UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington D. C. 20549
 FORM 10-Q
 QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended August 31, 2009
 Commission file number 000-23561
 MEXORO MINERALS LTD.
  Colorado
(State or other jurisdiction of 
incorporation)
    
    84-1431797
(IRS Employer Identification
Number)Mountain View Center 
12303 Airport Way, Suite 200
Broomfield, CO.
(Address of principal executive offices)
    
    80021
(Zip Code)
  þ o
 Yes
o No
o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



ITEM 1. FINANCIAL STATEMENTS
 MEXORO MINERALS LTD.
(A Development Stage Company)
 CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Expressed in U.S. Dollars)
 August 31, 2009
  2




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
 Consolidated Balance Sheets
 (Expressed in U.S. Dollars)
 August 31, 2009
    
    
    February 28, 2009(Unaudited)
    
    
    (Audited)AssetsCurrentCash and cash equivalents
    
    $
    8,146
    
    
    $
    38,704Accounts receivable
    
    
    393,150
    
    
    
    248,589Prepaid expenses
    
    
    30,326
    
    
    
    34,048431,622
    
    
    
    321,341Equipment (note 4)
    
    
    264,843
    
    
    
    275,900Total assets
    
    $
    696,465
    
    
    $
    597,241LiabilitiesCurrentAccounts payable and accrued liabilities
    
    $
    2,175,588
    
    
    $
    2,679,512Current portion of loans payable (note 9)
    
    
    60,248
    
    
    
    63,232Promissory notes (note 7)
    
    
    1,150,377
    
    
    
    968,543Current portion of convertible debentures (note 8)
    
    
    1,746,211
    
    
    
    1,267,3145,132,424
    
    
    
    4,978,601Loans payable (note 9)
    
    
    740
    
    
    
    7,608Convertible debentures (note 8)
    
    
    866,994
    
    
    
    673,887Total liabilities
    
    
    6,000,158
    
    
    
    5,660,096Stockholders deficiencyCapital stockPreferred stockAuthorized: 20,000,000 shares without par value (note 10)Issued: nil
    
    
    
    
    
    
    Common stockAuthorized: 200,000,000 shares without par valueIssued: 38,420,493 (2009 - 31,019,302) (note 11)
    
    
    27,050,401
    
    
    
    25,556,901Additional paid-in capital
    
    
    13,122,872
    
    
    
    12,676,908Stock subscriptions
    
    
    170,000
    
    
    
    121,258Accumulated deficit from prior operations
    
    
    (2,003,427
    )
    
    
    (2,003,427
    )Accumulated deficit during the development stage
    
    
    (43,847,088
    )
    
    
    (41,864,219
    )Other comprehensive income (loss)
    
    
    203,549
    
    
    
    449,724Total stockholders deficiency
    
    
    (5,303,693
    )
    
    
    (5,062,855
    )Total liabilities and stockholders deficiency
    
    $
    696,465
    
    
    $
    597,241
 
 The accompanying notes are an integral part of these consolidated financial statements.
  3




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
 Consolidated Statements of Operations and Deficit
(Unaudited) (Expressed in U.S. Dollars)
 Period fromInception ofDevelopmentStageThree Months Ended
    
    
    Six Months Ended
    
    
    (March 1, 2004)August 31,
    
    
    August 31,
    
    
    August 31,
    
    
    August 31,
    
    
    To August 31,2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009Net sales
    
    $
    243,134
    
    
    $
    
    
    
    $
    392,084
    
    
    $
    
    
    
    $
    392,084Cost of goods sold
    
    
    85,050
    
    
    
    
    
    
    
    165,733
    
    
    
    
    
    
    
    165,733Gross margin
    
    
    158,084
    
    
    
    
    
    
    
    226,351
    
    
    
    
    
    
    
    226,351ExpensesGeneral and administrative
    
    
    719,449
    
    
    
    656,003
    
    
    
    1,409,327
    
    
    
    1,270,923
    
    
    
    14,143,546Mineral exploration (note 6)
    
    
    152,955
    
    
    
    1,462,062
    
    
    
    323,952
    
    
    
    2,754,885
    
    
    
    8,226,178Impairment of mineral property costs
    
    
    57,367
    
    
    
    
    
    
    
    103,156
    
    
    
    
    
    
    
    16,487,871Operating loss
    
    
    (771,687
    )
    
    
    (2,118,065
    )
    
    
    (1,610,084
    )
    
    
    (4,025,808
    )
    
    
    (38,631,244
    )Other income (expenses)Foreign exchange
    
    
    1,822
    
    
    
    10,313
    
    
    
    44,573
    
    
    
    29,115
    
    
    
    (148,177
    )Interest expense
    
    
    (57,566
    )
    
    
    (124,940
    )
    
    
    (251,493
    )
    
    
    (236,978
    )
    
    
    (5,040,666
    )Other income
    
    
    10,091
    
    
    
    
    
    
    
    10,091
    
    
    
    
    
    
    
    10,091Loss on sale of assets
    
    
    578
    
    
    
    (1,822
    )
    
    
    (1,170
    )
    
    
    (4,408
    )
    
    
    (2,750
    )Loss on settlement of debt
    
    
    
    
    
    
    
    
    
    
    (174,786
    )
    
    
    
    
    
    
    (34,342
    )Net loss
    
    
    (816,762
    )
    
    
    (2,234,514
    )
    
    
    (1,982,869
    )
    
    
    (4,238,079
    )
    
    
    (43,847,088
    )Accumulated deficit, beginning
    
    
    (43,030,326
    )
    
    
    (35,831,576
    )
    
    
    (41,864,219
    )
    
    
    (33,828,011
    )
    
    
    Accumulated deficit, ending
    
    $
    (43,847,088
    )
    
    $
    (38,066,090
    )
    
    $
    (43,847,088
    )
    
    $
    (38,066,090
    )
    
    $
    (43,847,088
    )Other comprehensive incomeForeign exchange gain (loss) on
translation
    
    
    8,069
    
    
    
    6,030
    
    
    
    (246,175
    )
    
    
    (24,020
    )
    
    
    203,549Total comprehensive loss
    
    $
    (808,693
    )
    
    $
    (2,228,484
    )
    
    $
    (2,229,044
    )
    
    $
    (4,262,099
    )
    
    $
    (43,643,539
    )Total loss per share  basic and
diluted
    
    $
    (0.02
    )
    
    $
    (0.08
    )
    
    $
    (0.06
    )
    
    $
    (0.16
    )
    
    $
    Weighted average number of shares of
common stock  basic and diluted
    
    
    37,448,211
    
    
    
    26,901,395
    
    
    
    35,280,263
    
    
    
    26,440,237
    
    
    
    
 The accompanying notes are an integral part of these consolidated financial statements.
  4




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
 Consolidated Statements of Cash Flows
(Unaudited) (Expressed in U.S. Dollars)
 Period fromInception ofDevelopmentStageSix Months Ended
    
    
    (March 1, 2004)August 31,
    
    
    August 31,
    
    
    To August 31,2009
    
    
    2008
    
    
    2009Cash flows from operating activitiesNet loss
    
    $
    (1,982,869
    )
    
    $
    (4,238,079
    )
    
    $
    (43,847,088
    )Adjustments to reconcile net (loss) to net cash flows:Write off of note receivable
    
    
    
    
    
    
    
    
    
    
    57,500Impairment of mineral property costs
    
    
    
    
    
    
    
    
    
    
    13,645,000Issuance of shares for consulting services
    
    
    13,500
    
    
    
    
    
    
    
    365,590Issuance of shares for interest costs
    
    
    82,500
    
    
    
    
    
    
    
    82,500Discount on convertible debenture
    
    
    15,608
    
    
    
    93,400
    
    
    
    498,966Non-cash component of loss on settlement of debt
    
    
    174,786
    
    
    
    
    
    
    
    (7,473
    )Beneficial conversion feature
    
    
    98,700
    
    
    
    64,133
    
    
    
    4,128,599Stock-based compensation
    
    
    607,222
    
    
    
    341,723
    
    
    
    8,577,079Depreciation
    
    
    40,788
    
    
    
    44,121
    
    
    
    223,712Net change in operating assets and liabilities:Prepaid expense
    
    
    7,943
    
    
    
    50,048
    
    
    
    (28,503
    )Accounts receivable
    
    
    (109,184
    )
    
    
    (130,430
    )
    
    
    (435,131
    )Customer deposits
    
    
    
    
    
    
    
    
    
    
    (44,809
    )Notes payable
    
    
    
    
    
    
    
    
    
    
    109,337Accounts payable and accrued liabilities
    
    
    (316,725
    )
    
    
    1,530,072
    
    
    
    3,762,330Cash used in operating activities
    
    
    (1,367,731
    )
    
    
    (2,245,012
    )
    
    
    (12,912,391
    )Investing activitiesSale of equipment
    
    
    29,437
    
    
    
    
    
    
    
    33,316Purchase of property and equipment
    
    
    (23,219
    )
    
    
    (13,171
    )
    
    
    (588,208
    )Cash used in investing activity
    
    
    6,218
    
    
    
    (13,171
    )
    
    
    (554,892
    )Financing activitiesProceeds from loans payable
    
    
    
    
    
    
    
    
    
    
    225,817Proceeds from notes payable
    
    
    800,808
    
    
    
    935,156
    
    
    
    3,864,473Proceeds from convertible debentures
    
    
    1,573,510
    
    
    
    1,370,000
    
    
    
    7,362,500Proceeds from exercise of options
    
    
    
    
    
    
    
    
    
    
    78,000Proceeds from exercise of warrants
    
    
    
    
    
    
    
    
    
    
    3,144,377Repayment of loans payable
    
    
    (13,263
    )
    
    
    (39,561
    )
    
    
    (157,303
    )Repayment of notes payable
    
    
    
    
    
    
    (33,950
    )
    
    
    (383,270
    )Repayment of convertible debentures
    
    
    (1,300,000
    )
    
    
    
    
    
    
    (1,830,000
    )Stock subscriptions
    
    
    170,000
    
    
    
    4,943
    
    
    
    461,258Issuance of common stock
    
    
    100,000
    
    
    
    4,942
    
    
    
    756,994Cash provided by financing activities
    
    
    1,331,055
    
    
    
    2,241,530
    
    
    
    13,522,846Net change in cash
    
    
    (30,458
    )
    
    
    (16,653
    )
    
    
    55,563Effect of foreign currency translation on cash
    
    
    (100
    )
    
    
    5,058
    
    
    
    (69,494
    )Cash and cash equivalents, beginning
    
    
    38,704
    
    
    
    12,947
    
    
    
    22,077Cash and cash equivalents, ending
    
    $
    8,146
    
    
    $
    1,352
    
    
    $
    8,146
  The accompanying notes are an integral part of these consolidated financial statements.
  5




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 1.
    
