UNITEDSTATES
 
SECURITIESAND EXCHANGE COMMISSION

 

 WASHINGTON, D.C. 20549
 

 FORM 10-QSB
 

(Mark One)
 

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

               **Forthe quarterly period ended January 31, 2005**

                                  
  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: 000-28915
 

 
**Sonoran Energy, Inc.**

(Exact name of registrant as specified in its charter)
 

** Washington, United States**

(State or other jurisdiction                                                of incorporation or organization)
  

**13-4093341**

(I.R.S. Employer ID Number)
 
**1 Berkeley Street, London, England, W1J 8DJ**

(Address of principal executive offices)   (Zip code)
 

**44 (0) 20 7016 8801**

    * (Issuer'stelephone number)*
 
**N/A**
*(Former Name, Former Address and Former Fiscal Year if Changed Since LastReport)*

      
 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.
 

                         YES                                               NO        X       

                    
The number of shares outstanding of the Company's no par common stock as ofJanuary 31, 2005 was 27,349,118.
 
Traditional Small Business Disclosure Format:  
 
                         YES                                                 NO        X       
 
Page 1

 
CONTENTS

PART I.  FINANCIAL INFORMATION

Item 1.   Financial Statements

 

Item 2.   Management's Discussion and Analysis of Financial Condition

               and Results of Operations
 

Item 3.   Controls and Procedures

PART II. OTHER INFORMATION
 
Item 1.  Legal Proceedings
 

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

Item 6.   Exhibits
Page 2

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SONORAN ENERGY, INC.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the Periods Ended January 31, 2005 and 2004

TABLE OF CONTENTS
                                                                                                     

                                                                                                                                                                  **PAGE**
Condensed Consolidated Balance SheetF-1  Condensed Consolidated Statements of    OperationsF-2  Condensed Consolidated Statement of Changes    in Shareholders' DeficitF-3  Condensed Consolidated Statements of Cash    FlowsF-4  Notes to Unaudited Condensed Consolidated Financial    StatementsF-5    
                                                               
Page 3

SONORAN ENERGY, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

January31, 2005

 

**ASSETS**
                 Current assets:              Cash$123,894            	Accounts receivable169,130         	Inventory40,000         	Prepaid expense18,777                            Total current assets351,801            Oil and gas properties - full cost method                Proved, less accumulated depletion of $31,515 1,850,173          Unproved	1,950,000         	Equipment, less accumulated depreciation of $2,2736,918              	Total capital assets3,807,091       Other assets          	Deferred finance charges (Note D)635,088   $  4,793,980  
**LIABILITIES AND SHAREHOLDERS'      DEFICIT**
           Current liabilities:           Accounts      payable$     995,613         	Indebtedness to related party (Note B)402,455          Accrued      expenses1,100,028          Notes      payable (Note C)165,000         	Convertible debentures (Note D)2,105,000          Loans	payable84,824      	Deferred gains on oil and gas properties484,046                         Total current liabilities5,336,966            Shareholders' deficit:           Preferred      stock, no par value; 25,000,000 shares authorized,                     1,000,000- shares issued and outstanding1,950,000          Common      stock, no par value; 75,000,000 shares authorized,               	27,349,118 shares issued and outstanding21,810,880          Outstanding      common stock options - 1,500,00029,675          Retained	Deficit(24,333,541)                         Total shareholders' deficit(542,986)   $  4,793,980  
Seeaccompanying notes to the condensed, consolidated financialstatements.

 

PageF-1

SONORAN ENERGY, INC.

 

Condensed Consolidated Statements of Operations

(Unaudited)

 

 **For	the Nine Months Ended**
**January 31** **For      the Three Months Ended**
**January 31** **2005** **2004** **2005** **2004**        Revenue                 Oil and gas sales$         274,621 $               	254,932 $                    	221,190 $                       40,404          Other3,455 3,500 3,455 500                            Total revenue278,076 258,432 224,645 40,904        Expenses                 Oil and gas production costs402,814 151,156 202,459 25,681          Depletion, deprecation, and amortization33,514 67,503 32,948 -          Stock-based compensation                      Consulting148,071 888,727 22,571 840,627          Investor      Relations- 35,175 - 28,425          Debt issue      costs- 114,184 - 93,684         	Officers- 1,080,880 - 1,080,880         	Professional fees- 42,425 - 42,425          General and administrative2,296,469 546,828 682,814 373,896    	Loss on disposal of assets- 365,194 - 365,194    	Bad debts expense- 668,981 - 2,852          Liability settlement loss- (75,711) - (13,675)                            Total expenses3,074,526 3,885,342 940,792 2,839,989                    Loss from operations(2,602,792) (3,626,910) (716,147) (2,799,085)        Interest income- 388 - 114Interestexpense(96,829) (236,087) (87,568) (89,448)                        Loss	before      income taxes(2,699,621) (3,862,609) (803,715) (2,888,419)        Income tax      provision- - - -                            Net loss$             	(2,699,621) $        	(3,862,609) $             	(803,715)   $              (2,888,419)          Net loss per common      share:                 Basic and diluted$                      	(0.10) $                	(0.35) $                          (0.03) $                           (0.21)Basic and diluted      weighted average common shares                 outstanding25,992,970 10,939,062 26,972,018 13,711,310        
Seeaccompanying notes to the condensed, consolidated financialstatements.

