The accompanying notes are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
Note 1
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for financial information and with the instructions to Form 10-Q of Regulation S-K. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended July 31, 2012 included in the Company
’
s Annual Report on Form 10-K filed with the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal and recurring adjustments have been made.
The condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States and are presented in United States dollars.
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary companies IRC Exploration Ltd., (
‘
IRC
”
) a company incorporated in Alberta, Canada on August 1, 2008; Northern Bonanza Inc, (
‘
NBI
”
) a company incorporated in Ontario, Canada on June 30, 2010; Source Bonanza LLC, (
“
SB
”
) a Limited Liability Company incorporated in Nevada, USA on June 18, 2010; and Vulture Gold LLC (
“
Vulture
”
), a Nevada Limited Liability Company which was acquired on August 7, 2010.
All significant inter-company transactions and balances have been eliminated.
Note 2
Nature of Operations and Ability to Continue as a Going Concern
The Company was incorporated in the state of Nevada, United States of America on June 4, 2008. The Company is an exploration stage company and was formed for the purpose of acquiring exploration and development stage mineral properties. The Company
’
s year-end is July 31. On August 31, 2009, the Company changed its name to Source Gold Corp. in order to reflect the current focus of the Corporation.
On January 24, 2013, the Company increased the number of authorized common shares of the Company from 180,000,000 to 900,000,000 shares.
During the year ended July 31, 2009, the Company acquired via its subsidiary company IRC Exploration Ltd. (
“
IRC
”
), a mineral claim located in British Columbia, Canada. During the year ended July 31, 2010, the mineral property option agreement for the claim in British Columbia was abandoned.
During the year ended July 31, 2010, the Company acquired two additional mineral properties located in Ontario, Canada. The Company also incorporated two new subsidiary companies, Northern Bonanza Inc. (
“
NBI
”
) to hold its mineral properties located in Ontario, Canada, and Source Bonanza LLC (
“
SB
”
) to hold its mineral properties located in the USA. The Company also transferred its Ontario mineral properties to NBI during the year ended July 31, 2010.
On August 7, 2010, the Company acquired a 100% interest in Vulture Gold LLC, (
“
Vulture
”
) a Nevada Limited Liability Company. (Note 8c)
F- 9
On March 28, 2012, the Company entered into a property option agreement to acquire a 100% undivided right in three tenures comprising 2,785 acres in northern British Columbia, Canada. (Note 8d)
The Company intends on exploring its mineral properties and has not yet determined the existence of economically recoverable reserves. The recoverability of amounts incurred on its mineral properties is dependent upon the existence of economically recoverable reserves in the property, confirmation of the Company
’
s interest in the underlying mineral claims, the ability of the Company to obtain the necessary financing to complete their development, and the attainment and maintenance of future profitable production or disposition thereof.
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.
F- 10
Source Gold Corp.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
The Company has yet to achieve profitable operations, has accumulated losses of $14,682,344 since inception, has working capital deficiency of $338,936, has no source of recurring revenues, and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company
’
s ability to continue as a going concern. The Company
’
s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing from shareholders or other sources to meet its obligations and repay its liabilities arising fromnormal business operations when they come due.
Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available or on acceptable terms, if at all. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Note 3
Summary of Significant Accounting Policies
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and are stated in US dollars. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates, which have been made using careful judgment. Actual results may vary from these estimates.
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary companies IRC Exploration Ltd., (
‘
IRC
”
) a company incorporated in Alberta, Canada on August 1, 2008; Northern Bonanza Inc, (
‘
NBI
”
) a company incorporated in Ontario, Canada on June 30, 2010; Source Bonanza LLC, (
“
SB
”
) a Limited Liability Company incorporated in Nevada, USA on June 18, 2010 and Vulture Gold LLC, (
“
Vulture
”
) a Nevada Limited Liability Company which was acquired on August 7, 2010.
All significant inter-company transactions and balances have been eliminated.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.
Exploration Stage Company
The Company has not commenced any significant operations and, in accordance with ASC Topic 915, the Company is considered an exploration stage company. All losses accumulated since inception have been considered as part of the Company
’
s exploration stage activities.
F- 11
Source Gold Corp.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
Mineral Properties
The Company is primarily engaged in the acquisition, exploration, and development of mineral properties.