    BASIS OF PRESENTATION
 Mexoro Minerals Ltd. (formerly Sunburst Acquisitions IV, Inc.) (Mexoro or the Company)
was incorporated in the state of Colorado on August 27, 1997 and on February 15, 2006 its
name was changed to Mexoro Minerals Ltd. The Company was formed to seek out and acquire
business opportunities. Between 1997 and 2003, the Company was engaged in two business
acquisitions and one business opportunity, none of which generated a significant profit or
created sustainable business. All were sold or discontinued. Effective March 1, 2004, the
Company changed its operations to mineral exploration and the extraction of mineralized
material in Mexico.
 On February 12, 2009, the Company entered into a joint venture through a definitive agreement
for development of Cieneguita project with Minera Rio Tinto, S.A. de C.V. (MRT), a company
duly incorporated pursuant to the laws of Mexico, which is controlled by a former officer and
director of the Company. The purpose of the joint venture is to put the Cieneguita property
into production. As per the agreement, MRT is to provide the necessary working capital to
begin and maintain mining operations estimated to be $3,000,000. MRT will spend 100% of the
funds in exchange for a 75% interest in the net cash flow from production. Accordingly, as of
February 12, 2009 the Company is considered to be a development stage company.
 On May 25, 2004, the Company completed a Share Exchange Agreement with Sierra Minerals and
Mining, Inc. (Sierra Minerals), a Nevada corporation, which caused Sierra Minerals to
become a wholly-owned subsidiary. Sierra Minerals held certain rights to properties in Mexico
that the Company now owns or has an option to acquire. Through Sierra Minerals, the Company
entered into a joint venture agreement with MRT. In August 2005, the Company cancelled the
joint venture agreement in order to directly pursue mineral exploration opportunities through
a wholly-owned Mexican subsidiary, Sunburst Mining de Mexico S.A. de C.V. (Sunburst de
Mexico). On August 25, 2005, Sunburst de Mexico, Mexoro and MRT entered into agreements
providing Sunburst de Mexico the right to explore and exploit certain properties in Mexico.
In December 2005, the Company and Sunburst de Mexico entered into a new agreement with MRT
(the New Agreement) (note 6). On January 20, 2006, Sierra Minerals was dissolved.
 The accompanying unaudited consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles (US GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete consolidated 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 August
31, 2009 are not necessarily indicative of the results that may be expected for the year
ending February 28, 2010. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Companys annual report on Form 10-K for the
year ended February 28, 2009.
  6




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES
 (a)
    
    Recent accounting pronouncements
 (i)
    
    In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements(SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value under GAAP and expands disclosure about fair value
measurements. In February 2008, the FASB issued FASB Staff Position (FSP) SFAS
No. 157-2 Effective Date of FASB Statement No. 157(FSP 157-2) which delays the
effective date of SFAS 157 for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). FSP 157-2
partially defers the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items within
the scope of FSP 157-2. The adoption of SFAS No. 157 did not have a material
impact on the Companys consolidated financial condition or results of
operations.
 (ii)
    
    In December 2007, the FASB issued SFAS No. 141 (R), Business
Combinations. SFAS No. 141 (R) requires an acquirer to measure the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree at their fair values on the acquisition date, with goodwill being the
excess value over the net identifiable assets acquired. SFAS No. 141 (R) is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. The adoption of SFAS No. 141 (R)
did not have a material impact on the Companys consolidated financial condition
or results of operations.
 (iii)
    
    In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements  an amendment of
ARB No. 51 (SFAS No. 160). SFAS No. 160 amends ARB 51 to establish accounting
and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest
in a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Among other requirements, this
statement requires consolidated net income to be reported at amounts that include
the amounts attributable to both the parent and the noncontrolling interest. It
also requires disclosure, on the face of the consolidated income statement, of
the amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. SFAS No. 160 is effective for financial statements
issued for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2008. The adoption of SFAS No. 160 did not have a material
impact on the Companys consolidated financial condition or results of
operations.
 (iv)
    
    In March 2008, the FASB issued SFAS No. 161, Disclosure About
Derivative Instruments and Hedging Activities, an amendment to Financial
Accounting Standards Board Financial Accounting Standard No. 133. SFAS No. 161
requires among other things, enhanced disclosure about the volume and nature of
derivative and hedging activities and a tabular summary showing the fair value of
derivative instruments included in the statement of financial position and
statement of operations. SFAS No. 161 also requires expanded disclosure of
contingencies included in derivative instruments related to credit risk. SFAS No.
161 is effective for fiscal 2009. The adoption of SFAS No. 161 did not have a
material impact on the Companys consolidated financial condition or results of
operations.
  7




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (a)
    
    Recent accounting pronouncements (continued)
 (v)
    
    In May 2008, the FASB issued FSP No. APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlements) (previously FSP APB 14-a), which will
change the accounting treatment for convertible securities which the issuer may
settle fully or partially in cash. Under the final FSP, cash settled convertible
securities will be separated into their debt and equity components. The value
assigned to the debt component will be the estimated fair value, as of the
issuance date, of a similar debt instrument without the conversion feature, and
the difference between the proceeds for the convertible debt and the amount
reflected as a debt liability will be recorded as additional paid-in capital. As
a result, the debt will be recorded at a discount reflecting its below market
coupon interest rate. The debt will subsequently be accreted to its par value
over its expected life, with the rate of interest that reflects the market rate
at issuance being reflected on the income statement. This change in methodology
will affect the calculations of net income and earnings per share for many
issuers of cash settled convertible securities. The FSP is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The adoption of FSP No. APB 14-1
did not have a material effect on the Companys consolidated financial
statements.
 (vi)
    
    In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities, which applies to the calculation of earnings per share (EPS) under
Statement 128 for share-based payment awards with rights to dividends or dividend
equivalents. Under the final FSP EITF 03-6-1, Unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are participating securities and shall be included in the
computation of EPS pursuant to the two-class method. The FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The Company is
currently evaluating the impact of the adoption of EITF 03-6-1 on its
consolidated financial statements.
 (vii)
    
    SFAS No. 165, Subsequent Events (SFAS 165), establishes
general standards of accounting for and disclosure of events that occur after the
balance sheet date, but before financial statements are issued or are available
to be issued. SFAS 165 establishes (1) the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (3) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. SFAS 165 is
effective for interim or annual financial periods ending after June 15, 2009. The
Company adopted the provisions of SFAS 165 in the six months ended August 31,
2009 and evaluated subsequent events through September 30, 2009, the issuance
date of these condensed consolidated statements. See Note 17  Subsequent Events.
The adoption of this standard did not have a material effect on the Companys
condensed consolidated financial statements.
  8




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (a)
    
    Recent accounting pronouncements (continued)
 (viii)
    
    On June 15, 2008, the FASB ratified Emerging Issues Task Force Issue No. 08-4
(EITF 08-4). EITF 08-4 addressed conforming changes made to EITF Issue 98-5
which resulted from the implantation of EITF Issue 00-27 and SFAS No. 150. EITF
Issued 98-5 addresses the accounting for beneficial conversion features.
Previously, beneficial conversion features were amortized to the securities
earliest conversion date. Under EITF 08-4, beneficial conversion features are
amortized to the stated redemption date, if one exists, rather than the earliest
termination date. For beneficial conversion features without a stated redemption
date, the beneficial conversion features continue to be amortized to the earliest
conversion date. EITF 08-4 is effective for fiscal years ending after December
15, 2008 with early application permitted. The effects of implementing EITF 08-4
are to be presented retrospectively with the cumulative-effect of the change
being reported in retained earnings at the beginning of the first year presented.
The Company adopted EITF 08-4 during the year ended February 28, 2009. As a
result of adoption of EITF 08-4, the Company was amortizing its beneficial
conversion features of $416,200 to the stated redemption dates of the debentures.
As a result, $312,399 of the beneficial conversion features was recognized as
interest expense in the consolidated statement of operations for the year ended
February 28, 2009 and the remaining $103,801 was recognized in the quarter ended
May 31, 2009. Prior to adoption of EITF 08-04, the entire $416,200 beneficial
conversion feature would have been recognized in the year ended February 28,
2009.
 (ix)
    
    In April 2009, the FASB issued FSP SFAS No. 141(R)-1, Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies. FSP SFAS No. 141(R)-1 will amend the provisions related to
the initial recognition and measurement, subsequent measurement and disclosure of
assets and liabilities arising from contingencies in a business combination under
SFAS No. 141(R), Business Combinations. The FSP will carry forward the
requirements in SFAS No. 141, Business Combinations, for acquired contingencies,
thereby requiring that such contingencies be recognized at fair value on the
acquisition date if fair value can be reasonably estimated during the allocation
period. Otherwise, entities would typically account for the acquired
contingencies in accordance with SFAS No. 5, Accounting for Contingencies. The
FSP will have the same effective date as SFAS No. 141(R), and will therefore be
effective for the Companys business combinations for which the acquisition date
is on or after March 1, 2009. Adoption of this FSP did not have a material
impact on the Companys consolidated financial position, results of operations
and cash flows.
 (x)
    
    In April 2009, the FASB issued FSP SFAS No. 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP
SFAS No. 157-4 provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS No. 157, Fair Value
Measurements. The FSP relates to determining fair values when there is no active
market or where the price inputs being used represent distressed sales. It
reaffirms what SFAS No. 157 states is the objective of fair value measurementto
reflect how much an asset would be sold for in an orderly transaction (as opposed
to a distressed or forced transaction) at the date of the financial statements
under current market conditions. Specifically, it reaffirms the need to use
judgment to ascertain if a formerly active market has become inactive and in
determining fair values when markets have become inactive. This SFAS is
effective for the Companys interim reporting period ending on August 31, 2009.
Adoption of this FSP did not have a material impact on the Companys consolidated
financial position, results of operations and cash flows.
  9




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (a)
    
    Recent accounting pronouncements (continued)
 (xi)
    
    In April 2009, the FASB issued FSP SFAS No. 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments. FSP SFAS No. 107-1
and APB 28-1 enhances consistency in financial reporting by increasing the
frequency of fair value disclosures. The FSP relates to fair value disclosures
for any financial instruments that are not currently reflected on a companys
balance sheet at fair value. Prior to the effective date of this FSP, fair
values for these assets and liabilities have only been disclosed once a year.
The FSP will now require these disclosures on a quarterly basis, providing
qualitative and quantitative information about fair value estimates for all those
financial instruments not measured on the balance sheet at fair value. The
disclosure requirement under this FSP is effective for the Companys interim
reporting period ending on August 31, 2009. Adoption of this FSP did not have a
material impact on the Companys consolidated financial position, results of
operations and cash flows.
 (xii)
    
    In June 2009, the FASB issued FASB Statement No. 166, Accounting
for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (SFAS
166). SFAS 166, among other things, eliminates the concept of a qualifying
special-purpose entity, changes the requirements for derecognizing financial
assets, and requires additional disclosures about transfers of financial assets.
SFAS 166 is effective for annual reporting periods beginning after November 15,
2009. The Company does not expect the adoption of this standard to have a
material effect on its consolidated financial statements.
 (xiii)
    
    In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R). SFAS No. 167 changes how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a company is
required to consolidate an entity is based on, among other things, an entitys
purpose and design and a companys ability to direct the activities of the entity
that most significantly impact the entitys economic performance. This SFAS is
effective for the Companys fiscal year beginning on March 1, 2010. The Company
is currently evaluating the impact of the implementation of SFAS No. 167 on its
consolidated financial position, results of operations and cash flows.
 (xiv)
    
    In June 2009, the FASB issued FASB Statement No. 168, the FASB
Accounting Standards Codification (Codification) and the Hierarchy of Generally
Accepted Accounting Principles (GAAP), a replacement of FASB Statement No. 162
(SFAS 168). SFAS 168 establishes the Codification as the single source of
authoritative GAAP in the United States, other than rules and interpretive
releases issued by the SEC. The Codification is a reorganization of current GAAP
into a topical format that eliminates the current GAAP hierarchy and establishes
instead two levels of guidance  authoritative and non-authoritative. All
non-grandfathered, non-SEC accounting literature that is not included in the
Codification will become non-authoritative. The FASBs primary goal in developing
the Codification is to simplify user access to all authoritative GAAP by
providing all the authoritative literature related to a particular accounting
topic in one place. The Codification will be effective for interim and annual
periods ending after September 15, 2009. As the Codification is not intended to
change or alter existing GAAP, it is not anticipated to materially impact the
Companys consolidated financial statements.
 (b)
    
    Accounting Estimates
 The preparation of consolidated financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and contingencies at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the year. Actual
results may differ form those estimates.
  10




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 3.
    