 

PageF-2

SONORAN ENERGY, INC.

Condensed Consolidated Statement of Changes in Shareholders'Deficit

(Unaudited)

 

 **Series A Convertible Preferred Stock** **Common Stock**   **Retained Deficit** **Total** **Shares** **Amount** **Shares** **Amount** 
**Outstanding**

**Common**

**Stock**

**Options**
                Balance at April 30, 2004	1,000,000 $   	1,950,000 	24,531,620 $         	20,377,389 $            23,425 $           (21,633,920) $    716,894              Common stock      sales- - 	2,123,700 	1,037,408 - - 1,037,408Common stock      issued in exchange for                  consulting services- - 243,286 148,071 6,250 - 154,321Exercised common stock warrants- - 150,512 38,012 - - 38,012
Common stock      issued in exchange for

     property
- - 300,000 210,000 - - 210,000Net      loss- - - - - 	(2,699,621) (2,699,621)              Balance as at January 31, 20051,000,000 $     	1,950,000 27,349,118 $      	21,810,880 $        	29,675 $        	(24,333,541)  $(542,986)              
 

Seeaccompanying notes to the condensed, consolidated financialstatements.

 

PageF-3

SONORAN ENERGY, INC.

CondensedConsolidated Statements of Cash Flows

(Unaudited)

 

 
**For the Nine Months Ended**

**January 31,**
 **2005** **2004**    Net cash (Used In) Operating      Activities$                	(1,420,536) $                      (251,986)    Cash flows from investing    activities:        Payments for oil and	gas working interests(1,500,000) -     Payment for office	equipment(4,123) -          Net cash      used in investing activities(1,504,123) -    Cash flows from financing    activities:        Proceeds from exercise	of warrants38,012 -     Proceeds from	related party advance (Note B)100,000 -     Proceeds from	issuance of promissory note (Note C)165,000 -     Proceeds from issuance of	convertible debenture (Note D)1,680,000 -     Repayment of      loans/advances(15,176) -     Proceeds from the      issuance of common stock1,037,408 227,500          Net cash      provided by financing activities3,005,244 227,500                        Net change in cash80,585 (24,486)    Cash, beginning of period43,309 32,619    Cash, end of period$      	123,894 $                8,133    Supplemental disclosure of cash flow      information:        Cash paid for income      taxes$                        - $                        -     Cash paid for      interest$                  	- $              42,000    Non-cash investing and financing      activities:   
     Common stock issued for payment of      advances and accrued

               liabilities
$                  	- $     2,680,823     Common stock issued	for properties$       210,000 $         	32,375     Common stock issued      for debt services$                  	- $          18,700    
 

Seeaccompanying notes to the condensed, consolidated financialstatements.

 

PageF-4

**SONORAN ENERGY, INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**January 31, 2005**

 

NOTE A:   General Information

 

The accompanying un-audited condensed consolidated financial statements of Sonoran Energy,Inc. as of and for the nine months ended January 31, 2005 and January 31, 2004 have beenprepared in accordance with the rules and regulations of the Securities and ExchangeCommission and do not include all of the information and footnotes required by generallyaccepted accounting principles for complete financial statements.

 

In the opinion of management, all adjustments considered necessary for a fair presentation of theresults of the interim period have been included. Operating results for any interim period are notnecessarily indicative of the results that may be expected for the entire fiscal year. Thesestatements should be read in conjunction with the consolidated financial statements and notesthereto for the year ended April 30, 2004 included in the Company's report in Form 10-KSB asfiled with the Securities and Exchange Commission.
 
The Company completed the acquisition of the Rippy Field on November 8, 2004 for a totalacquisition fee of $1,600,000 and the issuance of 300,000 restricted shares of Sonoran Energy'scommon stock to the owners of the field. 
 
