BACANORAMINERALSLTD. ConsolidatedFinancialStatements ... · BACANORAMINERALSLTD....

BACANORA MINERALS LTD.

ConsolidatedFinancialStatements

June30,2010

Management’s Responsibility

To the Shareholders of Bacanora Minerals Ltd.:

Management is responsible for the preparation and presentation of the accompanying financialstatements, including responsibility for significant accounting judgments and estimates inaccordance with Canadian generally accepted accounting principles. This responsibilityincludes selecting appropriate accounting principles and methods, and making decisionsaffectingthe measurement of transactions in which objective judgment is required.

In discharging its responsibilities for the integrity and fairness of the financial statements,management designs and maintains the necessary accounting systems and related internalcontrols to provide reasonable assurance that transactions are authorized, assets aresafeguarded and financial records are properly maintained to provide reliable information for thepreparation of financial statements.

The Board of Directors is responsible for overseeing management in the performance of itsfinancial reporting responsibilities, and for approving the financial statements. The Board fulfilsthese responsibilities by reviewing the financial information prepared by management anddiscussing relevant matters with management and external auditors. The Board is alsoresponsible for recommendingthe appointment of the Company's external auditors.

Meyers Norris Penny LLP, an independent firm of Chartered Accountants, is appointed by theshareholders to audit the financial statements and report directly to them;their report follows.The external auditors have full and free access to, and meet periodically and separately with,both the Board and management to discuss their audit findings.

November 1, 2010

“signed” “signed”

Paul Conroy DerekBatorowskiPresident and Chief Executive Officer Chief Financial Officer

Auditors’ Report

To the Shareholders of Bacanora Minerals Ltd.:

W e have audited the consolidated balance sheet of Bacanora Minerals Ltd. (the "Company")asat June 30, 2010 and the consolidated statements of operations and comprehensive loss,deficit, and accumulated other comprehensive income and cash flows for the year then ended.These consolidated financial statements are the responsibility of the Company's management.Our responsibility is to express an opinion on these consolidated financial statements based onour audit.

W e conducted our audit in accordance with Canadian generally accepted auditing standards.Those standards require that we plan and perform an audit to obtain reasonable assurancewhether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, thefinancial position of the Company as at June 30, 2010 and the results of its operations and itscash flows for the year then ended in accordance with Canadian generally accepted accountingprinciples.

The consolidated financial statements as at and for the year ended June 30, 2009, before theiradjustment to take into account the change in accounting policies from Mexican financialaccounting standards to Canadian generally accepted accounting principles described in Note3, were audited by other auditors who expressed an opinion without reservation on thesefinancial statements in their report dated October 16, 2009.

W e have examined the restatement of the 2009consolidated financial statements to Canadiangenerally accepted accounting principles and, in our opinion, such restatement is appropriateand has been properly applied.

Calgary, CanadaNovember 1, 2010 Chartered Accountants

BACANORA MINERALS LTD.Consolidated Balance Sheet

See accompanying notes to the consolidated financialstatements.

June 30,2010

June 30,2009

Assets

Current

Cash $ 1,491,942 $ 21,893

Accounts receivable 85,324 44,679

1,577,266 66,572

Deferred charges (Note 4) 41,831 -

Property and equipment (Note 8) 36,802 10,052

Mineral properties (Note 9) 1,383,547 881,877

$ 3,039,446 $ 958,501

Liabilities

Current

Accounts payable and accrued liabilities $ 229,166 $ 85,636

Due to related parties (Note 14) - 1,261,351

229,166 1,346,987

Shareholders’ Equity

Non-controlling interest (145,473) (155,394)

Share capital (Note 10) 3,174,517 1

Contributed surplus (Note 11) 39,645 -

Accumulated other comprehensive income 30,556 39,563

Deficit (288,965) (272,656)

2,810,280 (388,486)

Nature of operations and going concern (Note 1)

Subsequent event (Note 17)

$ 3,039,446 $ 958,501

Approved by the directors:

“signed” “signed”

Paul Conroy Derek BatorowskiDirector Director

BACANORA MINERALS LTD.Consolidated Statements of Operations and Comprehensive Loss, Deficit andAccumulated Comprehensive Income

See accompanying notes to the consolidated financial statements.