Mineral property acquisition costs are capitalized in accordance with FASB ASC 930-805,
“
Extractive Activities-Mining,
”
when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property acquisition costs are expensed as incurred if the criteria for capitalization are not met. In the event that mineral property acquisition costs are paid with Company shares, those shares are recorded at the estimated fair value at the time the shares are due in accordance with the terms of the property agreements.
When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves and pre-feasibility, the costs incurred to develop such property are capitalized.
Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis.
Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards. Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.
To date the Company has not established any proven or probable reserves on its mineral properties.
Computer equipment
Computer equipment is stated at the lower of cost or fair value. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).
The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of its office equipment or whether the remaining balance of office equipment should be evaluated for possible impairment.
Depreciation has been charged using the following estimates of useful lives:
|
|
Computer equipment
|
2 years straight line
|
F- 12
Source Gold Corp.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
Foreign Currency Translation
The Company
’
s functional currency is the US dollar as a substantial part of the Company
’
s operations is based in Arizona. IRC
’
s and NBI
’
s functional currency is the Canadian dollar. The functional currency of SB and Vulture is the US dollar as its activities are in the USA. The Company uses the United States dollar as its reporting currency for consistency with registrants of the Securities and Exchange Commission (
“
SEC
”
).
Assets and liabilities denominated in a foreign currency are translated into US dollar reporting currency at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any exchange gains and losses are included in other comprehensive loss.
Diluted and Basic Loss per Share
Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted earnings per share are computed similar to basic income per share except that the denominator is increased to include the number of common stock equivalents. Common stock equivalents represent the dilutive effect of the assumed exercise of any outstanding stock equivalents, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company
’
s net income (loss) position at the calculation date.
There are no common stock equivalents outstanding and, thus, diluted and basic loss per share is the same.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry-forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is
“
more likely-than-not
”
that a deferred tax asset will not be realized.
Comprehensive Loss
The Company is required to report comprehensive loss, which includes net loss as well as changes in equity from non-owner sources.
F- 13
Source Gold Corp.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of July 31, 2013 and July 31, 2012. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Stock-Based Compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 718 which requires the Company to recognize expense related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
Stock based compensation for non-employees is accounted for using the Stock Based Compensation Topic of the FASB ASC 505. We use the fair value method for equity instruments granted to non-employees and will use the Black-Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Newly Issued Accounting Pronouncements
The Company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
F- 14
Source Gold Corp.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
Note 4
Computer equipment
|
|
|
|
|
July 31,
|
|
July 31,
|
|
2013
|
|
2012
|
Cost
|
|
|
|
Computer equipment
|
$ 1,973
|
|
$ 1,973
|
|
|
|
|
Accumulated depreciation
|
(1,108)
|
|
(124)
|
|
|
|
|
Net book value
|
$ 865
|
|
$ 1,849
|
Note 5
Financial Instruments
Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.
The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.
The fair value hierarchy for valuation inputs prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels; the level is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 - inputs are based upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - inputs are generally unobservable and typically reflect management
’
s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
The carrying value of the Company
’
s financial assets and liabilities which consist of cash, and accounts payable and accrued liabilities, in management
’
s opinion approximate their fair value due to the short maturity of such instruments. These financial assets and liabilities are valued using level 3 inputs, except
F- 15
Source Gold Corp.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
for cash which is at level 1. Unless otherwise noted, it is management
’
s opinion that the Company is not exposed to significant interest, exchange or credit risks arising from these financial instruments.
Note 6
Related Party Transactions
All related party transactions have been measured at the exchange value which was the amount of consideration established and agreed to by the related parties.
On June 30, 2010, the Company purchased from the Company president 13 mineral property claims in the Thunder Bay mining division of Ontario, Canada. As consideration for the purchase the Company issued an unsecured, non-interest bearing promissory note for $20,000 due on November 30, 2010. During the year ended July 31, 2011 this promissory note was settled by payment of $20,000 cash to the president.
As of July 31, 2013, due to related party includes $10,820 (July 31, 2012 - $3,429), owing to Grid Petroleum Corp.
During the year ended July 31, 2010, the former president of the Company granted an option to the current president of the Company to acquire up to 20,000,000 common shares of the Company as detailed in Note 7, common stock.