The Company uses the full cost method of accounting to account for our oil and gas operations.Accordingly, we capitalize the cost to acquire, explore for and develop oil and gas properties.Under the theory of full cost accounting, all successful and unsuccessful costs associated withacquisition, exploration and development activities are considered to be part of the cost of any oiland gas found and produced and should therefore be amortized over a unit of production method.
 
Note B:   Indebtness to Related parties

 

The Company was advanced $100,000 on August 4, 2004 by a relation of our Vice President ofNorth American operations. The term of the note is one year and carries interest of 12% perannum.

 

Note C:   Note Payable
 
During July 2004 the Company issued a promissory note for $165,000 to Glencoe Capital Incfor the purposes of placing the advance payment on the Texas property. The note bears aninterest rate of 12% per annum commencing on August 16th, 2004. Of this $15,000 was held bythe lender to cover its fees for services. The term of the note was initially August 16, 2004, butthe term has been extended by verbal agreement between both parties.

 

Note D:   Convertible Debentures

 

On October 18, 2004, the Company entered into a Standby Equity Distribution Agreement withCornell Capital Partners, L.P. wherein we may, at our discretion, periodically sell to CornellCapital Partners shares of our common stock for a total purchase price of up to $15,000,000. Foreach share of common stock purchased under the Standby Equity Distribution Agreement,Cornell Capital Partners will pay 100% of the lowest volume weighted average price of thecommon stock as quoted on Bloomberg LP during the five consecutive trading days immediatelyfollowing the notice date. 

 

We have agreed to pay Cornell Capital Partners, L.P. 5% of the proceeds that we receive underthe Standby Equity Distribution Agreement. In addition, upon execution of the Standby EquityDistribution Agreement, we paid Cornell Capital Partners a commitment fee in the amount of$425,000, which was paid by the issuance of a convertible debenture in the principal amount of$425,000. The convertible debenture has a term of three years, accrues interest at 5% and isconvertible into our common stock at a price per share of 100% of the lowest closing bid pricefor the three trading days immediately preceding the conversion date. Cornell Capital Partnersmay not convert the debenture for a number of shares of common stock in excess of that numberof shares of common stock which, upon giving effect to such conversion, would cause theaggregate number of shares of common stock beneficially owned by the holder and its affiliatesto exceed 4.99% of the outstanding shares of our common stock following such conversion.

 

We also received proceeds from an $800,000 convertible debenture, funded at the initial closingfor which Cornell earns a fee of 10% with an additional 6% paid to QuestStar Capital Partners.Terms of conversion are identical to those of the commitment fee debenture. QuestStar Capitalwill also receive a commission of 2% on each drawdown under the Standby Equity DistributionAgreement.

 

We also received proceeds from an $880,000 convertible debenture, funded on November 1,2004 for which Cornell earns a fee of 10% with an additional 6% paid to QuestStar CapitalPartners. Terms of conversion are identical to those of the commitment fee debenture.  TheCompany will amortize the commitment fee plus the fees paid to Cornell and QuestStar over theterm of the debenture.  The Company recorded interest expense of $53,912 forthis quarter for fees.

 

We have agreed to prepare and file a registration statement under the Securities Act of 1933, asamended, that includes the shares of common stock issuable pursuant to the Standby EquityDistribution Agreement, the shares of common stock issuable pursuant to the $425,000 principalamount convertible debenture and the shares of common stock issuable to Newbridge SecuritiesCorporation. We cannot sell shares of common stock to Cornell Capital Partners, LP under theStandby Equity Distribution Agreement until such registration statement is declared effective bythe Securities and Exchange Commission.

 

Note E:   Share issues during the quarter

 
The Company issued the following restricted shares during the quarter:

 

    -     100,000 shares of common stock at $.60 per share for $60,000 as additional compensation forthe delay in closing of an asset purchase

    -     929,273 shares of common stock at $.51 per share for a private placement totaling $470,694.

    -     131,006 shares of  common stock at $.22 per share for consulting fees of $22,821.

              
**Common Stock Options**

 

On September 22, 2004, the Company granted a consultant options to purchase 125,000 shares ofthe Company's common stock. The options' exercise price is $1.25 and the options expire onSeptember 22, 2005. The Company determined the fair value of the options in accordance withSFAS 123 and recorded stock-based compensation expense of $6,250 in the accompanyingfinancial statements.