For the year ended June 30, 2010 June 30, 2009

Revenue

Other income (loss) $ 2,350 $ (2,096)

Expenses

General and administrative 74,958 64,635

Amortization 1,788 -

76,746 64,635

Loss before other items (74,396) (66,731)

Foreign exchange gain (loss) 70,455 (40,543)

Loss before non-controlling interest (3,941) (107,274)

Non-controlling interest in loss (income) of subsidiary (12,368) 42,910

Net loss (16,309) (64,364)

Other comprehensive loss:

Foreign currency translation adjustment (9,007) 21,898

Comprehensive loss $ (25,316) $ (42,466)

Net loss per share

Basic and diluted $ 0.00 $ 0.00

Deficit, beginning of period $ (272,656) $ (208,292)

Net loss (16,309) (64,364)

Deficit, end of the period $ (288,965) $ (272,656)

Accumulated other comprehensive income, beginning ofyear $ 39,563 $ 17,665

Foreign currency translation adjustment (9,007) 21,898

Accumulated other comprehensive income, end of year $ 30,556 $ 39,563

BACANORA MINERALS LTD.Consolidated Statement of Cash Flows

See accompanying notes to the consolidated financial statements.

For the year ended June 30, 2010 June 30, 2009

Cash provided by (used in)

Operating activities

Net loss $ (16,309) $ (64,364)

Amortization 1,788 -Non-controlling interest in income (loss) ofsubsidiary 12,368 (42,910)

Unrealized foreign exchange loss (gain) (11,454) 36,499

(13,607) (70,775)

Changes in non-cash working capital (31,003) 20,917

(44,611) (49,848)

Financing activities

Issue of shares, net of expenses 1,947,278 -

Related party advances, net of repayments 131,893 189,491

Reverse takeover costs (560,555) -Advances from Bacanora prior to reversetakeover 80,520 -

Cash acquired pursuant to reverse takeover 127,716 -Changes in non-cash financing workingcapital 318,015 -

2,044,867 189,491

Investing activities

Additions to mineral properties (501,670) (126,847)

Additions to property and equipment (28,538) -

(530,208) (126,847)

Increase in cash position 1,470,049 12,786

Cash, beginning of the period 21,893 9,107

Cash, end of the period $ 1,491,942 $ 21,893

BACANORA MINERALS LTD.Notes to the Consolidated Financial StatementsAs at and for the year ended June 30, 2010

1. Nature of operations and going concern

Bacanora Minerals Ltd. (the "Company" or “Bacanora”) was incorporated under theBusiness Corporations Act of Alberta on September 29, 2008. The Company has completedits initial public offering and was listed as a Capital Pool Company, as defined in Policy 2.4of the TSX Venture Exchange (the "Exchange"), on May 7, 2009. On April 9, 2010, theCompany completed its Qualifying Transaction through a reverse takeover transaction withMineramex Limited (“Mineramex”) and Tubutama Limited (“Tubutama”). See note 5 forfurther details. The Company was listed on the Exchange as a Tier 2 issuer and the tradingof the Company’s shares under the revised symbol, "BCN" commenced on April 19, 2010.

The Company is a development stage mining company engaged in the identification,acquisition, exploration and development of mineral properties located in Mexico. TheCompany has not yet determined whether its mineral properties contain economicallyrecoverable reserves. The recoverability of amounts capitalized is dependent upon thediscovery of economically recoverable reserves, securing and maintaining title in theproperties and obtaining the necessary financing to complete the exploration anddevelopment of these projects and upon attainment of future profitable production. Theamounts capitalized as mineral properties represent costs incurred to date, and do notnecessarily represent present or future values.

These consolidated financial statements have been prepared by management on a goingconcern basis, which assumes the Company will continue in operation for the foreseeablefuture and will be able to realize its assets and settle its liabilities and commitments in thenormal course of business. These financial statements do not reflect the adjustments to thecarrying values of assets and liabilities and the reported expenses that would be necessaryshould the going concern assumption become inappropriate.

The Company’s ability to continue as a going concern is dependent upon its ability to obtainthe financing necessary to fund future exploration expenses. Due to market fluctuations andthe inherent risks in the exploration industry, there can be no assurance that management’sfuture financing actions will be successful.

The Company has generated accumulated losses of $288,965 and the shareholders’equityof its subsidiaries incorporated in Mexico have decreased to an amount less than one thirdof their share capital, which according to Mexican laws, may be a cause for dissolving acompany at the request of any interested third party. If the Company is not able to generateincome producing transactions through the identification and exploitation of ores, andcontinue to raise sufficient capital to continue exploration activities, there is a risk that therights to the mining concessions could be challenged.