On November 1, 2009, the Company entered into a Corporate Management Services Agreement with the President of the Company for management services. Pursuant to the agreement the President would receive a signing bonus of $7,500 (paid November 1, 2009) and $5,000 per month beginning December 1, 2009 for services rendered plus reimbursement of the Company
’
s expenses. The agreement may be terminated by either party upon 30 days written notice.
On June 21, 2011, the Company amended the agreement by issuing a resolution to reflect a payment of $6,000 per month for services rendered.
On October 31, 2012, the Former President of the Company acquired 10,000,000 common shares of the Company in a private transaction. As of October 31, 2012 the President holds 16.4% interest in the common stock of the Company.
On May 15, 2013 the Company entered into an employment agreement with DhughaldPinchin providing a signing bonus equivalent to $50,000 USD or stock and $7,500 per month salary.
Note 7
Convertible Notes Payable
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
July 31,
|
|
|
|
|
2013
|
|
2012
|
|
Promissory Note #1
|
|
-
|
|
32,500
|
|
Promissory Note #2
|
|
30,000
|
|
30,000
|
|
Promissory Note #3
|
|
-
|
|
52,500
|
|
Promissory Note #4
|
|
24,900
|
|
-
|
|
Promissory Note #5
|
|
12,000
|
|
-
|
|
Promissory Note #6
|
|
11,774
|
|
-
|
|
Promissory Note #7
|
|
27,500
|
|
-
|
|
Promissory Note #8
|
|
44,978
|
|
-
|
|
Promissory Note #9
|
|
11,000
|
|
-
|
|
Promissory Note #10
|
|
11,000
|
|
-
|
|
Promissory Note #11
|
|
57,500
|
|
-
|
|
Promissory Note #12
|
|
7,500
|
|
-
|
|
Promissory Note #13
|
|
7,500
|
|
-
|
|
|
|
|
$ 245,652
|
|
$ 115,000
|
|
|
Debt discount
|
|
(8,600)
|
|
38,425
|
|
|
Debt discount - BCF
|
|
(89,152)
|
|
-
|
|
Notes payable, net of discount
|
|
147,900
|
|
153,425
|
|
|
Accrued interest
|
|
7,973
|
|
2,165
|
|
|
|
|
$ 155,873
|
|
$ 155,590
|
Promissory Note #1
On February 1, 2012, the Company received funding pursuant to a convertible promissory note in the amount of $32,500 dated January 23, 2012. The promissory note was unsecured, bore interest at 8% per annum, and matured on October 25, 2012. During the year ended July 31, 2013, the Company accrued $nil (July 31, 2012 - $1,268) in interest expense as the entire note was converted into common stock during the first quarter of 2013.
The
note could be converted at the option of the holder into Common stock of the Company. The conversion price was 51% of the market price, where market price was defined as
“
the average of the lowest three of the last ten closing trading prices on the OTCBB immediately prior to conversion date
”
.
During the year ended July 31, 2013, the Company issued an aggregate of 9,585,054 common shares with a fair value of $66,301 upon the conversion into common stock of this convertible note.
During the year ending July 31, 2013, the Company reclassified the derivative liability amount of $11,029 to additional paid in capital.
As of July 31, 2013, principal balance of $nil, (July 31, 2012 - $32,500), accrued interest of $nil (July 31, 2012 - $1,268) and a derivative liability of $nil (July, 2012 - $11,029) was recorded.
Promissory Note #2
On March 19, 2012, the Company received $30,000 cash from the issuance of a convertible promissory note in the amount of $30,000. The promissory note is unsecured, interest free and repayable upon demand.
The note may be converted at the option of the holder into Common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly the note may be converted into 3,000,000 common shares of the Company.
The Company determined that this Promissory note should be accounted for in accordance with FASB ASC 470-20 which addresses
“
Accounting for Convertible Securities with Beneficial Conversion Features".
The beneficial conversion feature is calculated at its intrinsic value (that is, the difference between the conversion price $0.01 and the fair value of the common stock into which the debt is convertible at the commitment date (per share being $0.08), multiplied by the number of shares into
F- 17
which the debt is convertible. The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended July 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $nil (2012 - $30,000) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #3
On May 14, 2012, the Company received funding pursuant to a convertible promissory note in the amount of $52,500. The promissory note is unsecured, bears interest at 8% per annum, and matured on February 18, 2013. During the year ended July 31, 2013 the Company accrued $3,075 (year ended July 31, 2012 - $897) in interest expense.