 

A summary of the status of the Company's stock option awards as of January 31, 2005, and thechanges during the nine months ended January 31, 2005 are presented below:

 
      **Options Issued to Non-Employees****Weighted Average Exercise Price****Weighted Average Fair Value****Exercisable****Weighted Average Exercise Price - Exercisable** **Options Issued to Employees**Outstanding, April 30,    20041,200,000175,000$         0.57$       0.111,375,000$         0.57       Options granted-125,0001.250.05125,0001.25Options exercised------Options cancelled------Outstanding, January	31, 20051,200,000300,000$          0.63$        0.111,500,000$          0.63       
 

The fair value for the options granted during the year ended April 30, 2004 was estimated at thedate of grant using the Black-Scholes option-pricing model with the following assumptions:

 

 

 Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . 1.53%

 Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . 0.00%

 Volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . 147.19%

 Weighted average expected life . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . 1 year

 

The Black-Scholes options valuation model was developed for use in estimating the fair value oftraded options, which have no vesting restrictions and are fully transferable. In addition, optionvaluation models require the input of highly subjective assumptions including the expected stockprice volatility. Because the Company's stock options have characteristics significantly differentfrom those of traded options, and because changes in the subjective input assumptions canmaterially affect the fair value estimate, in management's opinion, the existing models do notnecessarily provide a reliable single measure of the fair value of its stock options. However, theCompany has presented the pro forma net loss and pro forma basic and diluted loss per commonshare using the assumptions noted above.

 

Note F:   Proposed Merger

 

***Baron Oil***

 

On May 7, 2004, the Company signed a Merger Agreement to acquire Baron Oil AS ("Baron"), aNorwegian oil and gas company. Baron, which has a presence across the Middle East andthrough its office in Amman, Jordan, is positioned to attract oil and gas contracts in the region.Baron specializes in the utilization of the latest proven technology and operational processes inthe development, drilling and operating of onshore oil and gas fields. Under the terms of theagreement, the Company would acquire 100% of the issued and outstanding shares of Baron inexchange for approximately 19 million shares of the Sonoran Energy's common stock. TheCompany has further agreed to provide an additional commitment of $20 million for thepurposes of developing Baron's KWB field in the USA. 

 

The Company is undergoing final negotiations with Baron Oil management before closing themerger transaction, which is subject to having a pre-acquisition audit completed.  The audit isbeing planned and completion is expected by April 2005. 

 

***Scottsdale Oil Field Services***

 

On August 18, 2004, the Company signed a Stock Purchase Agreement to acquire Scottsdale OilField Services, Limited ("SOFS"), an Arizona corporation. SOFS' management and team of oiland gas operational staff and consultants have many years of experience in North America, theUK, Africa, South America, Pakistan, Australia, and Asia. SOFS specializes in providingengineering, reservoir, drilling (including deep water) financial, commercial, materialsmanagement, systems and procedures, environmental and operational services to the oil and gasindustry through the placement of the company's highly qualified personnel.

 

Under the terms of the agreement, the Company will acquire all of the issued and outstandingshares of SOFS in exchange for 1,000,000 shares of Sonoran Energy's restricted common stock.The Company further agreed to enter into employment contracts with the two existing officersand one direct employee covering an initial period of two years. The acquisition has not beenconsummated as of the date of this report pending the completion of a pre-acquisition auditplanned to be completed in April 2005.

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

Any statements contained herein that are not statements of historical fact may be deemedforward-looking statements. Without limiting the foregoing, the words "believes", "anticipates","plans", "expects" and similar expressions are intended to identify forward-looking statements.Readers are cautioned not to place undue reliance on forward-looking statements, which speakonly as of the date hereof. Sonoran Energy, Inc. (the "Company", "Sonoran", and sometimes"we", "us", "our" and derivatives of such words) undertakes no obligation to publicly release theresults of any revisions to these forward-looking statements that may be made to reflect events orcircumstances after the date hereof or to reflect the occurrence of unanticipated events. Theseforward-looking statements should be read in conjunction with the Company's disclosuresincluded in their Form 10-KSB for the fiscal year ended April 30, 2004.

 

**General**

 

The Company has, since July 2004, set out as its strategic focus to explore lucrative opportunitiesin the Middle East, North Africa, and the Caspian region while keeping a solid profitable baseback in the USA. As part of its efforts, the Company prepared a first draft business plan andactively pursued financial backing to see the successful implementation of the plan. TheCompany also realized the need for additional qualified people to join the management team andrecruited a Vice President for the Middle East, North Africa and Caspian operation and a VicePresident for Exploration and New Ventures.

 

On the operating front, we continued to have minimal production from the Louisiana propertiespending the implementation of a capital development plan to increase the oil production from theproperties. The Company completed the acquisition of the East Texas oil fields in November.The Company also continued with its process to acquire Scottsdale Oil Field Services and BaronOil AS. 