    GOING CONCERN
 The accompanying financial statements have been prepared on a going concern basis. The
Company has a history of operating losses and will need to raise additional capital to fund
its planned operations. As at August 31, 2009, the Company had a working capital deficiency
of $4,700,802 (February 28, 2009  $4,657,260) and a cumulative loss during the development
period of $43,847,088 (February 28, 2009  $41,864,219). These conditions raise substantial
doubt about the Companys ability to continue as a going concern.
 The Company intends to reduce its cumulative loss through the attainment of profitable
operations from its investment in a Mexican mining venture (note 6). In addition, the Company
has conducted private placements of convertible debt and common stock (note 11), which have
generated a portion of the initial cash requirements of its planned Mexican mining ventures
(note 6).
 In February 2009, the Company signed a definitive agreement with MRT to provide funding of up
to $9,000,000 to the Company to initiate production at its Cieneguita property, complete a
feasibility study as well as to continue the exploration of its properties.
 In June 2009, the Company signed a definitive agreement to sell its Guazapares project
located in South western Chihuahua, Mexico to Paramount Gold de Mexico, SA de C.V., the
Mexican subsidiary of Paramount Gold and Silver Corp. (Paramount) for a total consideration
of up to $5.3 million. The sale is subject to satisfaction of various conditions precedent
prior to closing. Payment for the properties is expected once the title of the claims has
been re-registered in Paramounts name with the Mining Bureau in Mexico.
 4.
    
    EQUIPMENT
 August 31,
    
    
    February 28,2009
    
    
    2009Accumulated
    
    
    Net Book
    
    
    Net BookCost
    
    
    Depreciation
    
    
    Value
    
    
    ValueSoftware
    
    $
    23,501
    
    
    $
    17,187
    
    
    $
    6,314
    
    
    $
    5,730Machinery
    
    
    271,657
    
    
    
    66,335
    
    
    
    205,322
    
    
    
    193,097Vehicles
    
    
    99,801
    
    
    
    65,151
    
    
    
    34,650
    
    
    
    56,456Computers
    
    
    27,033
    
    
    
    19,999
    
    
    
    7,034
    
    
    
    9,751Office equipment
    
    
    15,920
    
    
    
    4,397
    
    
    
    11,523
    
    
    
    10,866$
    437,912
    
    
    $
    173,069
    
    
    $
    264,843
    
    
    $
    275,900
 5.
    
    JOINT VENTURE WITH MRT
 On February 12, 2009, the Company entered into a joint venture through a definitive agreement
for development of Cieneguita project with MRT. The purpose of the joint venture is to put
Cieneguita property into production. As per the agreement, MRT is to provide the necessary
working capital to begin and maintain mining operations estimated to be $3,000,000. MRT will
spend 100% of the funds in exchange for a 75% interest in the net cash flow from production.
The agreement limits the mining of the mineralized material that is available from the
surface to a depth of 15 meters or approximately 10% of the mineralized material found to
date. The Company incurs no obligations to the joint ventures creditors as the operations
and working capital requirements are controlled by MRT. Accordingly, the Companys share of
income and expenses are reflected in these financial statements under the proportionate
consolidation method.
  11




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 6.
    
    MINERAL PROPERTIES
 The Company incurred exploration expenses as follows in the six months ended August 31, 2009:
 Encino
    
    
    NewSahuayacan
    
    
    Guazapares
    
    
    Cieneguita
    
    
    Gordo
    
    
    Projects
    
    
    TotalDrilling and
sampling
    
    $
    
    
    
    $
    
    
    
    $
    68,015
    
    
    $
    
    
    
    $
    
    
    
    $
    68,015Geological,
geochemical,
geophysics
    
    
    
    
    
    
    31,684
    
    
    
    32,400
    
    
    
    
    
    
    
    1,009
    
    
    
    65,093Land use permits
    
    
    6,206
    
    
    
    4,716
    
    
    
    29,185
    
    
    
    1,873
    
    
    
    
    
    
    
    41,980Automotive
    
    
    
    
    
    
    443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    443Travel
    
    
    4,952
    
    
    
    216
    
    
    
    7,569
    
    
    
    
    
    
    
    
    
    
    
    12,737Consulting
    
    
    21,403
    
    
    
    6,722
    
    
    
    72,795
    
    
    
    
    
    
    
    
    
    
    
    100,920Equipment
    
    
    707
    
    
    
    
    
    
    
    2,114
    
    
    
    
    
    
    
    
    
    
    
    2,821General
    
    
    8,610
    
    
    
    7,498
    
    
    
    15,773
    
    
    
    62
    
    
    
    
    
    
    
    31,943$
    41,878
    
    
    $
    51,279
    
    
    $
    227,851
    
    
    $
    1,935
    
    
    $
    1,009
    
    
    $
    323,952
 The Company incurred exploration expenses as follows in the six months ended August 31, 2008:
 Cieneguita
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Encino
    
    
    NewOperations
    
    
    Sahuayacan
    
    
    Guazapares
    
    
    Cieneguita
    
    
    Gordo
    
    
    Projects
    
    
    TotalDrilling and
sampling
    
    $
    
    
    
    $
    
    
    
    $
    373,472
    
    
    $
    1,195,880
    
    
    $
    
    
    
    $
    
    
    
    $
    1,569,352Geological,
geochemical,
geophysics
    
    
    
    
    
    
    
    
    
    
    88,038
    
    
    
    245,912
    
    
    
    
    
    
    
    40,978
    
    
    
    374,928Land use permits
    
    
    53
    
    
    
    74,954
    
    
    
    48,049
    
    
    
    124,246
    
    
    
    (1,646
    )
    
    
    
    
    
    
    245,656Automotive
    
    
    260
    
    
    
    
    
    
    
    3,425
    
    
    
    6,905
    
    
    
    
    
    
    
    
    
    
    
    10,590Travel
    
    
    694
    
    
    
    321
    
    
    
    29,319
    
    
    
    18,126
    
    
    
    213
    
    
    
    
    
    
    
    48,673Consulting
    
    
    12,989
    
    
    
    
    
    
    
    119,302
    
    
    
    88,358
    
    
    
    
    
    
    
    
    
    
    
    220,649Equipment
    
    
    109
    
    
    
    
    
    
    
    21,116
    
    
    
    18,138
    
    
    
    
    
    
    
    
    
    
    
    39,363General
    
    
    8,764
    
    
    
    5,151
    
    
    
    83,866
    
    
    
    147,451
    
    
    
    442
    
    
    
    
    
    
    
    245,674$
    22,869
    
    
    $
    80,426
    
    
    $
    766,587
    
    
    $
    1,845,016
    
    
    $
    (991
    )
    
    $
    40,978
    
    
    $
    2,754,885
  12




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 6.
    
    MINERAL PROPERTIES (CONTINUED)
 Since May 2004, the Company has held interests in gold exploration properties in Mexico.
 In August 2005, the Company formed its wholly owned subsidiary, Sunburst de Mexico, which
allowed the Company to take title to the properties in the name of Sunburst de Mexico. On
August 25, 2005, the Company entered into property agreements with MRT, which provided
Sunburst de Mexico options to purchase the mineral concessions of the Cieneguita and
Guazapares properties and the right of refusal on three Encino Gordo properties. The Company
also entered into an exploration and sale agreement, in October 2006, with Minera Emilio for
the mineral concessions of the Sahuayacan property.
 In August 2005, the parties also entered into an operators agreement, that gave MRT the sole
and exclusive right and authority to manage the Cieneguita property, and a share option
agreement which granted MRT the exclusive option to acquire up to 100% of all outstanding shares of Sunburst de Mexico if the Company did not comply with the terms of the property
agreements. The operators agreement and share option agreement were subsequently cancelled
when the Company and Sunburst de Mexico entered into a new contract with MRT as described
below under Encino Gordo property.
 In November 2008, the Company signed a letter of intent and on February 12, 2009, a
definitive agreement with MRT to initiate production at its Cieneguita property, complete a
feasibility study and to continue the exploration of its properties. Under the agreement, MRT
and Mexoros wholly owned subsidiary Sunburst Mining de Mexico will form a new Mexican joint
venture company for the purpose of putting Cieneguita property into production.
 The material provisions of the property agreements are as follows:
 Cieneguita
 MRT assigned to Sunburst de Mexico, with the permission of the owner of the Cieneguita
property, Corporativo Minero, S.A. de C.V. (Corporativo Minero), all of MRTs rights and
obligations acquired under a previous agreement (the Cieneguita option agreement), including
the exclusive option to acquire the Cieneguita property for a price of $2,000,000. As the
Cieneguita property was not in production by May 6, 2006, Sunburst de Mexico was required to
pay $120,000 to Corporativo Minero to extend the contract. Corporativo Minero agreed to
reduce the obligation to $60,000, of which $10,000 was paid in April 2006 and the balance
paid on May 6, 2006. The Company made this payment to Corporativo Minero and the contract was
extended.
 The Company has the obligation to pay a further $120,000 per year for 13 years and the
balance of the payments in the 14th year, until the total amount of $2,000,000 is paid. The
Company renegotiated the payment due May 6, 2007, to $60,000 payable on November 6, 2007,
which was paid, and the balance of $60,000 was paid on December 20, 2007. The Company paid
$60,000 on May 12, 2008 of the $120,000 due on May 6, 2008, and the balance was paid in June
2008. The Company is not in default in its payments.
 In the alternative, if the Cieneguita property is put into production, of which there is no
guarantee, the Company must pay the Cieneguita owners $20 per ounce of gold produced, if any,
from the Cieneguita Property to the total $2,000,000 due. In the event that the price of gold
is above $400 per ounce, the property payments payable to the Cieneguita owners from
production will be increased by $0.10 for each dollar increment over $400 per ounce. The
total payment of $2,000,000 does not change with fluctuations in the price of gold.
Non-payment of any portion of the $2,000,000 total payment will constitute a default. In such
case, the Cieneguita owners will retain ownership of the concessions, but the Company will
not incur any additional default penalty. MRT retained no interest in the Cieneguita
property.
  13




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)  Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 6.
    