2. Significant accounting policies

These consolidated financial statements have been prepared by management in accordancewith Canadian generally accepted accounting principles (“GAAP”). The preparation offinancial statements in conformity with GAAP requires management to make estimates andassumptions that affect the amounts reported in the financial statements and accompanyingnotes. Actual results could differ from those estimates. The financial statements have, inmanagement’s opinion, been properly prepared using careful judgement with reasonablelimits of materiality and within the framework of the significant accounting policies.

(a) Measurement uncertainty

The preparation of consolidated financial statements requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilitiesand disclosures of contingencies, if any, as at the date of the consolidated financialstatements and the reported amounts of revenues and expenses during the period.Actual results could differ from those estimates.

Items involving substantial measurement uncertainty are the determination of stockbased compensation expense, impairment of long-lived assets, and the future incometax asset valuation allowance. By their nature, these estimates are subject tomeasurement uncertainty, and the impact on the consolidated financial statements offuture periods could be material.

(b) Basis of consolidation

The consolidated financial statements include the accounts of the Company, andthrough its wholly-owned subsidiary, Mineramex, 99.9% of Minera Sonora Borax, S.A.de C.V. (“MSB”), and 60% of Minerales Industriales Tubutama, S.A. de C.V. (“MIT”)and a variable interest entity. Where the Company has less than 100% interest in asubsidiary, the interest attributable to outside shareholders is reflected in non-controlling interests. Inter-company balances and transactions have been eliminatedupon consolidation.

(c) Translation of foreign currencies

The functional currency of the Company is the Mexican peso and the reportingcurrency is the Canadian dollar. Amounts recorded in foreign currency are translatedinto Canadian dollars using the current method. Under this method, the assets andliabilities are translated to Canadian dollars at foreign exchange rates ruling at thebalance sheet date, and the revenue and expenses are translated to Canadian dollarsat rates approximating the foreign exchange rates ruling at the dates of thetransactions. Exchange differences arising on translation are recognized directly inother comprehensive income. Gains and losses resulting from operating transactionsbetween the functional currency and currencies foreign to Mexico are included inconsolidated income.


2. Significant accounting policies (continued from previous page)

(d) Deferred charges

The Company defers acquisition expenditures related to its mineral properties, untilsuch time as the property acquisitions are completed. Upon completion of thetransaction, the deferred charges will be included in costs capitalized to mineralproperties. If the transaction is not completed, the costs will be included in general andadministrative expenses.

(e) Income taxes

The Company follows the asset and liability method of income tax allocation. Underthis method, future tax assets and liabilities are recognized for the future taxesattributable to temporary differences between the financial statement carrying values ofexisting assets and liabilities and their respective tax carrying values. Future taxassets and liabilities are measured using substantively enacted tax rates expected toapply to taxable income in the period in which those temporary differences areexpected to be recovered or settled. The effect on future tax assets and liabilities of achange in tax rates is recognized in income in the period that includes that substantiveenactment date.

Future tax assets initially recognized are reduced by a valuation allowance.Management has provided a valuation allowance equivalent to the net future tax assetbalances, given the stage of operations and the uncertainty that the Company willgenerate sufficient income for tax purposes to utilize the tax losses in the carry forwardperiods.

(f) Financial instruments

The Company classifies each financial instrument into the following categories: held fortrading financial assets and liabilities, loans and receivables, held to maturity assets,available for sale financial assets, and other financial liabilities. All financialinstruments and derivatives must be initially recognized at fair value on the balancesheet date except for loans and receivables, held to maturity investments and otherfinancial liabilities which are measured at amortized cost. Subsequent measurementof the financial instruments is based on their initial classification. Unrealized gains andlosses on held for trading financial instruments are recognized in earnings. Gains andlosses on available for sale financial assets are recognized in other comprehensiveincome and transferred to earnings when the asset is derecognized. The othercategories of financial instruments are recognized at amortized costs using theeffective interest rate method.



The Company has classified its financial instruments as follows:

Financial instrument Classification

Cash Held for tradingAccounts receivable Loans and receivablesAccounts payable and accrued liabilities Other financial liabilitiesDue to related parties Other financial liabilities

During 2009, Canadian Institute of Chartered Accountants’ Handbook Section 3862,Financial Instruments – Disclosure was amended to require disclosure about theinputs to fair value measurements, including their classifications within a hierarchy thatprioritizes the inputs to fair value measurements. The three levels of the fair valuehierarchy are:

Level 1 – Unadjusted quoted prices in active markets for identical assets orliabilities;

Level 2 – Inputs other than quoted prices that are observable for the asset orliability either directly or indirectly; and

Level 3 – inputs that are not based on observable market data.