 

Page 4  

 
**Analysis of Operations**

 

Results of Operations for the Nine Months ended January 31, 2005 compared to the Nine Monthsended January 31, 2004:

 

**REVENUES**

 

Revenues were $278,076 for the nine months ended January 31, 2005 and $254,932 for the ninemonths ended January 31, 2004. As mentioned above, we had minimal productionfrom the Louisiana field in the first nine months of this year versus therevenue from operation of the working interests acquired in 2003 which were soldin January 2004. 

 

**OIL AND GAS PRODUCTION COSTS**

 

Oil and gas production costs were $402,814 for the nine months ending January 31, 2005 and$151,156 for the nine months ending January 31, 2004. The operating expense was higher dueto the costs of maintaining the 15,000 acre parcel which comprises the Louisiana property.Management continues to review the operating costs to determine areas in which to improveperformance and to lower costs.  The increase also reflects one full quarter operation of the EastTexas oil field plus additional maintenance done to improve operations. 

 

**DEPLETION, DEPRECIATION AND AMORTIZATION**

 

Depletion, depreciation and amortization was $33,514 for the nine months ended January 31,2005 compared to $67,503 for the nine months ended January 31, 2004. The current nine monthsreflects the depreciation on equipment plus one quarter depletion expense of $31,515 on the EastTexas fields whereas last year's figure includes the depletion on the oil and gas properties held atthat time but subsequently sold. The Company did not record any depletion expense on itsunproved properties this year to date. 

 

**STOCK-BASED COMPENSATION**

 

The Company issued 77,280 restricted shares for $100,000, valued at the average market pricefor the 5 days prior to the agreement date, to a US consulting firm for the preparation ofinformation for investors which can also be used for presentations to financial institutions.  TheCompany also issued 35,000 restricted shares for $19,250, valued at the market price onSeptember 22, 2004, to a Consultant to assist in developing business in the middle east as part ofa six month contract with total compensation of 125,000 restricted common shares.

 

**GENERAL AND ADMINISTRATIVE EXPENSES**

 

General and administrative expenses increased by $1.61 million dollars for the nine monthsended January 31, 2005, when compared with the same period for 2004. The Companynow employs several experienced oil and gas personal, have offices in Arizona,London and Amman. The increase is also attributable to the increased travelexpense due to the Company's efforts to penetrate the global market place.

 

Liquidity and Capital Resources

 

The Company believes that it will be able to source sufficient funds through a combination ofnew debt and equity over the next three to nine months. These funds will be targeted atdeveloping the Company's planned future acquisitions. The Company believes that the currentassets and anticipated future acquisitions will be sufficient to fund the anticipated liquidity andcapital resource needs of the Company for the next twelve months.

 

The Company is not a party to off-balance sheet arrangements and does not engage in tradingactivities involving non-exchange traded contracts. In addition, the Company has no financialguarantees, or lease agreements or other arrangements that could trigger a requirement for anearly payment or that could change the value of the Company's assets. Managementcontinues to examine various alternatives for increasing capital resourcesincluding, among other things, participation with industry and/or privatepartners to form Joint Ventures for the development of both existing and futureassets. 

 

Foreign Currency Exposure

 

Sonoran is not exposed to fluctuations in foreign currencies relative to the U.S. dollar at this timebut, as Sonoran expands its operations, it may begin to collect revenues in currencies other thanthe U.S. dollar. Sonoran does not currently engage in any hedging activities.

 

**Item 3.    Controls and Procedures.**

 

The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on anevaluation conducted within 90 days prior to the filing date of this quarterly report on Form10-QSB, that the Company's disclosure controls and procedures have functioned effectively so asto provide those officers the information necessary whether:

 

     (i) this quarterly report on Form 10-QSB contains any untrue statement of a material factor omits to state a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respect to the periodcovered by this quarterly report on Form 10-QSB, and 

 

     (ii) the financial statements, and other financial information included in this quarterlyreport on Form 10-QSB, fairly present in all material respects the financial condition, results ofoperations and cash flows of the Company as of, and for, the periods presented in this quarterlyreport on Form 10-QSB.
 
There have been no significant changes in the Company's internal controls or in other factorssince the date of the Chief Executive Officer's and Chief Financial Officer's evaluation that couldsignificantly affect these internal controls, including any corrective actions with regards tosignificant deficiencies and material weaknesses. 