After 180 days from issuance, the note may be converted at the option of the holder into common stock of the Company. The conversion price is 51% of the market price, where market price is defined as
“
the average of the lowest three of the last ten closing trading prices on the OTCBB immediately prior to conversion date
”
.
On November 11, 2012, the Company recorded an initial derivative liability of $86,027 being the fair value of the conversion feature which was determined using the Black-Scholes valuation method.
During the year ended July 31, 2013, the Company recorded a loss of $11,221 (July 31, 2012 - $nil) due to the change in value of the derivative liability.
During the year ended July 31, 2013, the Company issued 21,948,702 common shares upon the conversion of $52,500 of the principal balance plus $2,100 accrued interest into common stock, and $97,248 of the derivative liability was re-classified as additional paid in capital upon conversion.
F- 18
As of July 31, 2013, principal balance of $nil, (July 31, 2012 - $52,500), accrued interest of $975 (July 31, 2012 - $897) and a derivative liability of $nil (July, 2012 - $34,316) was recorded.
Promissory Note #4
On October 5, 2012, the Company received funding pursuant to a convertible promissory note in the amount of $42,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 10, 2013. During the year ended July 31, 2013 the Company accrued $2,623 (year ended April 30, 2012 - $nil) in interest expense.
After 180 days from issuance, the note may be converted at the option of the holder into Common stock of the Company. The conversion price is 51% of the market price, where market price is defined as
“
the average of the lowest three of the last ten closing trading prices on the OTCBB immediately prior to conversion date
”
.
On April 4, 2013, the Company recorded an initial derivative liability of $79,440 being the fair value of the conversion feature which was determined using the Black-Scholes valuation method.
During the year ended July 31, 2013, the Company recorded a loss of $968 (July 31, 2012 - $nil) due to the change in value of the derivative liability during the period.
During the year ended July 31, 2013, the Company issued 20,098,878 common shares upon the conversion of $17,600 of the principal balance into common stock, and $34,604 of the derivative liability was re-classified as additional paid in capital upon conversion.
As of July 31, 2013, principal balance of $24,900 (July 31, 2012 - $nil) accrued interest of $2,623 (July 31, 2012 - $nil) and a derivative liability of $45,804 (July, 2012 - $nil) was recorded.
Promissory Note #5
On October 30, 2012, the Company received funding pursuant to a convertible promissory note in the amount of $12,000. The promissory note is unsecured, bears interest at 8% per annum, and matured on April 30, 2013. During the year ended July 31, 2013, the Company accrued $721 (July 31, 2012 - $nil) in interest expense.
After 180 days from issuance, the note may be converted at the option of the holder into Common stock of the Company. The conversion price is 51% of the market price, where market price is defined as
“
the average of the lowest three of the last ten closing trading prices on the OTCBB immediately prior to conversion date
”
.
On April 29, 2013, the Company recorded an initial derivative liability of $13,844being the fair value of the conversion feature which was determined using the Black-Scholes valuation method.
During the year ended July 31, 2013, the Company recorded a loss of $5,121 (July 31, 2012 - $nil) due to the change in value of the derivative liability during the period.
As of July 31, 2013, principal balance of $12,000 (July 31, 2012 - $nil) accrued interest of $721 (July 31, 2012 - $nil) and a derivative liability of $18,965 (July, 2012 - $nil) was recorded.
F- 19
Promissory Note #6
On December 18, 2012, the Company converted a loan payable of $11,774 to a convertible promissory note. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 18, 2013. During the year ended July 31, 2013, the Company accrued $581 (July 31, 2012 - $nil) in interest expense.
After 180 days from issuance the note may be converted at the option of the holder into Common stock of the Company. The conversion price is 51% of the market price, where market price is defined as
“
the average of the lowest three of the last ten closing trading prices on the OTCBB immediately prior to conversion date
”
.
On June 17, 2013, the Company recorded an initial derivative liability of $19,145 being the fair value of the conversion feature which was determined using the Black-Scholes valuation method.