The Company’s cash is considered Level 1 in the hierarchy.

(g) Stockbased compensation

Under the Company’s stock option plan, options to purchase common shares aregranted to directors, officers, employees and consultants at current market prices.The Company accounts for stock-based compensation using the fair value method.Under this method, compensation cost attributable to all share options granted ismeasured at fair value at the grant date and expensed over the vesting period with acorresponding increase to contributed surplus. Upon the exercise of the stock option,consideration received, together with the amount previously recognized in contributedsurplus, is recorded as an increase in share capital. The Company has notincorporated an estimated forfeiture rate for stock options that will not vest. Instead,the Company accounts for forfeitures as they occur.

(h) Loss per share

Basic per share amounts are calculated using the weighted average number of sharesoutstanding during the year. Diluted per share amounts are calculated based on thetreasury stock method which assumes that any proceeds obtained on the exercise ofoptions and warrants would be used to purchase common shares at the averagemarket price during the period. Anti-dilutive options and warrants are not included inthe calculation.



(i) Property and equipment

Office furniture and equipment, computer equipment and transportation equipment arerecorded at cost and amortized using the straight-line method based on the followingestimated productive life of the assets:

Years

Office furniture and equipment 10Computer Equipment 3.3Transportation equipment 4

(j) Mineral properties

The Company records its interests in mineral properties at cost. All direct and indirectcosts relating to the acquisition, exploration and development of these interests arecapitalized until the properties to which they relate are placed into production, sold ormanagement has determined there to be impairment in value. These costs will beamortized on the basis of unit-of-production method over estimated recoverablereserves following commencement of production. Interest on debt associated with theacquisition and development of mineral properties is capitalized until commencementof commercial production. There have been no interest costs capitalized to date.

Costs include the share consideration and the fair market value of shares and optionsissued on the acquisition of mineral properties. The recorded amount may not reflectrecoverable value as this will be dependent on the development program, the nature ofthe mineral deposit, commodity prices, adequate funding and the ability of theCompany to bring its projects into production. The Company has not yet determinedwhether any of its mineral properties contain economically recoverable reserves.

(k) Long-lived assets

Long-lived assets held for use consist of property and equipment and mineralproperties. Long-lived assets held for use are measured and amortized as describedin the applicable accounting policies.

Long-lived assets classified as held for sale are initially measured at the lower of thecarrying amount and fair value less costs to sell, and are not amortized. Subsequentincreases in fair value not in excess of the cumulative loss previously recorded arerecognized as gains.

The Company performs impairment testing on long-lived assets held for use whenevents or changes in circumstances indicate that the carrying value of an asset orgroup of assets may not be recoverable. Impairment losses are recognized whereundiscounted future cash flows from its use and disposal are less that the assets’carrying value. Impairment loss is measured as the amount by which the assets’carrying value exceeds fair value. Any impairment is included in loss for the year.

Discounted cash flows are used to measure the fair value of long lived assets.



(l) Variable interest entities

Pursuant to the requirements of AcG-15, Consolidation of Variable Interest Entities,the Company has consolidated those entities in which it has a variable interest,whether directly or implied through its relationships with other entities, and is theprimary beneficiary. A variable interest entity (VIE) is one in which either the equityinvestment at risk is insufficient to permit the VIE to finance its activities withoutadditional subordinated financial support, or the holders of the equity at risk lack thecharacteristics of a controlling financial interest. The primary beneficiary is defined asthe party that will absorb a majority of the VIE’s expected losses, receive a majority ofthe VIE’s expected residual returns, or both.

3. Changes in accounting policies and new accounting pronouncements

Change in accounting policies

Prior to fiscal 2010, the consolidated financial statements of Mineramax were preparedin accordance with Mexican Financial Accounting Standards. In 2010, the Companyadopted Canadian generally accepted accounting principles (“GAAP”) and restated the2009 consolidated financial statements to conform with Canadian GAAP (Note 16).

Adoption of new accounting policies

a) Business combinations

In January 2009, the AcSB issued CICA Handbook Section 1582, “BusinessCombinations” which replaces previous guidance on business combinations. ThisSection applies to Business Combinations entered into on or after January 1, 2011 withearlier adoption permitted. The Company has elected to adopt the standards effectiveJuly 1, 2009, and they do not have a material impact on the Company’s consolidatedfinancial statements.

b) Consolidated financial statements

In January 2009, the AcSB issued CICA Handbook Section 1601, “Consolidations” and1602 “Non-controlling Interests”. Section 1601 carries forward the requirements ofSection 1600, “Consolidated Financial Statements”, other than those relating to non-controlling interests which would be covered in Section 1602. These standards areeffective for annual and interim periods beginning on or after January 1, 2011 with earlieradoption permitted. The Company has elected to adopt the standards effective July 1,2009, and they do not have a material impact on the Company’s consolidated financialstatements.