 

Page 5

 

 

**PART II - OTHER INFORMATION**
**Item 1.    Legal Proceedings**

 

Longbow, LLC v. Sonoran Energy, Inc. - Superior Court ofCalifornia, County of Kern, Metropolitan Division Case No. S-1500-CV-25398-SPC

 

On or about March 8, 2004, a complaint was filed by Longbow, LLCagainst the Company alleging that Sonoran breached the agreement to purchaseLongbow's interest in the Emjayco Glide #33 Property, the Keystone-Deer CreekProperty and the Deer Creek-Merzonian Property.  The action essentiallyalleges that, according the the agreements entered into between Longbow andSonoran, Longbow had the right to a first refusal on the properties in the eventthat Sonoran offered those properties for sale.  In addition, Longbowclaims that they are entitled to a percentage of the profits is the property issold to a third party.  Subsequent to the execution of those agreements,Sonoran entered into an agreement to sell those properties to a third party,Harvest Worldwide, LLC.  Sonoran has filed a cross-complaint againstLongbow seeking rescission of the purchase agreements.  The Company iscurrently in the process of vigorously defending its position in this case andprosecuting its cross complaint.  This case has been consolidated with Harvest Worldwide, LLC v. Longbow, LLC (Case no. S-1500-CV-253284-SPC). The trial in this matter is scheduled to begin on August 15, 2005.

 

John Howe and Brad Califf v. Sonoran Energy, Inc. - SuperiorCourt of California, County of Kern, Metropolitan Division Case No.S-1500-CV-253638-RJA

 

On or about August 25, 2004, a complaint was filed by John Howeand Brad Califf against the Company alleging breach of contract for allegedlyfailing to fully and properly compensate the two individual plaintiffs pursuantto the the terms of employment contract executed on or around November 15, 2003. The complaint is seeking damages in the sum to be shown at trial and for adeclaratory judgment stating that (1) the employment agreement are validenforceable contracts, (2) the Plaintiffs were each entitled to 250,000 stockoptions at $0.30 per share, effective and vested November 15, 2003, (3) that theterminations of both individuals was "without cause", (4) that no grounds fortermination "with cause" existed, (4) that as a result of the "without cause"termination, Plaintiffs are each entitled to 300,000 stock options at $0.30 pershare and (5) that Plaintiffs are entitled to base fee compensation throughFebruary 8, 2004 of 13,223 shares of the Company's restricted common stock. The Company intends to vigorously defend against these claims and feel that thePlaintiffs were each terminated for cause and are, therefore, not entitled toreceive that which they have requested in this suit.  The trial in thismatter is currently scheduled to begin on June 21, 2005.

 

Ironwood International, LLC v. Sonoran Energy, Inc. andHarvest Worldwide, LLC - Superior Court of California, County of Kern,Metropolitan Division Case No. S-1500-CV-254325-AEW

 

On or about November 23, 2004, Ironwood International, LLC fileda lawsuit against the Company and Harvest Worldwide, LLC for breach of contractwith regard to several promissory notes, executed in favor of the Company andsecured by several properties, including those which are the subject of theLongbow Action (described above).  This action alleges that Sonoranborrowed from Ironwood, an aggregate of $1.1 million and executed promissorynotes secured by property.  Upon the sale of certain properties by Sonoranto Harvest Worldwide, Harvest agreed to assume the notes and was to makepayments to Ironwood.  Harvest has allegedly failed to make any payments toIronwood.  Ironwood is now bringing suit against the Company to recover thefunds owed.  Subsequently, Sonoran filed a cross-complaint against Mark RoyAnderson, Harvest Worldwide, LLC, Longbow, LLC, and Aspen ExplorationCorporation seeking rescission of the sales to Harvest for failure to pay anyconsideration and damages.  Sonoran has also filed a Notice of RelatedCases requesting that this case be tried with the Longbow Action.  Thereason for this action is that, if Sonoran is able to rescind the sales toHarvest, the claims of Longbow would become moot as no sale would have takenplace.  In any event, Sonoran intends to vigorously defend its position andprosecute its cross-complaint.

 

**Item 2.     UnregisteredSales of Equity Securities and Use of Proceeds**

                               

 
During the quarter the Company issued restricted common stock as follows:

 

    -     100,000 shares of common stock at $.60 per share for $60,000 as additional compensation forthe delay in closing of an asset purchase

    -     929,273 shares of common stock at $.51 per share for a private placement totaling $470,694.

    -     131,006 shares of  common stock at $.22 per share for consulting fees of $22,821.