During the year ended July 31, 2013, the Company recorded a gain of $563 (July 31, 2012 - $nil) due to the change in value of the derivative liability during the period.
As of July 31, 2013, principal balance of $11,774 (July 31, 2012 - $nil) accrued interest of $581 (July 31, 2012 - $nil) and a derivative liability of $18,607 (July, 2012 - $nil) was recorded.
Promissory Note #7
On January 23, 2013, the Company received funding pursuant to a convertible promissory note in the amount of $27,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on October 25, 2013. During the year ended July 31, 2013, the Company accrued $1,139 (July 31, 2012 - $nil) in interest expense.
After 180 days from issuance the note may be converted at the option of the holder into Common stock of the Company. The conversion price is 51% of the market price, where market price is defined as
“
the average of the lowest three of the last ten closing trading prices on the OTCBB immediately prior to conversion date
”
.
On July 23, 2013, the Company recorded an initial derivative liability of $48,150 being the fair value of the conversion feature which was determined using the Black-Scholes valuation method.
During the year ended July 31, 2013, the Company recorded a loss of $2,436 (July 31, 2012 - $nil) due to the change in value of the derivative liability during the period.
As of July 31, 2013, principal balance of $27,500 (July 31, 2012 - $nil) accrued interest of $1,139 (July 31, 2012 - $nil) and a derivative liability of $50,586 (July, 2012 - $nil) was recorded.
Promissory Note #8
On May 1, 2013 the Company entered into a Convertible Promissory Note with Syndication Capital in the sum of $44,978.26. The promissory note is unsecured, bears interest at 8% per annum, and matures on November 1, 2013. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.During the
year
ended
July 31
, 2013, the Company accrued $
897
(
July 31
, 2012 - $nil) in interest expense.
F- 20
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended July 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $44,978.26 (July 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #9
On June 1, 2013 the Company entered into a Convertible Promissory Note with Syndication Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on December 1, 2013. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.During the
year
ended
July 31
, 2013, the Company accrued $
145
(
July 31
, 2012 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended July 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $11,000 (July 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #10
On July 1, 2013 the Company entered into a Convertible Promissory Note with Syndication Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on January 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.During the
year
ended
July 31
, 2013, the Company accrued $
72
(
July 31
, 2012 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended July 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $11,000 (July 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #11
On May 31, 2013 the Company entered into a Convertible Promissory Note with Dhugald Pinchin in the sum of $57,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on November 30, 2013. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.During the
year
ended
July 31
, 2013, the Company accrued $
769
(
July 31
, 2012 - $nil) in interest expense.
F- 21
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended July 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $57,500 (July 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #12
On June 30, 2013 the Company entered into a Convertible Promissory Note with Dhugald Pinchin in the sum of $7,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on December 31, 2013. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.During the
year
ended
July 31
, 2013, the Company accrued $
51
(
July 31
, 2012 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended July 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $7,500 (July 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #13
On July 31, 2013 the Company entered into a Convertible Promissory Note with Dhugald Pinchin in the sum of $7,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on January 31, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.During the
year
ended
July 31
, 2013, the Company accrued $
nil
(
July 31
, 2012 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended July 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $5,250 (July 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Note 8
Derivative Liabilities
The Company issued financial instruments in the form of convertible notes with embedded conversion features. The convertible notes payable have conversion rates which are indexed to the market value of the Company
’
s common stock price.
During the year ended July 31, 2013, the Company has a balance of derivative liabilities for embedded conversion features related to convertible notes payable of face value $133,962(July 31, 2012 - $38,425).
F- 22
During the year ending July 31, 2013, $102,600 (July 31, 2012 - $nil) of convertible notes payable were converted into common stock of the Company.
These derivative liabilities have been measured in accordance with fair value measurements, as defined by GAAP. The valuation assumptions are classified within Level 1 inputs and Level 2 inputs.
The following table represents the Company
’
s derivative liability activity for the embedded conversion features discussed above:
|
|
|
|
|
July 31,
|
|
|
2013
|
Balance, beginning of year
|
|
$ -
|
Initial recognition of derivative liability
|
|
246,606
|
Fair value change in derivative liability
|
|
19,208
|
Conversion of derivative liability to APIC
|
|
(131,852)
|
Balance as of July 31, 2013
|
|
$ 133,962
|
Note 9
Common Stock
The Company is authorized to issue 20,000,000 shares of it $0.001 par value preferred stock and 900,000,000 shares of its $0.001 par value common stock.