3. Changes in accounting policies and new accounting pronouncements (continued fromprevious page)

Accounting pronouncements

International Financial Reporting Standards (“IFRS”)

In January 2006, the CICA Accounting Standards Board (“AcSB”) adopted a strategic planfor the direction of accounting standards in Canada. As part of that plan, accountingstandards in Canada for public companies are expected to converge with IFRS by 2011.

Although the Company has not yet completed the development of an IFRS changeoverplan, it anticipates completing its project scoping during the second quarter of 2011, as theCompany continues to monitor and assess the impact of the convergence of CanadianGAAP and IFRS. The impact on the Company’s consolidated financial statements is notreasonably determinable at this time. Key information will be disclosed in the Company’sManagement’s Discussion and Analysis as it becomes available during the transition period.

4. Deferred charges

Deferred charges include a $16,380 deposit pursuant to a mineral property purchaseagreement completed subsequent to June 30, 2010.

Also included in deferred charges is $25,451 advanced to Toji Minerales SA de CV ("TojiMinerals") pursuant to a memorandum of understanding. Toji Minerals was incorporatedsolely to obtain mining concessions on behalf of the Company and has no other significantequity interests. In accordance with its variable interest entity accounting policy, theCompany has consolidated its interest in Toji Minerals as management has determined thatToji Minerals is a variable interest entity and the Company is the primary beneficiary.Therefore, the advance is classified as deferred charges in accordance with thecharacteristics of the expenditures made by Toji Minerals in its pursuit of mineralconcessions. The Company's maximum exposure to loss is the amount advanced during theyear.


5. Reverse takeover and debt settlement

On April 9, 2010 Bacanora completed its Qualifying Transaction, consisting of theacquisition of all of the outstanding shares of Mineramex, together with settlement ofoutstanding loans owing by Mineramex to Tubutama Borax PLC and a director thereof. Thereverse takeover and debt settlement consisted of a cash payment of $250,000, and theissuance of 21,739,130 common shares of Bacanora at an ascribed price of $0.23 per shareto Tubutama (the former holder of all outstanding Mineramex shares). The cash payment of$250,000 has been included in transaction costs related to the reverse takeover.

As a result of the Qualifying Transaction, control of Bacanora passed to the formershareholders of Mineramex. According to the provisions of the Canadian Institute ofChartered Accountant Handbook EIC 10, this type of transaction is considered to be areverse takeover transaction (“RTO”) that is a capital transaction in substance, rather than abusiness combination. Legally, Bacanora is the parent of Mineramex and its subsidiaries.However, for financial reporting purposes Bacanora is deemed the acquired entity, andMineramex is the acquirer.

The June 30, 2010 consolidated financial statements are a continuation of the financialstatements of the acquirer, or Mineramex, consolidated with Bacanora’s figures. Thecomparative figures as at June 30, 2009 and for the year then ended are of Mineramex, orthe legal subsidiary of Bacanora. The capital stock represents the authorized and issuedshare capital of Bacanora and the dollar amount of shareholder’s equity is that ofMineramex. Due to reverse takeover accounting rules, the share capital presented in theseconsolidated financial statements will be different than what has been reported in previousfilings for Mineramex. In addition, Bacanora’s retained earnings, share capital amount andcontributed surplus have been eliminated upon consolidation. All transaction costs werecharged to share capital.

The value attributed to the shares issued on reverse takeover was calculated as follows:

Cash $ 127,716

Accounts receivable 24,029

Deferred charges 414,915

Accounts payable (132,465)

Net assets of Bacanora 434,195

Extinguishment of related party debt 1,393,243

Transaction costs (560,555)

1,266,883


6. Financial instruments and risk management

This note presents information about the Company’s exposure to credit, liquidity and marketrisks arising from its use of financial instruments and the Company’s objectives, policies andprocesses for measuring and managing such risks.

(a) Credit risk

Credit risk arises from the potential that a counter party will fail to perform itsobligations. Financial instruments that potentially subject the Company toconcentrations of credit risk consist of accounts receivable. The carrying amount ofaccounts receivable represents the maximum credit exposure.

The Board of Directors monitors the exposure to credit risk on an ongoing basis anddoes not consider such risk significant at this time. The Company considers all of itsreceivables fully collectible.

