based on the conversion rate available at each reporting date, or until such time as the convertible debt is converted. The initial derivative liability for all convertible debt issued during the six months ended May 31, 2011 was $445,099, offset by the debt discount of $231,383, with the remaining $213,716 offset charged to change in fair value of derivative liabilities. The value of the derivative is presented as the derivative liability in the accompanying balance sheet of the Company, less any adjustments to the value of the derivative.

At May 31, 2011, the Company reevaluated the derivative liability based on the fair value assumptions for the convertible debt that it had entered into during the six months then ended. As of May 31, 2011,

the derivative liability recorded during the six months then ended, decreased by $60,804 due to the conversion threshold being lower at this reporting date than on the date that the convertible debt had been entered into.

5.

Notes Payable

In October 2010, the Company renewed for an additional year a $110,000 from a one year note with a non-affiliated, accredited investor.  The Note carries interest at a rate of 15% per annum.

In December 2009, the Company raised $60,000 from a demand note from a non-affiliated, accredited investor.  The Note carries interest at a rate of 15% per annum.

Between December 2010 and May 2011, the Company raised $113,470 from a shareholder.  During the same period, the Company repaid $59,000 in existing demand notes.  The notes are recorded as demand notes and carry interest at a rate of 15% per annum.  In March, $147,076 of these notes and accrued interest was sold to a non-affiliated third party and converted to convertible debenture.

6.

Mineral Properties

On August 27, 2009, the Company entered into a Mineral Agreement (the "Agreement") with unrelated parties to acquire a 100% interest in 331 unpatented lode mining claims known as the Conglomerate Mesa.  The claims are located in Inyo Mountain County, California.  

By written, mutual agreement between the parties, the final closing of the Agreement was extended to March 31, 2010.  Under the agreement, Sungro was required to make all filings related to the Conglomerate Mesa Properties, to maintain the Conglomerate Mesa Claims in good standing by preparing and filing and paying claim fees to the Bureau of Land Management, and keeping the claim area free and clear of all liens and encumbrances.

Payments under the Agreement consist of:

As of May 31, 2011, the Company is current with all payments under the terms of the Agreement.

In March 2011, the Company completed the addition of 217 unpatented claims at the Conglomerate Mesa project at a cost of $35,550 for the staking of the claims.  This brings our total claims to 548.

7.

Related party transactions

From time to time, our former CEO, Mal Bains lent money to the Company.  At May 31, 2011 the balance owed was $20,521.  The balance does not bear interest and is due on demand.  

During the year ended November 30, 2010, the Company received advances from its CFO, Erwin Vahlsing, Jr. totaling $58,254 to cover miscellaneous administrative costs and payments to maintain its claims.  These advances are non-interest bearing and payable upon demand.  At May 31, 2011 the balance owed was $0 as the prior balance was assigned to a shareholder in a private transaction.

8.

Capital Stock

a)

Authorized

Authorized capital stock consists of:

375,000,000 common shares with a par value of $0.001 per share; and

1,000,000 preferred shares with a par value of $0.001 per share

b)

Share Issuances

In December 2010, the Company cancelled 3,500,000 common shares previously issued in November 2010 as compensation for consulting services.  The consultant failed to fulfill their obligations under the Consulting Agreement.  The shares were cancelled at a price of $0.075 per share; the price on the date the shares were surrendered to the Company.    

In December 2010, the Company issued 4,696,518 common shares in connection with the conversion of $62,389 of convertible debentures and accrued interest.  The conversions had an average price of $0.0133 per share.  

In December 2010, the Company issued 2,500,000 common shares for gross proceeds of $50,000 under a Subscription Agreement with a non-affiliated, accredited investor.

In December 2010, the Company issued 1,500,000 common shares to Internet Marketing Solutions, Inc. as compensation for consulting services rendered.  The shares were issued at a price of $0.047 per share the closing market price on the date of issuance.  