On June 16, 2008, the Company issued 24,000,000 common shares to the Company
’
s former president at $0.002 per share for total proceeds of $48,000.
On July 31, 2008, the Company issued 20,400,000 common shares at $0.0035 per share for total proceeds of $71,400 pursuant to a private placement. The Company paid commissions of $7,025 for net proceeds of $64,375.
On October 26, 2009, the Company issued 200,000 common shares at $0.25 per share for total proceeds of $50,000 pursuant to a private placement.
On October 30, 2009, the Company issued 200,000 common shares at $0.25 per share for total proceeds of $50,000 pursuant to a private placement.
On November 26, 2009, the Company issued 100,000 common shares at $1.00 per share for total proceeds of $100,000 pursuant to a private placement.
On March 5, 2010, the Company issued 120,000 common shares at $1.00 per share for total proceeds of $120,000 pursuant to a private placement.
On April 30, 2010, the Company issued 33,333 common shares at $1.50 per share for total proceeds of $50,000 pursuant to a private placement.
On June 16, 2010, the Company issued 105,932 common shares at $1.18 per share for total proceeds of $125,000 pursuant to a private placement.
On August 7, 2010, the Company issued 4,000,000 common shares with an aggregate fair value of $2,000,000 pursuant to the acquisition of Vulture Gold LLC.
F- 23
Source Gold Corp.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
On September 29, 2010, the Company issued 100,000 common shares at $0.50 per share for total proceeds of $50,000 pursuant to a private placement.
On October 22, 2010, the Company issued 31,250 common shares at $0.64 per share for total proceeds of $20,000 pursuant to a private placement.
On December 14, 2010, the Company issued 156,250 common shares at $0.32 per share for total proceeds of $50,000 pursuant to a private placement.
On February 25, 2011, the Company issued 50,000 common shares at $0.40 for total proceeds of $20,000 pursuant to a private placement.
On March 29, 2011, the Company issued 125,000 common shares at $0.40 for total proceeds of $50,000 pursuant to a private placement.
On April 28, 2011, the Company issued 125,000 common shares at $0.32 for total proceeds of $40,000 pursuant to a private placement.
On June 17, 2011, the Company issued 100,000 common shares at $0.40 for total proceeds of $40,000 pursuant to a private placement.
On September 7, 2011, the Company issued 160,000 common shares at $0.25 for total proceeds of $40,000 pursuant to a private placement.
On November 29, 2011, the Company issued 250,000 common shares at $0.10 for total proceeds of $25,000 pursuant to a private placement.
On January 6, 2012, the Company issued 125,000 common shares at $0.08 for total proceeds of $10,000 pursuant to a private placement.
On May 10, 2012, the Company issued 1,000,000 common shares pursuant to a mineral property option agreement with a fair value of $80,000.
During the period of August 2, 2012 to October 24, 2012, the Company issued 9,585,054 common shares with a fair value of $75,086 upon the conversion of a promissory note into common stock.
On October 5, 2012, the Company received $42,500 cash and the Company issued a convertible promissory note in the amount of $42,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 13, 2012. The note may be converted at the option of the holder into Common stock of the Company. The conversion price is defined as
“
51% multiplied by Market Price
”
where market price is calculated as the average of the lowest 3 closing bid prices in the ten days prior to conversion for the Company
’
s shares as quoted on the OTCBB .
On October 31, 2012, the President of the Company acquired 10,000,000 common shares of the Company in a private transaction. As of October 31, 2012, the President holds a 16.4% interest in the common stock of the Company.
F- 24
Source Gold Corp.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
During the period of November 26, 2012 and January 22, 2013, the Company issued 5,925,083 common shares with a fair value of $27,000 upon the conversion of promissory notes into common stock.
During the period of February 25, 2013 and April 22, 2013, the Company issued 13,478,164 common shares with a fair value of $24,800 upon the conversion of promissory notes into common stock.
During the period of May 16, 2013 and July 15, 2013, the Company issued 22,644,333 common shares with a fair value of $22,644 upon the conversion of promissory notes into common stock.