    MINERAL PROPERTIES (CONTINUED)
 On February 12, 2009 the Company entered into a definitive agreement for development of
Cieneguita project with Minera Rio Tinto (MRT), a private Mexican corporation whose
president was a former president of our Company. The definitive agreement covers project
financing of up to $9,000,000. The major points of the agreement are as follows:
 (i)
    
    MRT and/or its investors will subscribe for up to $1 million of a
secured convertible debenture at 8% interest (payable in stock or cash). The
debenture is convertible into units at $0.60 per unit. Each unit comprises 2
common shares and 1 warrant. Each warrant is exercisable at $0.50 per share for a
period of 3 years. The funds from the placement will be used for continued
exploration of the Companys properties and general working capital.
 (ii)
    
    MRT is to provide the necessary working capital to begin and
maintain mining operations estimated to be $3,000,000 used for the purpose of
putting the Cieneguita property into production. MRT will spend 100% of the funds
in exchange for a 75% interest in the net cash flow from production. The
agreement will limit the mining to the mineralized material that is available
from surface to a depth of 15 meters or approximately 10% of the mineralized
material found to date.
 (iii)
    
    MRT will spend up to $5 million to take the Cieneguita property
through the feasibility stage. In doing so, MRT will earn a 60% interest in
Mexoros rights to the property. After the expenditure of the $5 million all
costs will be shared on a ratio of 60% to MRT and 40% to Mexoro. If the Company
elects not to pay its portion of costs after the $5 million has been spent, the
Companys position shall revert to a 25% carried interest on the property.
 Guazapares
 MRT assigned to Sunburst de Mexico, with the consent of the Guazapares property owner
Compañía Minera, S.A. de C.V. (Compañía Minera), MRTs rights and obligations concerning
the Guazapares property, including the exclusive option, for a term of four years, to
purchase eight of the Guazapares property concessions upon payment of $910,000. The total
payments for the Company to acquire and retain 100% ownership of all eight concessions are as
follows: November 30, 2005  $100,000 (this payment date was extended  see below), October
31, 2006  $60,000 (this payment date was extended to February 28, 2007, and then to August
31, 2007- see below), August 2, 2007  $140,000 (see below), August 2, 2008  $110,000 and
August 2, 2009  $500,000.
 On September 19, 2007, Sunburst de Mexico, Mexoro and MRT entered into an agreement to defer
any and all property payments regarding Guazapares that were due by December 31, 2007 owing
to MRT, until such time as Sunburst de Mexico and Mexoro have sufficient funds to make the
payments, in the opinion of the disinterested directors of Mexoro.
 Mexoro agreed to issue 250,000 shares to MRT and/or its assignees in consideration for the
deferral of any and all Guazapares Property payments that were outstanding and those arising
on or before December 31, 2007.
 In return, Sunburst de Mexico granted MRT a 2.5% net smelter royalties (NSR) and the right
to extract from the Guazapares concessions up to 5,000 tons per month of rock material; which
right will terminate on exercise of the option to purchase the concessions. Otherwise, MRT
retained no interest in the Guazapares Property.
 In June 2009, the Company signed a definitive agreement to sell its Guazapares project
located in south western Chihuahua, Mexico to Paramount Gold de Mexico, SA de C.V., the
Mexican subsidiary of Paramount. The sale is subject to satisfaction of various conditions
precedent prior to closing. Payment for the properties is expected once the title of the
claims have been re-registered in Paramounts name with the Mining Bureau in Mexico.
 As per the agreement, the due dates for all payments for the ownership of Guazapares have
been deferred with the property owners for a period of 37 months from the closing date.
Sunburst is required to make monthly payment of $6,000 plus $900 in taxes for 36 months
commencing on July 20, 2009 and ending on June 10, 2012 for deferment from the escrow fund.
  14




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)  Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 6.
    
    MINERAL PROPERTIES (CONTINUED)
 San Francisco (Guazapares)
 MRT assigned to Sunburst de Mexico, for a term of 60 months, commencing from June 25, 2004
(the Option Period), with the consent of the San Francisco concessions owner Minera
Rachasa, S.A. de C.V. (Minera Rachasa), MRTs rights and obligations acquired under the San
Francisco option agreement, including the option to purchase the San Francisco concessions
for a price of $250,000 on June 25, 2009.
 To maintain the option, Sunburst de Mexico assumed the obligation to pay to the San Francisco
owner cumulative annual payments. The payments are: $20,000 on June 25, 2006 (paid); $30,000
on June 25, 2007 (paid); and $40,000 on June 25, 2008 (paid).
 If the option is exercised prior to the expiration of the Option Period by payment of the
purchase price of $250,000; the obligation to pay the annual payments will be terminated. MRT
and the San Francisco owner reserved a combined 2.5% NSR. MRT reserved no other rights on the
San Francisco concessions.
 In June 2009, Paramount made the $250,000 payment to Minera Rachasa and acquired the San
Francisco concessions as part of the definitive agreement to acquire the Guazapares project.
 San Antonio (Guazapares)
 MRT assigned to Sunburst de Mexico, with the consent of the San Antonio concessions owner
(Rafael Fernando Astorga Hernández), MRTs rights and obligations acquired under the San
Antonio option agreement, including the option to purchase the San Antonio concessions for a
price of $500,000, commencing on January 15, 2004 (the signing date of the San Antonio option
agreement) and due on January 15, 2010.
 To maintain the option, Sunburst de Mexico assumed the obligation to pay to the San Antonio
owner cumulative annual payments. The remaining payments are: $50,000 on January 15, 2008
(this payment was deferred to January 31, 2008 and paid) and $50,000 on January 15, 2009 (the
Company is in default and renegotiating the payment terms).
 If the option is exercised prior to the expiration of the option period by payment of the
purchase price, the obligation to pay the annual payments will be terminated. The San Antonio
owner reserved the right to extract from the San Antonio concessions up to 50 tons per day of
rock material; this right will terminate on the date of the exercise of the option. MRT and
the San Antonio owner reserved a combined 2.5% NSR to be paid to them. MRT reserved no other
rights on the San Antonio concessions.
 Encino Gordo
 On December 8, 2005, the Company and Sunburst de Mexico entered into a New Agreement with
MRT to exercise their option under the sale and purchase of the mining concessions agreement,
dated August 18, 2005, to obtain two mining concessions in the Encino Gordo region. The New
Agreement also provided the Company the option to obtain three additional concessions in the
Encino Gordo region.
  15




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##### 



MEXORO MINERALS LTD.(A Development Stage Company)  Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 6.
    
    MINERAL PROPERTIES (CONTINUED)
 The following are additional material terms of the New Agreement:
 (a)
    
    The share option agreement with MRT was cancelled;
 (b)
    
    The Company granted MRT the option to buy all of the outstanding shares of
Sunburst de Mexico for $100 if the Company failed to transfer $1,500,000 to Sunburst de
Mexico by April 30, 2006. On April 6, 2006, MRT agreed to waive its option to purchase
the shares of Sunburst de Mexico and also waived the Companys obligation to transfer
$1,500,000 to Sunburst de Mexico. The property agreements were modified to change the
NSR to a maximum of 2.5% for all properties covered by the agreements. The property
agreements contained NSRs ranging from 0.5% to 7%;
 (c)
    
    The Company agreed to issue 2,000,000 shares of the Companys common stock to MRT
within four months of the date of the signing of the New Agreement. These shares were
issued to MRT and its assignee at the market value of $1.05 per share on February 23,
2006, and $2,100,000 was charged to operations for the year ended February 28, 2006.
This issuance fulfilled the Companys payment obligations under the previous property
agreements;
 (d)
    
    The Company agreed to issue 1,000,000 additional shares of the Companys common
stock to MRT if and when the Cieneguita Property is put into production and reaches 85%
of production capacity over a 90-day period, as defined in the New Agreement; and
 (e)
    
    The operators agreement with MRT was cancelled.
 Sunburst de Mexico purchased two of the Encino Gordo concessions from MRT for a price of
1,000 pesos (approximately US$100), and MRT assigned to Sunburst de Mexico a first right of
refusal to acquire three additional Encino Gordo concessions. The total payments to acquire
100% of these three additional concessions are as follows: $10,000 on June 30, 2006 (paid);
$25,000 on December 31, 2006 (paid), $50,000 on December 31, 2007 ($20,000 of this payment
was made on January 3, 2008 and the balance was paid on February 29, 2008), $75,000 on
December 31, 2008 (the Company was in default). In August 2009, the Company decided to
surrender the Encino Gordo 2 mining concession and absolved itself of any further obligations
relating to this concession.
 Sahuayacan
 On June 21, 2006, Sunburst de Mexico entered into an exploration and sale option agreement of
mining concessions with Minera Emilio, S.A. de C.V. (Minera Emilio) for mineral concessions
of the Sahuayacan Property. Minera Emilio granted the Company the exclusive right to conduct
exploration on the Sahuayacan property and the Company must pay $282,000 in the following
manner: $20,000 on date of signing agreement (paid); $10,000 due December 1, 2006 (paid);
$2,500 per month effective from August 21, 2006 to July 21, 2007, for a total of $30,000
(paid); $3,500 per month effective from August 21, 2007 to July 21, 2008 for a total of
$42,000 (paid); and $5,000 per month effective August 21, 2008 to July 21, 2011 (all until
August 2009 have been made) for a total of $180,000 until the balance of the total $282,000
is paid (36 months).
 Segundo Santo Nino (Sahuayacan)
 On May 15, 2006, Sunburst de Mexico entered into an exploration contract with Jose Maria
Rascon and Sabino Amador Rascon Polanco and, on November 20, 2007, Sunburst de Mexico entered
into an exploration contract with Rene Muro Lugo (all three representatives constitute the
Concessionaires) for the Segundo Santo Nino concession on the Sahuayacan property. Each
concession representative owns 33.3% of the total Segundo Santo Nino title. The Company must
pay the Concessionaires a total of $255,000 for this concession. As of August 31, 2009, the
Company paid $105,000 of the payments required until May 15, 2009, The remaining payments are
due on November 15, 2009 ( $30,000) and May 15, 2010 ($120,000).
  16




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##### 



MEXORO MINERALS LTD.(A Development Stage Company)  Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 6.
    
    MINERAL PROPERTIES (CONTINUED)
 La Maravilla (Sahuayacan)
 On January 25, 2008, Sunburst de Mexico entered into an exploration and option agreement with
Maria Luisa Wong Madrigal for mineral concessions under the La Maravilla project on the
Sahuayacan property. The Company must pay Maria Luisa Wong Madrigal $600,000 to acquire 100%
of this concession as follows: $33,000  January 25, 2008 (paid); $33,000  July 25, 2008
(paid); $34,000  January 25, 2009 (this payment was made in September 2009); $500,000  at
the option to purchase the concession or 36 months  January 25, 2010.
 7.
    
    PROMISSORY NOTES
 As at August 31, 2009, the Company had $1,150,377 (August 31, 2008  $1,784,654) of
promissory notes outstanding, comprising the following:
 (a)
    
    During the twelve months ended February 29, 2008, the Company converted accounts
payable of $465,994 (Swiss Franc (CHF) 565,000) into promissory notes. The Company had
an implied obligation to pay the accounts payable in Swiss Francs as the funds to pay
the expense came from Swiss investors in CHF. Accordingly, the promissory notes were
issued in CHF. The notes consist of one warrant for each CHF 5.00 of notes issued,
exercisable at $1.00 each. The principal and interest on the notes became due and
payable on April 30, 2008. The Company has not repaid the promissory notes as of August
31, 2009 and is in default. The principal and interest on the notes due and payable as
of August 31, 2009 was $528,371. The interest rate payable during the default period is
12%.
 (b)
    
    $622,006 of promissory notes is due to related parties and their associates that
bear no interest and have no terms of repayment (14).
 8.
    