In January 2011, the Company issued 437,956 common shares in connection with the conversion of $12,000 of convertible debentures.  The conversions had an average price of $0.0274 per share.  

In January 2011, the Company issued 1,000,000 common shares to the Company’s president and a director at a price of $0.05 per share as compensation.

In January 2011, the Company issued 1,500,000 common shares to the Company’s Chief Financial Officer and a director at a price of $0.05 per share as compensation.

In January 2011, the Company issued 500,000 common shares to the Company’s Investor Relations Manager at a price of $0.05 per share as compensation.

In February 2011, the Company issued 953,126 common shares in connection with the conversion of $24,400 of convertible debentures and accrued interest.  The conversions had an average price of $0.0256 per share.  

In February 2011, the Company issued 1,000,000 common shares to Internet Marketing Solutions, Inc. as compensation for consulting services rendered.  The shares were issued at a price of $0.057 per share the closing market price on the date of issuance.  

In March 2011, the Company issued 1,000,000 common shares to Internet Marketing Solutions, Inc. as compensation for consulting services rendered.  The shares were issued at a price of $0.06 per share the closing market price on the date of issuance.  

In March 2011, the Company issued 6,667 common shares to a non-affiliated, accredited investor in connection with a Subscription Agreement previously recorded as “Stock to be issued”.  The shares were issued at a price of $0.75 per share the closing market price on the date of the original subscription.  

In March 2011, the Company issued 2,196,629 common shares in connection with the conversion of $78,080 of convertible debentures and accrued interest.  The conversions had an average price of $0.0356 per share.  

In April 2011, the Company issued 1,879,699 common shares in connection with the conversion of $50,000 of convertible debentures and accrued interest.  The conversions had an average price of $0.0266 per share.  

In May 2011, the Company issued 1,302,827 common shares in connection with the conversion of $30,000 of convertible debentures and accrued interest.  The conversions had an average price of $0.023 per share.  

In May 2011, the Company issued 243,902 common shares as compensation for consulting services rendered in the amount of $10,000.  The shares were issued at a price of $0.041 per share the closing market price on the date of issuance.  

In December 2009, the Company issued 3,000 Preferred A Series shares to a vendor in exchange for $200,000 of services rendered.  On a fully converted basis, the common share value is $0.067 per share which is the average market price at the time of invoicing.  

9.

Commitments and Contingencies

In August, 2009, trading in the Company’s stock was temporarily suspended in British Columbia, Canada by the British Columbia Securities Commission (BCSC).  The temporary suspension was the result of what the BCSC termed “suspicious trading activity” due to a significant increase in the share price of the Company’s stock price.  Various shareholders, and the former CEO and President, Malkeet Bains have been interviewed.  To date, no charges of wrongdoing have been made against the Company; however, the BCSC has requested various documents and information as part of the investigation.  The Cease Trade Order is still in effect regarding trading in British Columbia, Canada, and the residents thereof.  The Company cannot be certain of the outcome of the proceedings; however, we do not believe they will impact the Company itself.  Accordingly, the Company has not reserved for any additional legal fees, which the Company believes will be nominal and expensed as incurred.  

Under a consulting agreement between Sungro and Internet Marketing Solutions, Inc. (IMS) provides that IMS will receive a Consulting Fee of ten percent (10%) of the gross value of the project received by Sungro including cash, stock and stock purchase warrants.

10.

Subsequent Events

Management evaluated subsequent events through the date of this filing to determine if such events would require adjustment to or disclosure in the financial statements.  

In June 2011, the Company issued 11,272,916 common shares in connection with the conversion of $135,784 of convertible debentures and accrued interest.  The conversions had an average price of $0.012 per share.  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The financial data presented below should be read in conjunction with the more detailed financial statements and related notes, which are included elsewhere in this report. Information discussed herein, as well as elsewhere in this quarterly report on Form 10-Q, includes forward-looking statements or opinions regarding future events or the future financial performance of the Company, and are subject to a number of risks and other factors which could cause the actual results to differ materially from those contained in forward-looking statements. Among such factors are general business and economic conditions, and risk factors as listed in its Annual Report on Form 10-K or listed from time to time in documents filed by the Company with the Securities and Exchange Commission.