(b) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financialobligations as they are due. The Company's approach to managing liquidity is toensure, as far as possible, that it will have sufficient liquidity to meet its liabilities whendue, under both normal and stressed conditions, without incurring unacceptablelosses. The carrying value of accounts payable and accrued liabilities approximatesits fair value due to their relatively short period to maturity. All of the Company’saccounts payable and accrued liabilities of $229,166 are due within 90 days or less.

(c) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates,commodity prices, and interest rates will affect the Company’s operations, netearnings or the value of financial instruments. The objective of market riskmanagement is to manage and control market risk exposures within acceptable limits,while maximizing long-term returns.

The Company’s cash is held in major Canadian and Mexican chartered banks, andthe Company has no sales, therefore the Company is only exposed to the risksassociated with changes in foreign exchange rates.

(d) Sensitivity analysis

Based on management’s knowledge and experience of the financial markets, theCompany believes that movements in interest rates that are reasonably possible overthe next twelve months will not have a significant impact on the Company.

The Company conducts exploration projects in Mexico. As a result, a portion of theCompany’s expenditures, accounts receivable, accounts payable and accruedliabilities are denominated in US dollars and Mexican pesos and are therefore subjectto fluctuation in exchange rates. A 1% change in the exchange rate between theCanadian dollar and Mexican peso would have an approximate $2,500 change to theCompany’s net income.


6. Financial instruments and risk management (continued from previous page)

(e) Fair values

The fair value of the Company’s financial instruments at June 30, 2010 and 2009 issummarized as follows:

June 30, 2010 June 30, 2009

CarryingAmount

FairValue

CarryingAmount

FairValue

Financial assets

Held for trading

Cash $1,491,942 $1,491,942 $ 21,893 $ 21,893

Loans and receivables

Accounts receivable $ 85,324 $ 85,324 $ 44,679 $ 44,679

Financial liabilities

Other liabilitiesAccounts payable and

accrued liabilities $ 229,166 $ 229,166 $ 85,636 $ 85,636

Due to related parties - - $1,261,351 *

* Fair value is not reasonably estimable as the debt is unsecured, non-interestbearing and has no specific repayment terms.

7. Capital management

The Company's objectives in managing capital are to safeguard its ability to operate as agoing concern while pursuing opportunities for growth through identifying and evaluatingpotential acquisitions or businesses. The Company defines capital as the Company'sshareholders' equity excluding contributed surplus, of $2,770,635 at June 30, 2010 (2009 –($388,486)), and the Company’s working capital of $1,348,100 (2009 - ($1,280,415)). TheCompany sets the amount of capital in proportion to risk and corporate growth objectives.The Company manages capital structure and makes adjustments to it in light of changes ineconomic conditions and the risk characteristics of the underlying assets. The Company isnot subject to any externally imposed capital requirements other than those disclosed inNote 1. The Company does not expect to enter into any debt financing at this time. TheBoard of Directors does not establish a quantitative return on capital criteria formanagement; but rather promotes year over year sustainable profitable growth. TheCompany will be meeting its objective of managing capital through its detailed review andpreparation of both short-term and long-term cash flow analysis and monthly review offinancial results.


8. Property and equipment

June 30, 2010

CostAccumulatedamortization

Net bookvalue

Office furniture and equipment $ 3,232 $ 1,283 $ 1,949

Computer equipment 4,997 3,339 1,658

Transportation equipment 42,358 9,163 33,195

$ 50,587 $ 13,785 $36,802

June 30, 2009

CostAccumulatedamortization

Net bookvalue

Office furniture and equipment $ 3,153 $ 980 $ 2,173

Computer equipment 3,533 3,159 374

Transportation equipment 18,939 11,434 7,505

$ 25,625 $ 15,573 $10,052

9. Mineral properties

The Company’s mining claims consist of mining concessions located in the State of Sonora,Mexico. The specific descriptions of such concessions are as follows:

Carlos project

Carlos Project consists of six mining concessions: Carlos, Carlos I, Carlos II, Carlos III,Carlos IV, and Carlos V with a total area of 1,661 hectares. The concessions are located 15kilometers from the town of Tubutama, Sonora, Mexico, and they are 100% owned by theCompany.

San Francisco project

San Francisco Project consists of six mining concessions: San Francisco 1, 2, 3, 5, Fraction1, and Fraction 2, with a total area of 11,060 hectares. The concessions are located 15kilometers from the city of Magdalena, Sonora, Mexico, and they are 100% owned by theCompany.