    CONVERTIBLE DEBENTURES
 On May 5, 2008, the Company signed a LOI to enter into a strategic alliance with Paramount
Gold and Silver Corp. (Paramount). The agreement called for Paramount to invest a minimum
of $4 million and maximum of $6 million into the Company, fixed at a price of $0.50 per unit
by June 23, 2008. The investment timeline was extended until July 21, 2008, and then to
August 5, 2008. On August 6, 2008 Mexoro terminated the LOI with Paramount as Paramount did
not meet the terms of the agreement.
 The Company issued secured convertible debentures to Paramount as follows:
 On May 9, 2008, the Company issued $500,000 in convertible debentures to Paramount, with a
maturity date of one year, accruing interest at 8% per year payable in arrears and
convertible at the option of the holder.
 On June 10, 2008, the Company issued $70,000 in convertible debentures to Paramount, with a
maturity date of one year, accruing interest at 8% per year payable in arrears and
convertible at the option of the holder.
 On June 25, 2008, the Company issued $300,000 in convertible debentures to Paramount, with a
maturity date of one year, accruing interest at 8% per year payable in arrears and
convertible at the option of the holder.
 On July 11, 2008, the Company issued $500,000 in convertible debentures to Paramount, with a
maturity date of one year, accruing interest at 8% per year payable in arrears and
convertible at the option of the holder.
  17




---



##### 



MEXORO MINERALS LTD.(A Development Stage Company)  Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 8.
    
    CONVERTIBLE DEBENTURES (CONTINUED)
 Paramount had the option to convert all or a portion of the principal amount of the debenture
into units consisting of one share of our common stock and half a warrant to purchase one
share of our common stock. Subject to certain adjustments upon the occurrence of various
capital reorganizations and other events, the units were convertible at $0.50 per unit for a
total of up to 2,740,000 shares of common stock and up to 1,370,000 warrants at $0.75 to
purchase shares of common stock (the Warrants). The Warrants would have had a term of four
years if Paramount had converted the debenture or the portion of the debenture covering those
warrants.
 The value assigned to the beneficial conversion feature of the convertible debentures issued
to Paramount was $416,200. The fair value of the Warrants attached to the convertible
debentures as discussed above was estimated to be $423,000. The fair value of the Warrants
was estimated at the date of grant using the Black-Scholes option pricing model using the
following weighted average assumptions:
 2008Expected volatility
    
    
    71.48-110.72%Weighted-average volatility
    
    
    71.48-110.72%Expected dividend rate
    
    
    Expected life of warrants in years
    
    
    4Risk-free rate
    
    
    2.30-3.41%
 The weighted average fair value of the warrants was $0.30 per warrant, while the weighted
average stock price on the dates granted was $0.50. Stock-based compensation for these
warrants of $423,000 was being amortized over the one year term of the convertible debentures
starting on May 9, 2008.
 On March 19, 2009, the Company entered into an agreement with Paramount restructuring its
payment terms on the three outstanding secured convertible debentures held by Paramount.
Under the terms of the agreement, the Company paid Paramount $1,000,000 to cancel two
debentures held by them, one issued on May 9, 2008 for $500,000 and another issued on July
11, 2008 for $500,000.
 The Company also amended a debenture issued to them on June 18, 2008 in the face amount of
$370,000. The amount of that debenture was increased to $521,047, which, among other things,
includes interest accrued on all three debentures to March 31, 2009. The Company was
obligated to make a payment on March 31, 2009 on this debenture in the amount of $393,547 and
the balance of $127,500 was to be re-paid on April 30, 2009. This remaining amount of
$127,500 was interest free as long as the debenture remained in good standing. On March 31,
2009, the Company paid back $300,000. As per the agreement, the remaining amount of $221,047
accrued interest at 8% per year payable monthly, in arrears on the 10th day of
each month. On July 8, 2009, the Company entered into a definitive agreement with Paramount
to sell the Guazapares project. As part of the agreement, Paramount waived off the interest
charges due on the convertible debenture (see note 17).
 As part of a restructuring fee, the Company issued to Paramount 150,000 shares of common
stock. As part of the agreement, Paramount has released its security interest on the
Companys Cieneguita properties. The other security as described in the original security
agreement issued with the original debentures remains in place until the amended debenture
has been repaid in full.
  18




---



##### 



MEXORO MINERALS LTD.(A Development Stage Company)  Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 8.
    
    CONVERTIBLE DEBENTURES (CONTINUED)
 In March of 2009, the Company approved the issuance of $1,500,000 of Convertible Debenture to
four investors, of which $1,300,000 was received in cash and used to liquidate the debentures
issued to Paramount (former debenture
holders) during the period of May 2008 to July 2008. The Company recognized a loss of
$174,786 on the liquidation of the debentures with Paramount. Additionally, the Company
converted $100,000 of accounts payable into the convertible debenture and is scheduled to
receive $100,000 in cash for the remaining debenture in October, 2009. The debenture is due
in one year from the date of issuance and accrues interest at 15% per annum, to be paid
quarterly in either cash or stock of the Company valued at a 20% discount of the 20 day
trading average prior to the date of payment. The holders have several options to convert the
debentures. On July 24, 2009, all of the holders of the Convertible Debentures agreed to
irrevocably convert the debentures into a 10% ownership interest in the Companys Cieneguita
mining project. The Company has valued the Cieneguita project at approximately $15,000,000.
The 10% ownership interest in the Cieneguita project thus approximates the value of the
debentures to be converted.
 As consideration for the debentures, the Company granted a security interest in its
Cieneguita properties to these debenture holders.
 The value assigned to the beneficial conversion feature of the convertible debentures issued
to Paramount ($221,047) was $nil. The fair value of the Warrants attached to the convertible
debentures as discussed above was estimated to be $48,500. The fair value of the warrants was
estimated at the date of grant using the Black-Scholes option pricing model using the
following weighted average assumptions:
 2009Expected volatility
    
    
    110.36%Weighted-average volatility
    
    
    110.36%Expected dividend rate
    
    
    Expected life of warrants in years
    
    
    3-4Risk-free rate
    
    
    1.21-1.45%
 The weighted average fair value of the warrants was $0.75 per warrant, while the weighted
average stock price on the dates granted was $0.35. Stock-based compensation for these
warrants of $48,500 is being amortized over the one year term of the convertible debentures
starting on March 19, 2009.
 During the six months ended August 31, 2009, the Company issued $273,510 in convertible
debenture to MRT. Under the convertible debenture agreement, the Company also issued one
warrant for each $0.60 of convertible debentures issued (note 6). The warrants can be
exercised at any time at a price of $0.50 for 3 years.
 The value assigned to the beneficial conversion feature of the convertible debentures issued
to MRT was $71,866. The fair value of the Warrants attached to the convertible debentures as
discussed above was estimated to be $51,800. The fair value was estimated at the date of the
grants using the Black-Scholes option pricing model with the following weighted average
assumptions:
 2009Expected volatility
    
    
    108.54-110.36%Weighted-average volatility
    
    
    108.54-110.36%Expected dividend rate
    
    
    Weighted-average expected life of warrants in years
    
    
    3Risk-free rate
    
    
    1.36-1.45%
 The weighted average fair value of the warrants was $0.19 per warrant, while the weighted
average stock price on the dates granted was $0.32. Stock-based compensation for these
warrants of $51,800 is being amortized till December 31, 2010.
  19




---



##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 9.
    
    LOANS PAYABLE
 As at August 31, 2009, there were loans payable in the amount of $60,988, of which $60,248 is
current and $740 is long-term, of which, $43,363 have no repayment terms or interest. The
remainder of the loans is repayable in monthly
instalments of $1,776, including interest ranging from 5.3% to 15.6% per annum, and is
partially secured by specified automotive equipment.
 10.
    
    PREFERRED STOCK
 The Company is authorized to issue 20,000,000 shares of preferred stock. The Companys board
of directors is authorized to divide the preferred stock into series, and with respect to
each series, to determine the preferences and rights and qualifications, limitations or
restrictions thereof, including the dividend rights, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, sinking fund provisions, and the number
of shares constituting the series and the designations of such series. The board of directors
could, without stockholder approval, issue preferred stock with voting and other rights that
could adversely affect the voting rights of the holders of common stock, which issuance could
have certain anti-takeover effects.
 11.
    
    COMMON STOCK
 In July 2009, the Company received subscription proceeds of $100,000 and issued 500,000
shares of common stock in a private placement. The subscribers to the subscription proceeds
have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists
of one share of Companys common stock and one warrant each exercisable at $0.30, which
expire in four years.
 In June 2009, the Company converted $622,500 of debt into subscription proceeds and issued
2,075,000 common shares. The subscribers to the subscription proceeds have agreed to purchase
one unit for each $0.60 of debt. Each unit consists of two shares of Companys common stock
and one warrant each exercisable at $0.50, which expires on December 31, 2010.
 In June 2009, the Company issued 1,000,000 shares of common stock to an officer of the
Company as bonus.
 In May 2009, the Company converted $250,000 of debt into subscription proceeds and issued
833,334 common shares. The subscribers to the subscription proceeds have agreed to purchase
one unit for each $0.60 of debt. Each unit consists of two shares of Companys common stock
and one warrant each exercisable at $0.50, which expires on December 31, 2010.
 In May 2009, the Company issued 42,837 shares for $13,500 of investors relations services as
per the agreement.
 In April 2009, the Company issued 2,250,000 shares under an escrow agreement as security
against convertible debentures issued.
 In March and April 2009, the Company issued 700,000 shares pursuant to amended convertible
debenture agreement and financing arrangements.
 In February 2009, the Company issued 400,000 shares of common stock to an officer of the
Company as bonus for the 500,000 ounce gold discovery.
 In November 2008, the Company issued 50,000 shares of common stock to an officer of the
Company as bonus for the 500,000 ounce gold discovery.
 In November 2008, the Company issued 500,000 shares of common stock to the president of the
Company as a signing bonus.
  20




---



##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 11.
    