Our Current Business

We are an exploration stage company. To date, our activities have been limited to organizational matters, the negotiation and acquisition of the Conglomerate Mesa Claims and the development of these claims. We have completed all payments and stock issuances in connection with the acquisition of the Conglomerate Mesa Claims and have received our first NI43-101 Report which benchmarks the expected mineralization contained in the claims.  In addition, during its second quarter, the Company staked and filed an additional 217 claims bringing the total number of claims for development to 548.  Our company has not generated revenues since inception and has accumulated losses of $9,059,804 since inception. We do not anticipate earning revenues until such time as we have entered into commercial production of any mineral or oil and gas properties we acquire. We can provide no assurance that we will discover commercially exploitable levels of mineral resources or oil and gas resources on properties we acquire, or if such resources are discovered, that we will enter into commercial production of properties we acquire.

We are currently seeking additional opportunities in the oil, gas, and mining industries. Simultaneously, we are seeking business opportunities with established business entities for the merger of a target business with our company.  In certain instances, a target business may wish to become a subsidiary of our company or may wish to contribute assets to us rather than merge. We have currently closed on the acquisition of a Mineral Agreement, added additional claims, and expect to perform additional exploration of the claims during the current fiscal year.  We anticipate that any new acquisition or business opportunities by our company will require additional financing. There can be no assurance, however, that we will be able to acquire the financing necessary to enable us to pursue our plan of operation. If our company requires additional financing and we are unable to acquire such funds, our business may fail.

As an exploration stage company, we are not able to fund our cash requirements through our current operations. Historically, we have been able to raise a limited amount of capital through private placements of our equity stock, but we are uncertain about our continued ability to raise funds privately. Further, we believe that our company may have difficulties raising capital until we either confirm the value of our current claims, or locate a prospective property through which we can pursue our plan of operation. If we are unable to secure adequate capital to continue our acquisition efforts, our shareholders may lose some or all of their investment and our business may fail.

Results of Operations

The following summary of our results of operations should be read in conjunction with our unaudited financial statements for the six month periods ended May 31, 2011 and 2010 which is included herein.

Our operating results for the six month periods ended May 31, 2011 and 2010 are summarized as follows:

Revenues

We did not earn any revenues for the six months ended May 31, 2011. We do not anticipate earning revenues until such time as we have entered into commercial production of any mineral or oil and gas properties we acquire. We are presently in the exploration stage of our business and we can provide no assurance that we will discover commercially exploitable levels of mineral resources or oil and gas resources on properties we acquire, or if such resources are discovered, that we will enter into commercial production of properties we acquire.

Expenses

Our expenses for the six month periods ended May 31, 2011 and 2010 are outlined in the table below:

General and Administrative

The increase in administrative expenses for the three month periods ended May 31, 2011 compared to the comparative period ended May 31, 2010 was primarily due to fees associated with a onetime project that was completed in the quarter.  The overall decrease in our general and administrative expenses for the six month periods ended May 31, 2011 compared to the comparative period ended May 31, 2010 was primarily due to a reduction in consulting fees paid in connection with the acquisition of the Conglomerate Mesa Claims, cancellation of a contract with a consultant for non-performance, and a reduction in professional fees in connection with our filings with the SEC and the inquiry by the British Columbia Securities Commission (“BCSC”) into trading in the Company’s common stock.    

Consulting and Professional Fees

Consulting fees include fees in connection with the acquisition of the Conglomerate Mesa claims, and structuring of future financings.  Professional fees include our accounting and auditing expenses incurred in connection with the preparation and audit of our financial statements and professional fees that we pay to our legal counsel. Our accounting and auditing expenses were incurred in connection with the preparation of our audited financial statements and unaudited interim financial statements.  Our legal expenses represent amounts paid to legal counsel in connection with our ongoing reporting requirements, and the representation of the Company before the BCSC in connection with the investigation of potential “trading irregularities”. Consulting and legal expenses will be ongoing, however reduced during fiscal 2011 due to not expending funds on continuing representation before the BCSC but will continue in connection with our ongoing reporting obligations under the Securities Exchange Act of 1934.  In addition, we have completed the initial Canadian National Instrument 43-101 report.

