Golden Matrix Group, Inc. - Quarter Report: 2012 April (Form 10-Q)

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Our unaudited interim consolidated financial statements included in this Form 10-Q are as follows:

These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  Operating results for the interim period ended April 30, 2012 are not necessarily indicative of the results that can be expected for the full year.

3

SOURCE GOLD CORP.

(An Exploration Stage Company)

Consolidated Balance Sheets

(Stated in US Dollars)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

F-1

SOURCE GOLD CORP.

 (An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in US Dollars)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

F-2

SOURCE GOLD CORP.

(An Exploration Stage Company)

Consolidated Statement of Stockholders’ Equity (Deficit)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

F-3

SOURCE GOLD CORP.

(An Exploration Stage Company)

Consolidated Statement of Stockholders’ Equity (Deficit) - (Cont’d)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

F-4

SOURCE GOLD CORP.

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these financial statements.

F-5

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 1  Basis of Presentation

While the information presented in the accompanying April 30, 2012 consolidated financial statements is unaudited, it includes all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim period presented in accordance with the accounting principles generally accepted in the United States of America.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.  These consolidated financial statements should be read in conjunction with the Company’s July 31, 2011 audited financial statements.

Operating results for the nine months ended April 30, 2012 are not necessarily indicative of the results that can be expected for the year ending July 31, 2012.

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.

Effective September 10, 2009, the Company increased the number of authorized common shares of the Company from 90,000,000 to 180,000,000 shares and it’s authorized preferred shares from 10,000,000 to 20,000,000 shares per director’s resolution dated August 31, 2009.  The Company also conducted a four to one forward stock split of the Company’s issued and outstanding common shares per director’s resolution. Following this stock split, the number of outstanding shares of the Company’s common stock increased from 11,100,000 shares to 44,400,000 shares. All share and per share information in these financial statements has been retro-actively restated for all periods presented to give effect of this stock split.

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.

F-6

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 2  Nature of Operations and Ability to Continue as a Going Concern - (continued)

On August 7, 2010, the Company acquired a 100% interest in Vulture Gold LLC, (“Vulture”) a Nevada Limited Liability Company.  (Note 7c)

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 7d)

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.

The Company has yet to achieve profitable operations, has accumulated losses of $14,113,129 since inception, has working capital deficiency of $172,023, 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 from normal 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.

F-7

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 3  Summary of Significant Accounting Policies - (continued)

Principles of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary companies IRC Exploration Ltd., a company incorporated in Alberta, Canada on August 1, 2008; Northern Bonanza Inc, a company incorporated in Ontario, Canada on June 30, 2010; Source Bonanza LLC, a Limited Liability Company incorporated in Nevada, USA on June 18, 2010 and Vulture Gold LLC, 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.

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.

F-8

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 3  Summary of Significant Accounting Policies - (continued)

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.

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.

F-9

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 3  Summary of Significant Accounting Policies - (continued)

Fair Value of Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of April 30, 2012 and July 31, 2011. 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.

Comprehensive Loss

The Company is required to report comprehensive loss, which includes net loss as well as changes in equity from non-owner sources.

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-10

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 4  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 period ended July 31, 2011 this promissory note was settled by payment of $20,000 cash to the president.

As at April 30, 2012, due to related party includes $3,397 (July 31, 2011 - $nil) owing to the President.

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 6, Capital Contribution.

During the nine month period ended April 30, 2012, the Company incurred management fees of $54,000 (nine month period ended April 30, 2011 - $45,000) charged by the Company’s president.  In addition, as a result of the stock options granted, the Company incurred additional management fees of $nil and $3,992,571 for the nine month periods ended April 30, 2012 and 2011, respectively.

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.

Note 5  Convertible Notes Payable

F-11

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 5  Convertible Notes Payable - (continued)

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 is unsecured, bears interest at 8% per annum, and matures on October 25, 2012.  During the three month period ended April 30, 2012 the Company accrued $614 (three month period ended April 30, 2011 - $nil) in interest expense.

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 defined as “the average of the lowest three of the last ten closing trading prices on the OTCBB immediately prior to conversion date”.

As at April 30, 2012 and July 31, 2011, the convertible note payable was recorded net of unamortized debt and accrued interest discount of $21,283 and $nil, respectively.

Promissory Note #2

On March 19, 2012, the Company received $30,000 cash and the Company issued 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 (being $0.08), multiplied by the number of shares into 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 three month period ended April 30, 2012 interest expense relating to the beneficial conversion feature of this convertible note of $30,000 (three month period ended April 30, 2011 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.

F-12

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 6  Stockholders’ Deficit

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.

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 $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%.

Note 7  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 totalling $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)

iii)  The issuance of 2,000,000 common shares (none issued) to the shareholders of the optionor, as directed by the optionor.

F-13

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 7  Mineral Properties - (continued)

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

F-14

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 7  Mineral Properties - (continued)

·

$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 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 at 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.  The Company also incurred direct exploration expenditures of $47,335 during the year ended July 31, 2011.

As at July 31, 2011 the operator held exploration advances amounting to $nil (2010 - $26,968). 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 nine month period ended April 30, 2012, the Company incurred exploration expenditures of $3,317 (year ended July 31, 2011 - $2,221) 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.  