Capital Contribution
During the year ended July 31, 2010, the former president of the Company granted an option to the current president of the Company to acquire up to 20,000,000 common shares of the Company, held by the former president, at a price of $0.0025 per share effective December 20, 2010 until May 1, 2011. The Company has recorded compensation under management fees and a capital contribution of $nil (2011 - $3,992,571) (2010 - $6,967,429) aggregating $10,960,000 using the Black-Scholes valuation model based on the following inputs; exercise price $0.0025; dividend rate Nil; current stock price of $0.55; term 1.5 years; and volatility 137.75%.
Warrants and Options
As of July 31, 2013 and 2012, there were no warrants or options outstanding to acquire any additional shares of common stock.
Note 10
Mineral Properties
a) On October 26, 2009, the Company entered into a property option agreement whereby the Company was granted an option to earn up to a 50% interest in 19 mineral claims (the
“
KRK West
”
claims) located in the Thunder Bay Mining Division of Ontario. The option agreement is denominated in Canadian dollars.
Consideration for the option was the issuance of 2,000,000 common shares of the Company, cash payments totaling $103,718 (CDN$110,000), and aggregate exploration expenditures of $969,268 (CDN$1,000,000) as follows:
i)
Cash payments:
*
$46,640 (CDN$50,000) upon execution of the Option agreement (paid);
*
$57,078(CDN$60,000) on or before December 1, 2009 (paid)
ii)
Exploration expenditures of $484,768 (CDN$500,000) on or before December 31, 2010, and $969,268 (CDN$1,000,000) in aggregate on or before December 31, 2011.
In aggregate to July 31, 2011, the Company incurred exploration expenditures aggregating $32,080 (CDN$32,836) (See below regarding status of the agreement)
F- 25
iii)
The issuance of 2,000,000 common shares (none issued) to the shareholders of the optionor, as directed by the optionor.
Upon earning its 50% interest in the option, the Company was to enter into a joint venture agreement to develop and operate the property.
Pursuant to the agreement, if commercial production had been achieved and the Company sold or otherwise disposed of metals and minerals that had been produced and removed from the KRK West properties, the Company would pay Thunder Bay a 3% Net Smelter Return royalty.
In the event the Company sold or caused the sale of products other than to a smelter or refinery or otherwise caused the removal of products from the Property, the Company would pay a 2% Net Smelter Return Royalty. Alternatively, the Company could buy back the royalty right for $1,000,000 for each breccia pipe that reached commercial production.
The property option agreement was stated in Canadian dollars. The US dollar equivalent was converted using the foreign exchange rate at July 31, 2010 for all future commitments.
During the year ended July 31, 2010, the Company learned that the optionor had allowed the underlying claims to lapse, and therefore the option agreement was null and void.
The Company, and a director of the Company (The Company subsequently purchased these claims from the director), purchased the claims from persons who re-staked the claims for an aggregate amount of $27,577. Subsequent to acquisition, the claims were transferred to the Company
’
s wholly owned subsidiary, Northern Bonanza Inc. Due to the lapse of the underlying claims the Company impaired a total of $131,295 of acquisition costs incurred as of July 31, 2010 made up of the initial $103,718 payment and the additional payment of $27,577.
The original optionor represents that control of the claims remains with the optionor and that the Company has no right to further explore the property. The Company disagrees with this assertion and accordingly, ownership to the claims is in dispute. On January 6, 2011 the Ministry of Northern Development, Mines and Forestry, Canada, was to adjudicate upon the ownership of the claims. The hearing did not occur as the other party filed for a change of venue. A determination regarding the change of venue has not yet been made and a date for rendering the decision has not yet been established. Mediation regarding the matter was deferred until late 2011 and prior to the hearing the optionor cancelled the mediation.
In October 2011, the Company, as a result of the cancellation of the mediation hearing with William J. Wheeler regarding the Thunder Bay claims, decided the best course of action was to file suit. Accordingly, a suit was filed against Thunder Bay and Wheeler in Ontario Superior Court of Justice. In the suit we detail the breach of the Agreement by Thunder Bay and Wheeler and request:
*
An order transferring an application regarding mining claims pending before the Office of the Mining and Lands Commissioner to the Ontario Superior Court of Justice to be consolidated with this action;
*
A declaration regarding our ownership and Thunder Bay and Wheeler
’
s ownership with respect to certain mining claims; and
*
$1,200,000 in damages from Thunder Bay and Wheeler.
b) During the year ended July 31, 2010, the Company entered into a property purchase agreement, which was formalized on May 4, 2010, to acquire a 100% interest in 21 mining claims located in the Northern
F- 26
Ontario for $50,767 (Cdn$51,800). During the year ended July 31, 2010, the Company incurred an additional $17,741 in staking costs in relation to these claims. Subsequent to acquisition the claims and exploration costs were transferred to NBI at cost.