Liquidity and Capital Resources

Working Capital

Cash Flows

We anticipate that we will incur approximately $300,000 for operating expenses, including professional, legal and accounting expenses associated with our reporting requirements under the Securities Exchange Act of 1934 and our legal representation during the next twelve months. We do not have sufficient working capital to provide for the anticipated expenses over the next twelve months. Accordingly, we will need to obtain additional financing in order to complete our business plan.

Cash Used in Operating Activities

We used cash in operating activities in the amount of $214,872 during the six month period ended May 31, 2011 and $102,474 during the six month period ended May 31, 2010. Cash used in operating activities was funded by cash from financing activities.

Cash Used in Investing Activities

The cash used in investing activities of $35,550 during the six month period ending May 31, 2011 was used in connection with the addition of 217 new unpatented claims to the Conglomerate Mesa project.  The cash used in investing activities of $178,000 during the six month period ended May 31, 2010 was used in connection with payments required under the Mineral Agreement acquiring the Conglomerate Mesa claims and maintenance of the existing 331 claims that make up the Conglomerate Mesa project.

Cash Provided by Financing Activities

During the six month period ended May 31, 2011:

The Company raised $228,980 from short term Notes from a non-affiliated, accredited investor.  The Note carries interest at a rate of 15% per annum and is due on demand.

The Company raised $206,355 from the sale of a nine month convertible debentures to an unaffiliated, accredited investor.  The debenture is convertible at sixty percent (60%) of the lowest three closing bid prices during the ten (10) trading days immediately prior to the date of conversion.  

The Company repaid $59,000 in demand notes to a non-affiliated investor.

The Company repaid $58,206 in demand notes to its CFO.

Disclosure of Outstanding Share Data

As at the date of this quarterly report, we had 105,499,857 shares of common stock issued and outstanding. We have 1,150,000 one year warrants outstanding at an average exercise price of $0.0499 per share.  These warrants expire in October and November 2011.

In June 2011, the Company issued 11,272,916 common shares in connection with the conversion of $135,784 of convertible debentures and accrued interest.  The conversions had an average price of $0.012 per share.  

Going Concern

The financial statements accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations. As of May 31, 2011, our company has accumulated losses of $9,059,804 since inception. We do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.

Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above in their report on the financial statements for the year ended November 30, 2010, our independent auditors have included an explanatory paragraph regarding concerns about our ability to continue as a going concern. The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current shareholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

Future Financings

We anticipate continuing to rely on equity sales of shares of our common stock in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned activities.

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 are material to shareholders.

Risks and Uncertainties

We are an exploration stage company with a limited operating history that makes it impossible to reliably predict future growth and operating results.

We have not been able to achieve profitable operations and there are no assurances that we will be able to do so in the future. Potential investors should be aware of the difficulties normally encountered by a new enterprise and the high rate of failure of such enterprises. The potential for future success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the development of a business in general. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and there can be no assurance that we will generate significant operating revenues in the future or ever achieve profitable operations.

Upon completion of a business opportunity or combination, there can be no assurance that we will be able to successfully manage or achieve growth of that business opportunity or combination.

Our ability to achieve growth upon the acquisition of a suitable business opportunity or business combination will be dependent upon a number of factors including our ability to hire and train management and other employees and the adequacy of our financial resources. There can be no assurance that we will be able to successfully manage any business opportunity or business combination. Failure to manage anticipated growth effectively and efficiently could have a material adverse effect on our company.

If we complete a business opportunity or combination, management of our company may be required to sell or transfer shares of our common stock and resign as members of our board of directors.