    COMMON STOCK (CONTINUED)
 In October, 2008, the Company converted subscription proceeds of $4,943 into 9,886 shares of
common stock. The subscribers to the subscription proceeds have agreed to purchase one unit
for each $1.00 of subscription proceeds. Each unit consists of two shares of Companys common
stock and one warrant each exercisable at $0.75, which expire in four years.
 In October 2008, the Company issued 100,000 shares of common stock to an officer of the
Company as bonus for the 500,000 ounce gold discovery.
 In October 2008, the Company converted $151,866 of debt into 415,000 shares of common stock.
 In September 2008, the Company converted $835,514 of debt into subscription proceeds and
issued 1,671,028 common shares. The subscribers to the subscription proceeds have agreed to
purchase one unit for each $1.00 of debt. Each unit consists of two shares of Companys
common stock and one warrant each exercisable at $0.75, which expire in four years.
 In September, 2008, the Company received subscription proceeds of $170,000 and issued 425,000
shares of common stock in a private placement. The subscribers to the subscription proceeds
have agreed to purchase one unit for each $1.00 of subscription proceeds. Each unit consists
of two shares of Companys common stock and one warrant each exercisable at $0.75, which
expire in four years.
 In September 2008, the Company converted $42,800 of debt into 107,000 shares of common.
 In August 2008, the Company converted $142,508 (MXN 1,449,989) of promissory notes into
subscription proceeds and issued 280,000 common shares. The subscribers to the subscription
proceeds have agreed to purchase one unit for each $1.00 of debt. Each unit consists of two
 shares of the Companys common stock and one warrant each exercisable at $0.75, which expire
in four years.
 In July 2008, the Company converted $67,424 of debt into 150,000 shares of common.
 In June 2008, the Company converted $60,000 of debt into subscription proceeds and issued
120,000 common shares. The subscribers to the subscription proceeds have agreed to purchase
one unit for each $1.00 of debt. Each unit consists of two shares of Companys common stock
and one warrant each exercisable at $0.75, which expire in four years.
 In June, 2008, the Company issued 9,885 shares of common stock in a private placement.
 In May 2008, the Company converted $535,500 of debt into subscription proceeds and issued
1,071,000 common shares. The subscribers to the subscription proceeds have agreed to purchase
one unit for each $1.00 of debt.
 On April 25, 2008, stock subscriptions of $330,000 were converted into 330,000 shares of
common stock.
 In the year ended February 29, 2008, the Company issued 1,174,000 shares of common stock on
the exercise of 1,174,400 warrants where each warrant was exercisable into shares of common
stock at the price of $1.00 per share. The warrants were to expire on April 30, 2008.
 In the second and third quarters of the year ended February 29, 2008, the Company issued
1,000,000 shares of common stock on the exercise of 1,000,000 warrants where each warrant was
exercisable into shares of common stock at the price of $0.75 per share. The warrants were to
expire on December 31, 2007.
 In the first two quarters of the year ended February 29, 2008, the Company issued 1,000,000
shares of common stock on the exercise of 1,000,000 warrants where each warrant was
exercisable into shares of common stock at the price of $0.50 per share. The warrants were to
expire on June 30, 2007.
  21




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 11.
    
    COMMON STOCK (CONTINUED)
 On April 25, 2008, stock subscriptions of $330,000 were converted into 330,000 shares of
common stock.
 In fiscal 2008, the Company issued 1,174,000 shares of common stock on the exercise of
1,174,400 warrants where each warrant was exercisable into shares of common stock at the
price of $1.00 per share. The warrants were to expire on April 30, 2008.
 In the second and third quarter of fiscal 2008, the Company issued 1,000,000 shares of common
stock on the exercise of 1,000,000 warrants where each warrant was exercisable into shares of
common stock at the price of $0.75 per share. The warrants were to expire on December 31,
2007.
 In the first two quarters of fiscal 2008, the Company issued 1,000,000 shares of common stock
on the exercise of 1,000,000 warrants where each warrant was exercisable into shares of
common stock at the price of $0.50 per share. The warrants were to expire on June 30, 2007.
 12.
    
    STOCK COMPENSATION PROGRAM
 On March 18, 2009, the board of directors approved the granting of stock options according to
the 2008 Nonqualified Stock Option Plan (2008 Option Plan) whereby the board is authorized
to grant to employees and other related persons stock options to purchase an aggregate of up
to 6,000,000 shares of the Companys common stock. Subject to the adoption of the 2008 Option
Plan, the options were granted and vest, pursuant to the terms of the 2008 Option Plan, in
three equal instalments, with the first instalment vesting at the date of grant, the second
instalment vesting September 18, 2009 and the last instalment vesting March 18, 2010.
 In the six months ended August 31, 2009, the Company awarded 150,000 options to purchase
common shares (2008  1,450,000) and recorded stock-based compensation expense for the
vesting options of $298,722 (2008  $327,470). The following weighted average assumptions
were used for the Black-Scholes option-pricing model to value stock options granted in 2009 &
2008:
 2009
    
    
    2008Expected volatility
    
    
    110.36%
    
    
    
    62% - 72%Weighted-average volatility
    
    
    110.36%
    
    
    
    72.15%Expected dividend rate
    
    
    
    
    
    
    Expected life of options in years
    
    
    10
    
    
    
    2 - 10Risk-free rate
    
    
    2.95%
    
    
    
    2.82% - 3.86%
 There were no capitalized stock-based compensation costs at August 31, 2009 or August
31, 2008.
  22




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 12.
    
    STOCK COMPENSATION PROGRAM (CONTINUED)
 The summary of option activity under the 2008 Option Plan as of August 31, 2009, and changes
during the period then ended, is presented below:
 Weighted-Weighted
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Number of
    
    
    Contractual
    
    
    IntrinsicOptions
    
    Price
    
    
    Shares
    
    
    Term
    
    
    ValueBalance at March 1, 2009
    
    $
    0.56
    
    
    
    4,835,000Options granted
    
    
    0.16
    
    
    
    150,000Options exercised
    
    
    
    
    
    
    Options cancelled/forfeited
    
    $
    0.65
    
    
    
    (285,000
    )Balance at August 31, 2009
    
    $
    0.55
    
    
    
    4,700,000
    
    
    
    8.17
    
    
    $
    121,950Exercisable at August 31, 2009
    
    $
    0.76
    
    
    
    2,853,335
    
    
    
    7.68
    
    
    $
    40,650
 The weighted-average grant-date fair value of options granted during the six months
ended August 31, 2009 and August 31, 2008 was $0.29 and $0.49, respectively.
 A summary of the status of the Companys nonvested options as of August 31, 2009, and changes
during the six months ended August 31, 2009, is presented below:
 Weighted-averageGrant-DateNon-vested options
    
    Shares
    
    
    Fair ValueNonvested at February 28, 2009
    
    
    2,502,499
    
    
    $
    0.28Granted
    
    
    150,000
    
    
    
    0.29Vested
    
    
    (700,834
    )
    
    
    0.55Cancelled/forfeited
    
    
    (105,000
    )
    
    
    0.40Nonvested at August 31, 2009
    
    
    1,846,665
    
    
    $
    0.28
 As of August 31, 2009, there was an estimated $384,134 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements granted under
the 2007 and 2008 nonqualified stock option plans. That cost is expected to be recognized
over a weighted-average period of approximately 1.40 years.
  23




---



##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 13.
    
    WARRANTS
 As at August 31, 2009, the Company had a total of 7,327,233 (February 28, 2009  7,102,890)
warrants outstanding to purchase common stock. Each warrant entitles the holder to purchase
one share of the Companys common stock. The Company has reserved 7,327,233 shares of common
stock in the event that these warrants are exercised.
 During the six months ended August 31, 2009, the Company received $nil from warrants
exercised.
 The outstanding warrants include 1,000,000 Series D Warrants exercisable at $1.25 per share
and 1,000,000 Series E Warrants exercisable at $1.50 per share; of which all are exercisable
at the option of the holder, have no redemption features, and are settled on a physical
basis. All the warrants were fully vested upon issuance. The Series E Warrants will become
exercisable only when the Series D Warrants have been fully exercised. Unless terminated
earlier as a result of failure to vest, the Series D and Series E Warrants will each expire
on December 31, 2009.
 The Company had issued 2,917,500 warrants exercisable at $1.00 each pursuant to the issuance
of convertible debentures. These warrants expired on April 30, 2008.
 The Company had issued 375,000 warrants exercisable at $1.00 each pursuant to the issuance of
a private placement unit offering. These warrants expired on April 30, 2008.
 The following table summarizes the continuity of the Companys share purchase warrants:
 WeightedNumber of
    
    
    AverageWarrants
    
    
    Exercise PriceBalance, February 29, 2008
    
    
    4,486,100
    
    
    $
    1.17Issued
    
    
    4,989,890
    
    
    
    0.73Cancelled
    
    
    (2,043,100
    )
    
    
    1.00Exercised
    
    
    (330,000
    )
    
    
    1.00Balance, February 28, 2009
    
    
    7,102,890
    
    
    $
    1.03Issued
    
    
    2,320,833
    
    
    
    0.43Cancelled
    
    
    (2,096,490
    )
    
    
    0.66Exercised
    
    
    
    
    
    
    August 31, 2009
    
    
    7,327,233
    
    
    $
    0.95
 As at August 31, 2009, the following share purchase warrants were outstanding:
 Number ofWarrants
    
    Exercise Price
    
    
    Expiry Date166,666
    
    $
    0.30
    
    
    May 8, 2012500,000
    
    $
    0.30
    
    
    July 23, 2011200,000
    
    $
    0.40
    
    
    March 24, 2012100,000
    
    $
    0.43
    
    
    September 8, 20101,454,167
    
    $
    0.50
    
    
    December 31, 2010250,000
    
    $
    0.65
    
    
    June 30, 20121,793,400
    
    $
    0.75
    
    
    April 2012 to August, 2013113,000
    
    $
    1.00
    
    
    January 31, 20101,000,000
    
    $
    1.25
    
    
    December 31, 2009250,000
    
    $
    1.30
    
    
    June 30, 20121,000,000
    
    $
    1.50
    
    
    December 31, 2009250,000
    
    $
    2.00
    
    
    June 30, 2012250,000
    
    $
    2.75
    
    
    June 30, 20127,327,233
  24




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 14.
    
    RELATED PARTY TRANSACTIONS
 For the six months ended August 31, 2009, the Company paid or accrued management fees of
$79,566 (August 31, 2008  $104,440) to certain officers and directors. The Company also paid
or accrued $1,987 (August 31, 2008  $7,449) to certain officers and directors for travel,
office and other related expenses.
 As at August 31, 2009, accounts payable of $16,000 (August 31, 2008  $84,000) was owing to a
director of the Company and $144,481 (August 31, 2008  $nil) was owing to a company
controlled by a director. In addition, promissory notes of $nil (August 31, 2008  $706,791)
were owed to companies controlled by directors (note 7).
 All related party transactions are in the normal course of business at the exchange amount
agreed to by each party.
 15.
    
    SUPPLEMENTAL CASH FLOW INFORMATION
 Period FromSix Months
    
    
    Six Months
    
    
    Inception ofEnded
    
    
    Ended
    
    
    Development StageAugust 31,
    
    
    August 31,
    
    
    (March 1, 2004) to2009
    
    
    2008
    
    

August 31, 2009Interest paid
    
    $
    
    
    
    $
    13,053
    
    
    $
    280,053Common stock issued on conversion of debt
    
    
    872,500
    
    
    
    103,000
    
    
    
    4,193,000Common stock issued on settlement of notes payable
    
    
    
    
    
    
    
    
    
    
    1,883,322Common stock issued for interest costs
    
    
    82,500
    
    
    
    
    
    
    
    82,500Common stock issued for financing costs
    
    
    145,000
    
    
    
    
    
    
    
    145,000Common stock issued for mineral property costs
    
    
    
    
    
    
    
    
    
    
    580,000Common stock issued for bonuses
    
    
    280,000
    
    
    
    
    
    
    
    512,750Shares issued for services
    
    $
    13,500
    
    
    $
    
    
    
    $
    365,590
 16.
    