                                  

**Item 6.    Exhibits**

 

a)    Exhibits:
           

        31.1 - Rule 13a-14a/15d-14(a) Certification by ChiefExecutive Officer
        31.2 - Rule13a-14a/15d-14(a) Certification by Chief Financial Officer
       32.1 - Section 1350 Certification by Chief Executive Officer
       32.2 - Section 1350 Certification by Chief Financial Officer
 
 

b)    Reports onForm 8-K:
 
The Company issued the following 8-K on November 5, 2004.

 
       Item 2.01 Completion of Acquisition or Disposition of Assets
 
On or about July 7, 2004, Sonoran Energy, Inc. (the "Company") entered into a Purchase SaleAgreement (the "Agreement") to purchase certain property from Rippy Oil Company ("Rippy")(See Exhibit 10.10 below). The agreement called for the payment of $1,500,000.00 in cash forthe acquisition to be closed on or before July 31, 2004. After negotiation, the closing date wasextended to October 31, 2004. The acquisition was completed on November 5, 2004 for a totalpayment from the Company of $1,600,000 in cash and the issuance of 300,000 restricted sharesof the Company's common stock.

 

 

        
Page6
**Signatures**

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

 

                                            
**SONORAN ENERGY, INC**

 

March 16, 2005
 
By:    Peter Rosenthal

Peter Rosenthal

Director/President/CEO
 
KNOW ALL PERSONS BY THESE PRESENTS, thateach person whose signature appears below hereby severally constitutes andappoints Peter Rosenthal and Rasheed Rafidi, and each of them, his true andlawful attorney-in-fact and agent, with full power of substitution andresubstitution for him and in his name, place and stead, in any and allcapacities to sign any and all amendments to this Report, and to file the same,with all exhibits thereto, and other documents in connection therewith, with theCommission, granting unto said attorney-in-fact and agents, and each of them,full power and authority to do and perform each and every act and thingrequisite or necessary fully to all intents and purposes as he might or could doin person, hereby ratifying and confirming all that each said attorneys-in-factand agents or any of them or their or his substitute or substitutes, maylawfully do or cause to be done by virtue hereof. 

 

In accordance with the Securities ExchangeAct of 1934, this Report has been signed below by the following persons onbehalf of registrant in the capacities and on the dates indicated. 

 
**Signature**
**Title**
**Date**
/s/		Peter Rosenthal

Peter		Rosenthal
President/CEO/Director
March 16, 2005
/s/		Christopher Pitman

		Christopher Pitman
Director
March 16, 2005
/s/		Mehdi Varzi

Mehdi		Varzi
Director
March 16, 2005
/s/		Charles Waterman

Charles		Waterman
Director
March 16, 2005
/s/		Rasheed Rafidi

Rasheed Rafidi
Director/CFO
March 16, 2005
/s/		Russ Costin

Russ		Costin
Director/Controller
March 16, 2005
 
 

 

 

Page 7

 

**Exhibit 31.1**
 

 

Pursuant to the    requirements of Rule 13a-14 of the Securities Exchange Act of 1934, as    amended,  provides the following certification.         I,  Peter Rosenthal, President of Sonoran Energy, Inc. ("Company"), certify that:
1. 
I have reviewed this	quarterly report on Form 10-QSB of Sonoran Energy, Inc.;
2.      
Based on my knowledge,    this quarterly report does not contain any untrue statement of a material    fact or omit to state a material fact necessary to make the statements made,    in light of the circumstances under which such statements were made, not    misleading with respect to the period covered by this quarterly report;
3.      
Based on my knowledge,    the financial statements, and other financial information included in this    quarterly report, fairly present in all material respects the financial    condition, results of operations and cash flows of the Company as of, and    for, the periods presented in this quarterly    report; 
4.      
The other certifying	directors and I are    responsible for establishing and maintaining disclosure controls and    procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))     and internal control over financial reporting (as defined in Exchange Act    Rules 13a-15(f) and 15d-15(f) for Sonoran and have:

a.  Designed such    disclosure controls and procedures, or caused such disclosure controls and    procedures to be designed under my supervision, to ensure that material    information relating to Sonoran Energy, Inc., including its consolidated    subsidiaries, is made known to us by other within those entities,    particularly during the period in which this report is being prepared;

b.  Designed    such internal control over financial reporting, or caused such internal    control over financial reporting to be designed under my supervision, to    provide reasonable assurance regarding the reliability of financial    reporting and the preparation of financial statement for external purposes    in accordance with generally accepted accounting principles.