During the year ended July 31, 2010, the Company made exploration advances to the operator amounting to $47,806. As of July 31, 2010 the operator had incurred exploration expenses aggregating $20,118 resulting in net advances held being $26,968. During the year ended July 31, 2011, the Company made further advances to the operator of $7,040.
During the year ended July 31, 2011 the operator incurred exploration expenditures of $34,008 and the Company also incurred direct exploration expenditures of $47,335.
As of July 31, 2013, the operator held exploration advances amounting to $nil (2012 - $nil). Due to lack of funding, the Company has no immediate plans to explore these mines to determine resources available and consequently the costs incurred of $68,599 for these mineral properties was deemed to be fully impaired as of July 31, 2011.
c) On August 7, 2010, the Company acquired a 100% interest in Vulture Gold LLC, (
“
Vulture
”
) a Nevada limited Liability Company. Vulture holds 27 mineral claims in Maricopa County, Arizona, known as the Vulture Mine. As consideration for the acquisition the Company issued 4,000,000 common shares with a fair value of $2,000,000.
This transaction has been recorded as an asset acquisition and the fair value paid has been allocated to the cost of acquisition of the mineral property.
During the year ended July31, 2013, the Company incurred exploration expenditures of $3,317 (2012 - $3,317) on the property.
Due to lack of funding, the Company has no immediate plans to explore these mines to determine resources available and consequently the costs of $2,000,000 incurred for these mineral properties is deemed to be fully impaired.
d) On March 28, 2012, the Company entered into a property option agreement whereby the Company was granted an option to earn a 100% interest in 3 mineral tenures located in Northern British Columbia. The option agreement is denominated in US dollars.
Consideration for the option was the issuance of 1,000,000 common shares of the Company on March 28, 2012 valued at $80,000, (issued) and cash payment of $5,000 by April 2, 2012 (paid) and aggregate exploration expenditures of $25,000 by September 15, 2013.
During the year ended July 31, 2013, the Company incurred exploration expenditures of $3,317.
Note 11
Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-6, Accounting for Uncertainty in Income Taxes, which requires the asset and liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are measured based on differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. During the year ended July 31, 2013, we had a net operating loss carry forwards of $(14,683,027) which will be available to offset future
F- 27
taxable income and a deferred tax asset of $4,992,229 using the statutory rate of 34%. The net operating loss carry forwards may be recognized in future periods, not to exceed 20 years.
|
|
|
|
|
July 31,
|
|
2013
|
|
2012
|
Operating loss since inception
|
$ (14,683,027)
|
|
$ (14,210,371)
|
Average statutory tax rate
|
34%
|
|
34%
|
Expected income tax provisions
|
$ (4,992,229)
|
|
$ (4,831,526)
|
Unrecognized tax loses
|
(4,992,229)
|
|
(4,831,526)
|
Income tax expense
|
$ -
|
|
$ -
|
Note 12
Commitments
The Company has an ongoing agreement with a director of the company to provide management services for $7,500 per month. Either party may terminate the agreement with one month
’
s written notice.
Note 13
Subsequent event
Subsequent to the year end the Company:
a)
From August 1, 2013 to October 14, 2013, a holder of a convertible note converted a total of $24,500 of principal and interest into 21,958,163 shares of our common stock.
b)
On August 9, 2013, the Company issued 4,545,455 common shares upon the conversion of a promissory note into common stock.
c)
On August 29, 2013, the Company issued 5,245,902 common shares upon the conversion of a promissory note into common stock.
d)
On September 6, 2013, the Company issued 5,254,237 common shares upon the conversion of a promissory note into common stock.
e)
On September 19, 2013, the Company issued 5,245,902 common shares upon the conversion of a promissory note into common stock.
F- 14