    COMMITMENTS
 On July 1, 2008, the Company entered into an investor relations agreement with Vastani
Company (Vastani), whereby Vastani will act as an investor relationship advisor to the
Company. The Company has agreed to pay a monthly retainer of 20,000 and 1,000,000 warrants
to purchase shares of the Companys common stock. This includes 250,000 warrants at a price
of $0.65 per share vesting on signing, 250,000 warrants at an execution price of $1.30 per
share vesting after 90 days, 250,000 warrants at a price of $2.00 per share vesting after 120
days and 250,000 warrants at a price of $2.75 per share vesting after 180 days. The warrants
expire on June 30, 2012.
 On February 10, 2009, the Company entered into a consultancy agreement with Consulting for
Strategic Growth 1, Ltd. for investor relation services. The Company will pay $3,000 per
month in cash and $4,500 in shares of the Companys common stock for the consultants
services. The term of the agreement ends on August 10, 2009.
 On March 3, 2009, the Company entered into a consulting agreement with Dusford Overseas
Investments, Ltd., a British Virgin Islands company (Dusford). One of the Companys former
non-executive directors, Steven Sanders, is a principal of Dusford. Under the agreement,
Dusford will provide the Company with a variety of services including financial public
relations, strategic planning, acquisition consulting and assistance in securing equity or
debt financing. The agreement has an initial term of 12 months beginning on the effective
date of March 3, 2009, but the Company has the right to terminate the Agreement early with 30
days notice.
  25




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 16.
    
    COMMITMENTS (CONTINUED)
 Under the terms of the Agreement, the Company paid Dusford a signing fee of 200,000
restricted shares and is paying a monthly fee of $10,000 (payable in shares or cash). The
Company will issue Dusford a warrant which entitles Dusford to purchase one million shares of
the Companys common stock at $0.40 per share for three years. The warrant vests and becomes
issuable at the close of any financings introduced by Dusford in increments of 100,000 shares
for every $100,000 raised.
 In June 2009, the Company cancelled its consulting agreements with Vastani Company,
Consulting for Strategic Growth 1, Ltd. and Dusford Overseas Investments, Ltd.
 17.
    
    SUBSEQUENT EVENTS
 (a)
    
    Private Placement Subscription Agreements
 On September 21, 2009, the Company entered into private placement subscription
agreements with certain U.S. accredited investors and certain Canadian and Non-U.S.
investors for the private placement of up to a total of 9,000,000 unregistered shares
of the Companys common stock with 100% warrant coverage at a purchase price of $0.20
per unit. The warrants have an exercise price of $0.30 per share, a two-year term and
will not be exercisable until twelve months after their date of issuance. On September
21, 2009, $500,000 of proceeds were released to the Company from escrow. Subject to
the payment of certain fees and expenses, the remaining subscription proceeds will be
held in escrow and released to the Company upon the filing of a registration statement
with the Securities and Exchange Commission covering the resale of the shares and
warrants shares issued in the private placement (the Final Closing). If the Company
fails to file the registration statement by November 30, 2009, the remaining funds
held in escrow will be returned to the investors. The Company cannot provide any
assurance that the Final Closing will occur, or the aggregate amount of proceeds that
will be invested.
 In connection with the Companys private placement to Canadian and non-U.S. investors,
the Company has agreed to pay Andean Invest Limited, the Companys exclusive placement
agent, $150,000 at the Final Closing. The placement agent fee does not apply to the
private placement to the U.S. investors.
 (b)
    
    Departure and Election of Directors and Officers
 On September 21, 2009, Manuel Flores and Steven A. Sanders resigned from the Companys
board of directors (the Board). The resignations did not involve any disagreement on
any matter relating to the Companys operations, policies or practices. Effective upon
his resignation, Mr. Flores entered into an employment agreement with the Company
pursuant to which Mr. Flores will serve as an operations manager of the Company and
will receive a monthly salary of $5,000. In addition, the Company accelerated the
vesting of 241,667 shares of the Companys common stock underlying Mr. Sanders
outstanding options and extended the exercise date of all of his 350,000 options until
the end of the ten year option term.
 Upon the resignations of Mr. Flores and Mr. Sanders, the Company increased the size of
its Board to four members and appointed George Young, John Clair and Mario Ayub to the
Board. The appointments were a condition to the private placement transaction
described above. George Young and John Clair were appointed to the Board effective
immediately upon the resignations of Mr. Flores and Mr. Sanders, and Mario Ayub will
be appointed to the Board effective October 7, 2009.
  26




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##### 



MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
 17.
    
    SUBSEQUENT EVENTS (CONTINUED)
 In addition, the Company has entered into an employment agreement with Mr. Young. Mr.
Young will serve as Chief Operating Officer and will receive a monthly salary of
$10,000. On September 21, 2009, the Company also granted Mr. Young options to purchase
1,000,000 shares of the Companys common stock pursuant to its 2009 Nonqualified Stock
Option Plan and form of Nonqualified Stock Option Agreement. The options vest in four
equal instalments, with the first instalment vesting on the six month anniversary of
the grant date and the remaining instalments vesting every six months thereafter. The
options have an exercise price of $0.36 per share.
 On September 21, 2009, the Company entered into a consulting agreement with Decerto
Group, an entity affiliated with John Clair, pursuant to which we have agreed to pay
Decerto Group $5,000 per month for consulting services. The Company has also granted a
warrant to Decerto Group to purchase 1,000,000 shares of the Companys common stock,
with an exercise price equal to $0.36 per share. The warrant shares vest in two equal
instalments, with the first instalment vesting on the six month anniversary of the
date of the consulting agreement, and the second instalment vesting on the one year
anniversary of the date of the consulting agreement, contingent upon the Decerto Group
continuing to provide consulting services to the Company on such dates.
 On September 21, 2009, the Company also entered into a consulting agreement with MRT,
an entity affiliated with Mario Ayub, pursuant to which the Company has agreed to pay
MRT $5,000 per month for consulting services. Mario Ayub currently serves as the
President of MRT. The Company has also granted a warrant to MRT to purchase 300,000
shares of the Companys common stock, with an exercise price equal to $0.36 per share.
The warrant shares vest in four equal instalments, with the first instalment vesting
on the six month anniversary of the date of the consulting agreement, and the
remaining instalments vesting every six months thereafter, contingent upon MRT
Investments Ltd. continuing to provide consulting services to the Company on such
dates. In addition, for his service as a director, Mr. Ayub will receive an annual
directors fee of $60,000.
 On September 21, 2009, the Company appointed Salil Dhaumya as Chief Financial Officer
and Secretary. Mr. Dhaumya will serve as the Companys principal financial and
accounting officer. Previously, Barry Quiroz had been serving as the principal
financial and accounting officer. The Company entered into an employment agreement
with Mr. Dhaumya pursuant to which Mr. Dhaumya will receive a monthly salary of
$7,000.
  27




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  Overview
     1.
    
    Minera Rio Tinto (MRT) and/or its investors will subscribe for up to USD$1 million of
a secured convertible debenture at 8% interest (payable in stock or cash). The debenture is
convertible into units at $0.60 per unit. Each unit comprises 2 common shares and 1
warrant. Each warrant is exercisable at $0.50 per share for a period of 3 years. The
placement will be used for continued exploration of our properties and general working
capital. As of May 30, 2009 MRT had contributed the $1 million.
 2.
    
    MRT is to provide the necessary working capital to begin and maintain mining
operations, estimated to be $3,000,000, for the purpose of putting the Cieneguita property
into production. MRT will spend 100% of the funds in exchange for a 75% interest in the net
cash flow from production. Mexoro will contribute its mining equipment located at
Cieneguita to the project. Upon the cessation of mining operation, Mexoros mining
equipment will be returned to Mexoro. The agreement will limit the extraction of the
mineralized material that is available under the agreement to material on surface to a
depth of 15 meters or approximately 10% of the mineralized material found to date. It is
anticipated that production at the rate of 750 tons per day will commence by October 2009
though no assurance may be given that production will ever start on the property.
  28




---



##### 



3.
    
    MRT will spend up to USD $5 million to take the Cieneguita property through the
feasibility stage. In doing so, MRT will earn a 60% interest in Mexoros rights to the
property. After the expenditure of the $5 million all costs will be shared on a ratio of
60% to MRT and 40% to Mexoro Minerals. If we elect not to pay our portion of costs after
the $5 million has been spent, our position shall revert to a 25% carried interest on the
property.
 4.
    
    Initially, portions of the joint venture agreement required for us to obtain consent
from Paramount, our secured convertible debenture holder or for us to repay the debenture
held by Paramount. Subsequently, we repaid approximately $1,300,000 of the debenture owed
to Paramount and in doing so, Paramount agreed to release the Cieneguita property as part
of its security under the debenture. Therefore, we no longer need the consent of Paramount
to begin extraction of mineralized material at Cieneguita.
 5.
    
    The Spanish version of this agreement is the governing agreement in case of dispute
between the English version and the Spanish versions.
        29




---



##### 



Name
    
    Date
    
    
    Payment Type
    
    
    USDGuazapares Property1
    
    $5,000 per month for 36 months
    
    Property payment
    
    $
    60,000Sahuayacan Property
    
    September 2009 to August 2010
    
    Property payments
    
    $
    60,000Sahuayacan Property
(La Estrella y la Sultana Menor)
    
    January 2010
    
    Property payments
    
    $
    500,000Segundo Santo Nino (Sahuayacan)
    
    November 2009 & May 2010
    
    Property payments
    
    $
    150,000
 1
    
    All Guazapares payments due have been deferred until July 9, 2012 with
an agreement with concession holders. The agreement with the concession holders obligates
Mexoro to pay $6,000 plus $900 in taxes per month as a fee for the deferral of the payments.
$248,400 has been set aside in escrow as part of the Paramount agreement to buy the
concessions. The monthly payments will be sent directly from the escrow account to the
concession holders to ensure the payments are kept in good standing.  Plan of Operation
 Summary
   30




---



##### 



Exploration Projects  Current Status
   31




---



##### 



This figure is illustrating the location of the Mexoros project
  Cieneguita
   
    
    100 diamond drillholes completed for a total of 20,215 meters of drilling
 
    
    Broad mineralized intercepts including 111.5 meters with 1.24 g/t Au, 99.6 g/t Ag, 0.45%
Pb and 0.73% Zn (C-21) and 94 meters with 1.21 g/t Au, 79.8 g/t Ag, 0.78% Pb and 1.2% Zn
(CI-30)
 
    
    Mineralization at Cieneguita has been traced over 900 meters along strike and still
remains open to the southwest and to depth
 
    
    Exploration ongoing; infill drilling program has been designed to expand the size of the
mineralized material
    32




---



##### 



This figure is showing the geological units and distribution of the 100 drillholes.
   33




---



##### 



34




---



##### 



Guazapares
  Encino Gordo
      Sahuayacan
  Width ofIntersection inDrill Hole Number
    
    Depth in Meters
    
    Meters
    
    GradeDrillhole
SDH-01
collared on
the Santo
Niño vein
    
    from 65.00 to 72.50 meters 
from 96.50 to 104.5 meters
    
    7.50 meters
8.0 meters
    
    2.56 g/t Au
2.98 g/t AuDrillhole
SDH-05
collared on
La Cumbre
target
    
    from 0 to 4.5 meters
    
    4.5 meters
    
    1.77 g/t AuDrillhole
SDH-12
drilled to
test the
Santa Teresa
vein
    
    from 74.50 to 82.00
    
    7.5 meters
    
    56.01 g/t Au and 
283.22 g/t Ag
    35




---



##### 



Proposed 2009/2010 Program: Exploration Projects  Potential and Next Exploration Stage
    Cieneguita
  
    
    Infill drilling displays continuity of mineralization and overall grades.
 