c.  Evaluated    the effectiveness of the small business issuer's disclosure controls and    procedures and presented in this report our conclusions about the    effectiveness of the disclosure controls and procedures, as of the end of    the period covered by this report on such evaluation; and

d.  Disclosed in    this report any change in Sonoran Energy, Inc.'s internal control over    financial reporting that occurred during Sonoran's third fiscal quarter    that has materially affected, or is reasonably likely to materially affect, Sonoran's internal control over financial reporting; and 5.The other certifying	directors and I have    disclosed, based on our most recent evaluation of internal control over    financial reporting, to the Company's    auditors and the audit committee of our board of directors (or persons    performing the equivalent functions):      a.All significant    deficiencies and material weaknesses  in the design or operation of internal control    over financial reporting which are reasonably likely to adversely affect the    Company's ability to record, process, summarize and report financial data;    and
       b.Any fraud, whether or    not material, that involves management or other employees who have a    significant role in the Company's internal control over financial reporting; and   Date: March 16, 2005/s/ Peter Rosenthal          Peter Rosenthal,  President  
**Exhibit 31.2**

 

 
Pursuant to the    requirements of Rule 13a-14 of the Securities Exchange Act of 1934, as    amended,  provides the following certification.         I, Rasheed Rafidi, Chief Financial Officer of Sonoran    Energy, Inc. ("Company"), certify that:
 1. I have reviewed this	quarterly report on Form 10-QSB of Sonoran Energy, Inc.;2.      Based on my knowledge,    this quarterly report does not contain any untrue statement of a material    fact or omit to state a material fact necessary to make the statements made,    in light of the circumstances under which such statements were made, not    misleading with respect to the period covered by this quarterly report;3.      Based on my knowledge,    the financial statements, and other financial information included in this    quarterly report, fairly present in all material respects the financial    condition, results of operations and cash flows of the Company as of, and    for, the periods presented in this quarterly    report; 4.      The other certifying	directors and I are    responsible for establishing and maintaining disclosure controls and    procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))     and internal control over financial reporting (as defined in Exchange Act    Rules 13a-15(f) and 15d-15(f) for Sonoran and have:
a.  Designed such    disclosure controls and procedures, or caused such disclosure controls and    procedures to be designed under my supervision, to ensure that material    information relating to Sonoran Energy, Inc., including its consolidated    subsidiaries, is made known to us by other within those entities,    particularly during the period in which this report is being prepared;

b.  Designed    such internal control over financial reporting, or caused such internal    control over financial reporting to be designed under my supervision, to    provide reasonable assurance regarding the reliability of financial    reporting and the preparation of financial statement for external purposes    in accordance with generally accepted accounting principles.

c.  Evaluated    the effectiveness of the small business issuer's disclosure controls and    procedures and presented in this report our conclusions about the    effectiveness of the disclosure controls and procedures, as of the end of    the period covered by this report on such evaluation; and

d.  Disclosed in    this report any change in Sonoran Energy, Inc.'s internal control over    financial reporting that occurred during Sonoran's third fiscal quarter    that has materially affected, or is reasonably likely to materially affect, Sonoran's internal control over financial reporting; and 5.The other certifying	directors and I have    disclosed, based on our most recent evaluation of internal control over    financial reporting, to the Company's    auditors and the audit committee of our board of directors (or persons    performing the equivalent functions):      a.All significant    deficiencies and material weaknesses  in the design or operation of internal control    over financial reporting which are reasonably likely to adversely affect the    Company's ability to record, process, summarize and report financial data;    and
       b.Any fraud, whether or    not material, that involves management or other employees who have a    significant role in the Company's internal control over financial reporting; and   Date: March 16, 2005/s/ Rasheed Rafidi      	Rasheed Rafidi,  CFO
**Exhibit 32.1**

**CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

    In connection with the Quarterly Report of SonoranEnergy, Inc. on Form 10-QSB for the quarter ending January 31, 2005, as filed with theSecurities and Exchange Commission on the date hereof (the "Report"), I,Peter Rosenthal, President of the Company, certify, pursuantto 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1)the Report fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934; and (2) the information contained in the Reportfairly presents, in all material respects, the financial condition and result ofoperations of the Company. 

/s/ Peter Rosenthal

Peter Rosenthal

President

March 16, 2005
**Exhibit 32.2**

**CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

    In connection with the Quarterly Report ofSonoran Energy, Inc. on Form 10-QSB for the quarter ending January 31, 2005, asfiled with the Securities and Exchange Commission on the date hereof (the"Report"), I, Rasheed Rafidi, CFO of the Company, certify, pursuantto 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1)the Report fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934; and (2) the information contained in the Reportfairly presents, in all material respects, the financial condition and result ofoperations of the Company. 

/s/ Rasheed Rafidi

Rasheed Rafidi

Chief FinancialOfficer

March 16, 2005**