A business combination or acquisition of a business opportunity involving the issuance of shares of our common stock may result in new shareholders obtaining a controlling interest in our company. Any such business combination or acquisition of a business opportunity may require management of our company to sell or transfer all or a portion of the shares they hold in our company and require such individuals to resign as members of our board of directors. The resulting change in control of our company could result in the removal of one or more of our present officers and directors and a corresponding reduction in or elimination of their participation in the future affairs of our company.

If we complete a business opportunity or combination, we may be required to issue a substantial number of shares of our common stock which would dilute the shareholdings of our current shareholders and result in a change of control of our company.

We may pursue the acquisition of a business opportunity or a business combination with a private company. The likely result of such a transaction would result in our company issuing shares of our common stock to shareholders of such private company. Issuing previously authorized and unissued shares of our common stock will reduce the percentage of shares of our common stock owned by existing shareholders and may result in a change in the control of our company and our management.

Our common stock is illiquid and shareholders may be unable to sell their shares.

There is currently a limited market for our common stock and we can provide no assurance to investors that a market will develop. If a market for our common stock does not develop, our shareholders may not be able to re-sell the shares of our common stock that they have purchased and they may lose all of their investment in the company. Public announcements regarding our company, changes in government regulations, conditions in our market segment or changes in earnings estimates by analysts may cause the price of shares of our common stock to fluctuate substantially. These fluctuations may adversely affect the trading price of shares of our common stock.

We may be unsuccessful at identifying, acquiring and operating suitable business opportunities and if we are unable to find, acquire or operate a suitable opportunity for our company, we may never achieve profitable operations.

We may not be able to find the right business opportunity for our company to become engaged in or we may not succeed in becoming engaged in the business opportunity we choose because we may not act fast enough or have enough money or other attributes to attract the new business opportunity. Before we begin to have any significant operations, we will have to become involved in a viable business opportunity. In addition, in order to be profitable, we will have to, among other things, hire consultants and employees, develop products and/or services, market our products/services, ensure supply and develop a customer base. There is no assurance that we will be able to identify, negotiate, acquire and develop a business opportunity and we may never be profitable.

We have not paid any dividends and do not foresee paying dividends in the future.

Payment of dividends on our common stock is within the discretion of the board of directors and will depend upon our future earnings, our capital requirements, financial condition and other relevant factors. We have no plan to declare any dividends in the foreseeable future.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which may limit a shareholder’s ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange Commission (“SEC”) has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.

In addition to the “penny stock” rules promulgated by the SEC, the Financial Industry Regulatory Authority (“FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

As required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal executive officer and principal financial officers evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, these officers concluded that as of the end of the period covered by this report; these disclosure controls and procedures were not effective. The conclusion that our disclosure controls and procedures were not effective was due to the presence of the following material weaknesses in internal control over financial reporting which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both United States Generally Accepted Accounting Principles and the Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.

We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending November 30, 2011: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out above are largely dependent upon our securing

additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended February 28, 2010, the Board of Directors appointed Frederick Pucillo, Jr. as our Chief Executive Officer.  The appointment of Mr. Pucillo adds a second individual to the management structure authorized to approve and disburse funds.  This adds a layer of oversight to the process, improving our internal controls and financial reporting. Aside from this appointment, there were no other changes in our internal control over financial reporting

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by our company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings.

In August 2009, the Company was notified by the British Columbia Securities Commission (BCSC) of an inquiry into “pricing irregularities” of trades in the Company’s Common Stock.  While the Company does not believe the claim has merit, the BCSC has imposed a Cease Trade Order affecting the trading of the Company’s Common Stock in British Columbia, or by residents of British Columbia.  The Company cannot be certain of the outcome of these proceedings.

Item 1A. Risk Factors.

Not Applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

None.

Item 5. Other Information

None.

Item 6. Exhibits

* Filed herewith.

SIGNATURES

Pursuant to the requirements 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.

SUNGRO MINERALS INC.

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