El Represo project

El Represo Project consists of one concession with a total area of 4,448 hectares. It islocated 15 kilometers from the city of Santa Ana, Sonora, Mexico, and it is 100% owned bythe Company.


9. Mineral properties (continued from previous page)

The balance of investment in mining claims as of June 30, 2010 and 2009 corresponds toconcession payments to the federal government, deferred costs of exploration and paidsalaries, and consists of the following:

PropertyInvestment atJune 30, 2010

Additions for theyear ended June

30, 2010Investment atJune 30, 2009

Additions for theyear ended, June

30, 2009

Carlos project:Concession tax $ 26,747 $ 7,339 $ 19,408 $ 3,020Costs of exploration 1,033,494 233,006 800,488 61,846

1,060,241 240,345 819,896 64,866

San Francisco project:Concession tax 100,774 100,773 1 1Costs of exploration 192,957 161,967 30,990 30,990

293,731 262,740 30,991 30,991

El Represo project:Costs of exploration 29,575 (1,415) 30,990 30,990

Total mineralproperties $ 1,383,547 $ 501,670 $ 881,877 $ 126,847

The investment in Costs of Exploration at the closing of the years ended June 30, 2010 and2009 consist of the following:

June 30, 2010 June 30, 2009Investment atfiscal year-

end

Additions inthe twelve

month period

Investment atfiscal year-

end

Additions inthe twelve

month period

Contract exploration $ 560,976 $ 247,505 $ 313,471 $ 83,825

Drilling 359,463 106,259 253,204 (30,752)

Laboratory and analysis 33,753 (879) 34,632 (3,976)

Field and transport 24,733 17,736 6,997 1,564

Professional fees 93,909 18,521 75,388 (2,080)

Travel 19,424 10,042 9,382 (530)

Amortization 13,750 8,580 5,170 4,854

Office and miscellaneous 150,018 (14,206) 164,224 70,921

$ 1,256,026 $ 393,558 $ 862,468 $ 123,826


10. Share capital

(a) Authorized

The authorized share capital of the Company consists of an unlimited number ofvoting common shares without nominal or par value.

(b) Common Shares Issued

Shares Amount

Balance, June 30, 2009 and 2008 1 $ 1Elimination of Mineramex shares resulting fromreverse takeover (1) -

Outstanding common shares of Bacanora prior toreverse takeover 4,785,500 -

Issued pursuant to the reverse takeover (Note 5) 21,739,130 1,266,883

Private placement issued for cash (i) 8,045,110 2,011,278

Share issue costs - (65,785)Fair value of unexercised options resulting fromreverse takeover - (40,293)

Issued on exercise of options 8,925 2,433

Balance, June 30, 2010 34,578,665 $ 3,174,517

(i) Concurrent with the completion of the Qualifying Transaction, the Companycompleted its private placement of 8,045,110 Bacanora Shares, issued at a priceof $0.25 for aggregate gross proceeds of $2,011,278. The Company paid a total$65,785 in sponsor and legal fees.

(c) Escrowed Shares

At June 30, 2010, there were 22,140,217 shares in escrow to be released under theterms of the Escrow Agreements in accordance with the policies of the TSX VentureExchange.

(d) Stock options

Number ofoptions

Weighted averageexercise price

Balance, June 30, 2009 554,840 $ 0.20

Exercised (8,925) 0.20

Exercisable, June 30, 2010 545,915 $ 0.20


10. Share capital (continued from previous page)

Date of Grant

NumberOutstandingat June 30,

2010Exercise

Price

WeightedAverage

RemainingContractual Life

(Years)Date ofExpiry

NumberExercisableat June 30,

2010

May 1, 2009 400,000 $ 0.20 3.8 May 1, 2014 400,000May 7, 2009 145,915 $ 0.20 0.9 May 7, 2011 145,915

545,915 545,915

(e) Per share amounts

Basic loss per share is calculated using the weighted average number of shares of7,767,380 for the year ended June 30, 2010 (2009 – 21,739,130). Options wereexcluded from the dilution calculation as they were anti-dilutive.

11. Contributed surplus

Bacanora options existing on the date of the reverse takeover transaction have been treatedas stock options issued by the Company on that date having a fair value of $40,293calculated using the Black Scholes model with the following assumptions: 1 year to expiry,100% volatility, and a risk free interest rate of 1.37%. Subsequent to the reverse takeover,8,925 options were exercised at $.20 each and the associated fair value of $648 wastransferred to share capital.