    
    Mineralization extends 900 meters along strike, is up to 300 meters wide and is open to
the Southwest and open to depth.
 
 Figure is showing main mineralization zones on the Cieneguita project. Areas in red are exhibiting
mineralization areas where grades is >1.5 g/t Au
  
    
    Completing the infill drilling program by doing an additional 10,000 meters of drilling
to expand inferred resources;
 
    
    Continue conducting metallurgical tests;
 
    
    Complete feasibility study and;
 
    
    Commencing exploration drilling program at the Piedras Blancas project.
  36




---



##### 



Sahuayacan
    
  
    
    Mapping and sampling at 1:1,000 scale along the La Cumbre-Santa Teresa trend
(mapping-sampling process Completed)
 
    
    Obtaining ASTER image analysis to identify additional alteration-mineralization areas
along the semi-circular feature within the entire concession;
 
    
    Identifying drilling targets on the La Cumbre and Santa Teresa areas; and (Drilling
targets selected, as shown in images below)
 
    
    Commencing a 4,000 to 6,000 meters exploration drilling program aimed to define the
potential of the project.
  37




---



##### 



Drilling Target: La Cumbre. The
figure is showing completed mapping and selected drilling targets at La Cumbre
(blue dots)
 
 Drilling Target: Santa Teresa. The figure is showing completed mapping and
selected drilling targets at La Cumbre (blue dots)
  38




---



##### 



Geochemistry
    
    $
    165,000Geophysics
    
    $
    0Safety
    
    $
    2,000Land Costs
    
    $
    0Contractors
    
    $
    599,450Travel and Vehicles
    
    $
    34,725Field Support
    
    $
    3,850Communications
    
    $
    4,200Subtotal
    
    $
    809,225Contingency (5%)
    
    $
    40,461Total
    
    $
    849,686
  Encino Gordo
  La Junta area
  
    
    Pyrite-only veins
 
    
    Quartz-only veins
 
    
    Quartz + pyrite veins
 
    
    Quartz + chalcopyrite veins
 
    
    Quartz + pyrite + chalcopyrite veins
 
    
    Calcite veins
 
    
    Quartz + galena veins
 
    
    Chlorite + calcite veins
  39




---



##### 



Figure is illustrating coincident Cu and Au geochemical anomalies in La Junta area which are
spatially associated to a potassic alteration core resembling the classical geochemical-alteration
signature of the porphyry systems.
    
    
    The porphyry-style mineralization in La Junta area
 
    
    Anomaly N and La Elyka areas
  Geochemistry
    
    $
    84,030Geophysics
    
    $
    84,000Safety
    
    $
    2,000Land Costs
    
    $
    0Contractors
    
    $
    507,100Travel and Vehicles
    
    $
    17,100Field Support
    
    $
    6,650Communications
    
    $
    3,150Subtotal
    
    $
    704,030Contingency (5%)
    
    $
    35,202Total
    
    $
    739,232
   40




---



##### 



New Properties-Target Generation and Growth Strategy
   1.
    
    A new targets generation program that may create a pipeline of quality properties
providing a steady stream of new prospect and/or projects for the Company to explore,
farm-out and/or joint venture.
 2.
    
    A property acquisition program aimed to identify and acquire at low cost
(whenever possible) early- to mid-stage properties on selected locations along the main
gold-silver belts in Mexico.
 3.
    
    A Focus on small- to medium-size gold-silver deposits (minimum deposits
containing 500,000 ounces of Au Eq.)
 4.
    
    The new targets generation and property acquisition program may be initially
focused on the Sierra Madre belt and Central Mexico. It may be extended further south in
Mexico and other countries if conditions and projects potential warranted.
  Phase I  Target Generation
 Objectives
 
    
    Identify two to four target areas (approximately 20 x 30 kilometers) which have
potential to host small- to medium-size gold and/or gold-silver deposits.
 
    
    Identify one or two specific opportunities with close to drill ready targets. For
example, identify old workings or existing mines with good upside potential.
 
    
    Time frame: six months.
 Key Steps and Exploration Tools
   
    
    Acquiring geological maps 1:250,000 and 1:50,000 (from Servicio Geologico Mexicano);
    
    Generating geological and mineral occurrences base maps;
    
    Identifying key host rocks;
    
    Completing structural interpretation from known geology, TM imagery, and geophysical
data (if available);
    
    Integrating mineral occurrences, alteration, lithology and structures;
    
    Completing initial targeting using the above compilation; and
    
    Selecting and prioritizing targets.
  41




---



##### 



Geochemistry
    
    $
    24,000Geophysics
    
    $
    0Landsat Imagery
    
    $
    30,000GIS & Database
    
    $
    40,000Safety
    
    $
    1,500Land Costs
    
    $
    170,000Contractors
    
    $
    99,300Travel & Accommodation
    
    $
    24,000Vehicles
    
    $
    15,500Field Support
    
    $
    7,500Communications
    
    $
    6,000Subtotal
    
    $
    417,800Contingency (5%)
    
    $
    20,890Total
    
    $
    438,690
  Results of Operations
 Three and six months ended August 31, 2009 compared to the three and six months ended August 31,
2008.
  Revenues
  Operating Costs
  Expenses
    42




---



##### 



Loss
    Liquidity and Capital Resources
   Cash and Working Capital
       43




---



##### 



Cash Used in Operating Activities
  Cash Used in Investing Activities
  Financing Activities
        44




---



##### 



Going Concern
    Off-Balance Sheet Arrangements
  Item 3. Quantitative and Qualitative Disclosure about Market Risk
  Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
     45




---



##### 



Changes in Internal Control over Financial Reporting
  PART II  OTHER INFORMATION
  Item 1. Legal Proceedings
   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 # ofWarrants
    
    
    
    
    
    
    Price perName
    
    # of Shares
    
    
    Issued **
    
    
    Dated
    
    
    Share
    
    
    Amount USD$
    
    
    NotesTerra Exploracion Y
Mineria S.A. DE C.V.
    
    
    2,000,000
    
    
    
    1,000,000
    
    
    
    06/18/2009
    
    
    $
    0.30
    
    
    Debt converted
    
    
    (1)(6)Barry Quiroz*
    
    
    1,000,000
    
    
    
    
    
    
    
    06/25/2009
    
    
    $
    0.28
    
    
    Management bonus
    
    
    
    (2)(6)S2 Management
    
    
    75,000
    
    
    
    37,500
    
    
    
    06/26/2009
    
    
    $
    0.30
    
    
    Debt converted
    
    
    (3)(6)Michael McKnight
    
    
    250,000
    
    
    
    250,000
    
    
    
    07/23/2009
    
    
    $
    0.20
    
    
    
    $50,000
    
    
    
    (4)(6)Nevaheel Consortium LLC
    
    
    250,000
    
    
    
    250,000
    
    
    
    07/23/2009
    
    
    $
    0.20
    
    
    
    $50,000
    
    
    
    (5)(7)
 *
    
    Affiliate of the Company.**
    
    Each warrant entitles the holder to purchase one share of common stock.(1)
    
    On June 18, 2009, the Company issued 2,000,000 shares and 1,000,000 warrants to Terra
Exploracion Y Mineria S.A. DE C.V. in exchange of debt of $600,000.(2)
    
    On June 25, 2009, the Company issued 1,000,000 shares to Barry Quiroz as management bonus
valued at $280,000.(3)
    
    On June 26, 2009, the Company issued 75,000 shares and 37,500 warrants to S2 Management in
exchange of debt of $22,500.(4)
    
    On July 23, 2009, the Company issued 250,000 shares and 250,000 warrants to Michael McKnight
for subscription proceeds of $50,000.(5)
    
    On July 23, 2009, the Company issued 250,000 shares and 250,000 warrants to Nevaheel
Consortium LLC for subscription proceeds of $50,000.(6)
    
    These issuances were made in private placement transactions and were made to non-U.S. persons
(as defined under Rule 902 section (k)(2)(i) of Regulation S), pursuant to an offshore
transaction, and no directed selling efforts were made in the United States by us, a
distributor, any respective affiliates, or any person acting on behalf of any of the
foregoing. The investors were not inside the United States at the time the offer was made to
them nor at the time the buy order was placed. These investors are not (1) residents of the
U.S., (2) partnerships or corporations organized or incorporated under the laws of the U.S.,
(3) the estate of which any executor or administrator is a U.S. person, (4) a trust of which
any trustee is a U.S. person, (5) an agency or branch of a foreign entity located in the U.S.,
(6) a non-discretionary account held for the benefit of a U.S. person, or (7) a corporation
formed by a U.S. person for the purpose of investing in unregistered securities. The investors
were purchasing for their own accounts and acknowledged that the securities were not
registered under the Securities Act and cannot be sold unless they are registered or unless an
exemption from registration is available. The sales were made without any advertising or
public solicitation.(7)
    
    These units were only offered to individuals or entities who qualified as accredited
investors under the Securities Act of 1933. The units were offered under an exemption from
registration found in Rule 506 of Regulation D.  46




---



##### 



Item 3. Defaults Upon Senior Securities
  Item 6. Exhibits
  ExhibitNumber
    
    Description31.1
    
    
    Certification of Chief Executive Officer of Mexoro Minerals Ltd. pursuant to Rule 13a-14(a)/15d-14(a).*31.2
    
    
    Certification of Chief Financial Officer of Mexoro Minerals Ltd. pursuant to Rule 13a-14(a)/15d-14(a).*32.1
    
    
    Certification of Chief Executive Officer of Mexoro Minerals Ltd. pursuant to 18 U.S.C. Section 1350.*32.2
    
    
    Certification of Chief Financial Officer of Mexoro Minerals Ltd. pursuant to 18 U.S.C. Section 1350.*
 *
    
    filed herewith  47




---



##### 



SIGNATURES
  Mexoro Minerals Ltd./S/ Barry Quiroz

Name: Barry QuirozTitle:    Director and Chief Executive OfficerDate:   October 9, 2009
  48




---



##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    
    Certification of Chief Executive Officer of Mexoro Minerals Ltd. pursuant to
Rule 13a-14(a)/15d-14(a).*31.2
    
    
    Certification of Chief Financial Officer of Mexoro Minerals Ltd. pursuant to
Rule 13a-14(a)/15d-14(a).*32.1
    
    
    Certification of Chief Executive Officer of Mexoro Minerals Ltd. pursuant to
18 U.S.C. Section 1350.*32.2
    
    
    Certification of Chief Financial Officer of Mexoro Minerals Ltd. pursuant to
18 U.S.C. Section 1350.*
 *
    
    filed herewith