12. Income taxes

The income tax provision differs from income taxes which would result from applying theexpected tax rate to net loss before income taxes. The differences between the“expected” income tax expenses and the actual income tax provision are summarized asfollows:

June 30, 2010 2009

Loss before non-controlling interest $ (3,941) $ (107,274)

Expected income tax recovery at 27.25% (2009 – 28.0%) (1,074) (30,037)

Temporary differences of Bacanora recognized on RTO (76,160) -

Share issuance costs (16,446) -Tax rate difference (mostly comprised of differences from

effective Mexico tax rate of 30%) and other (4,607) -

Change in valuation allowance 98,287 30,037

Total income taxes (recovery) $ - $ -


12. Income taxes (continued from previous page)

The components of the Company’s net future income tax asset are as follows:

June 30, 2010 2009

Canada

Share issuance costs $ 38,607 $ -

Non-capital losses available for future periods 62,725 -

Valuation allowance (101,332) -

Canada net future income tax asset - -

Mexico

Property and equipment (415,064) (246,926)

Non-capital losses available for future periods 480,218 315,125

Valuation allowance (65,154) (68,199)

Mexico net future income tax asset - -

Total net future income tax asset $ - $ -

As at June 30, 2010, the Company has, for tax purposes, non-capital losses available tocarry forward to future years totalling $1,851,625 (2009 - $1,125,446) as follows: Canada -$250,898 expiring from 2027 to 2030 and Mexico - $1,600,727 expiring from 2017 to 2020.

13. Segmented information

The Company currently operates in one operating segment, the exploration anddevelopment of mineral properties in Mexico. Management of the Company makesdecisions about allocating resources based on the one operating segment. A geographicsummary of profit and loss and identifiable assets by country is as follows:

Mexico Canada Consolidated

June 30,2010

June 30,2009

June 30,2010

June 30,2009

June 30,2010

June 30,2009

Interest income (loss) 526 (2,096) 1,824 - 2,350 (2,096)

Depreciation expense 1,788 - - - 1,788 -

Net income (loss) 18,640 (64,364) (34,949) - (16,309) (64,364)Property andequipment 36,802 10,052 - - 36,802 10,052

Mineral property 1,378,303 881,887 5,244 - 1,383,547 881,877


14. Related party transactions

During the year, fees and expenses of $57,258 (2009 -$nil) were incurred by directors andofficers on behalf of the Company in pursuit of its proposed Qualifying Transaction as wellas the Company’s exploration program. Of this amount, $39,791 (2009 - $nil) remains inaccounts payable and accrued liabilities at June 30, 2010. The transactions were made inthe normal course of business and are measured at the exchange amount.

During the year, Mineramex received advances of $131,892 (2009 $269,683) from its formerdirector and former controlling shareholder. These were eliminated as a result of thereverse takeover (2009 - $80,192 repaid). Debts payable to related parties do not bear anyinterest, are unsecured and have no specific terms of repayment. The transactions weremade in the normal course of business and are measured at the exchange amount.

During the year, the Company accrued general and administrative expenses of $24,039(2009 - $nil) to a company with common directors and shareholders in respect of an officesublease. The transaction was in the normal course of operations and measured at theexchange amount, which is the amount of consideration established and agreed to by therelated parties.

15. Commitments and contingencies

During 2009, the Company entered into an office space lease agreement for a term of threeyears, commencing January 1, 2010 and expiring March 31, 2013. The Company also hascommitments for lease payments for field office and camp with no specific expiry dates. Thetotal annual financial commitment resulting from these agreements is $50,273.

16. Restatement of 2009 consolidated financial statements

The consolidated financial statements for the year ended June 30, 2009 are those ofMineramex (the accounting acquirer), were previously prepared under Mexican FinancialAccounting Standards, and have been restated using Canadian GAAP. The only materialadjustment is the reporting of the foreign currency translation adjustment of $21,898 in othercomprehensive loss instead of net loss, and the corresponding cumulative translationadjustment of $39,563 being presented as accumulated other comprehensive income on thebalance sheet rather than included in deficit.

17. Subsequent event

On August 20, 2010, the Company issued 600,000 common shares together with a paymentin the amount of US $25,000, representing the balance owing of reimbursable expensescontemplated under the agreement. The consideration paid was to acquire explorationlicenses in respect of lithium claims in the Sonora State of Mexico. All of the foregoingcommon shares are subject to four-month hold periods in accordance with applicablesecurities laws.

Subsequent to June 30, 2010, a further 9,575,933 shares were released from escrow. Thenumber of shares remaining in escrow is 12,564,284.

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