F-15

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 7  Mineral Properties - (continued)

Consideration for the option was the issuance of 1,000,000 common shares of the Company on March 28, 2012, a cash payment of $5,000 by April 2, 2012 and aggregate exploration expenditures of $25,000 by September 15, 2013.

As at April 30, 2012, the Company has not issued the 1,000,000, common shares nor made the $5,000 cash payment required.  Consequently as of April 30, 2012, no value has been recorded for the option.

Subsequent to April 30, 2012, the Company paid $5,000 cash and issued 1,000,000 common shares to the option or with a fair value of $80,000 based on the closing price of stock on March 28, 2012 the date of the agreement.

Note 8  Commitments

The Company has an ongoing agreement with a director of the company to provide management services for $6,000 per month.  Either party many terminate the agreement with one month’s written notice.

Note 9  Subsequent events

Subsequent to April 30, 2012, the Company entered into the following transactions:

a)  Subsequent to April 30, 2012, the Company paid $5,000 cash and issued 1,000,000 common shares to the option or with a fair value of $80,000 based on the closing price of stock on March 28, 2012 the date of the agreement.

b)  On May 14, 2012, the Company received $52,500 and issued an 8% convertible promissory note in the amount of $52,500 as consideration.  The promissory note is unsecured and falls due on February 18, 2013.  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 defined as “the average of the lowest three of the last ten closing trading prices on the OTCBB immediately prior to conversion date”.

Note 10  Restatement

The Company has determined that certain transactions were not correctly accounted for in the three and nine month periods ended April 30, 2011 and accordingly the results of the three and nine month periods ended April 30, 2011 have been restated for the following items:

a)  The overstatement of accruals for legal expenses at July 31, 2010

F-16

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 10  Restatement - (continued)

The Company originally over-accrued legal expenses as at July 31, 2010, and understated its legal expenses in the nine months ended April 30, 2011 by $11,931.  As a result of the restatement legal expenses for the three and nine month periods ended April 30, 2011 have increased by $nil and $11,391, respectively and the net loss for the three and nine month periods increased by a corresponding amount.  There was no effect on the originally stated accumulated deficit as at April 30, 2011 as a result of this restatement as there was an offsetting adjustment reducing the opening deficit by $11,391.

b)  Valuation of Option Granted to The Company President.

As a result of the review of the Company’s valuation methods relating to share based payments the Company discovered that the valuation for the option entered into between the current president and the former President had been improperly valued.  On November 9, 2009, 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 Option was originally determined to have a fair value of $4,960,000 and this was fully expensed in the year ended July 31, 2010.  Upon review the Option has been determined to have a fair value of $10,960,000, which is to be expensed over the vesting period.  The Company accordingly increased the non-cash management fee for the three and nine month periods ended April 30, 2011 by $nil and $3,992,571, respectively resulting in the loss for the three and nine month periods increasing by a corresponding amount and accumulated deficit at April 30, 2011 increasing by $3,992,571.  Additional paid in capital has also been increased by $3,992,571 at April 30, 2011, resulting in there being no effect on stockholders’ deficit as a result of this restatement.

c)  Treatment of foreign exchange adjustments arising upon consolidation

The Company has revised its treatment of foreign exchange gains and losses arising upon consolidation of Source Gold Corp with its subsidiary companies located in Canada.  The Company has determined that exchange differences arising upon consolidation should be classified as part of Accumulated Other Comprehensive Loss which comprises Equity.  As a result of this restatement the reported loss for the three and nine month periods ended April 30, 2011 has decreased by $890 and $2,189 respectively.  Also the accumulated deficit at April 30, 2011 has been decreased by $2,189.

Accumulated Other Comprehensive Loss has also decreased by $2,189 at April 30, 2011 resulting in there being no effect upon total stockholders’ deficit as a result of this restatement.

F-17

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

April 30, 2012

(Unaudited)

Note 10  Restatement - (continued)

The effect of the restatements on the results of operations and financial position as of April 30, 2011 and for the three and nine month periods April 30, 2011 is as follows:

F-18

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

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.”  These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  

Company Overview

We are an exploration stage company that intends to engage in the exploration of mineral properties.  We have acquired four mineral claims through our wholly owned subsidiaries Northern Bonanza, Inc., an Ontario corporation, (“Northern Bonanza”) and Source Bonanza, LLC, a Nevada limited liability company, (“Source Bonanza”), and have an option to acquire a fifth set of claims in British Columbia. None of these properties possesses known mineral reserves.  Exploration of these mineral claims is required before a final determination as to their viability can be made.

Northern Bonanza holds or possesses an option to acquire a partial interest in the following claims in Ontario, Canada:

·

Southern Beardmore Claims

o

A group of 21 mineral claims in the Beardmore Area and the Mary Jane Lake Area, 3 km south of Beardmore, Ontario, Canada.

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KRK West Claims

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Northern Bonanza entered into an agreement that gave them the option to acquire an undivided 50% interest, in 19 mineral claims known as the KRK West Claims, located north of Thunder Bay, Ontario, Canada.  The foregoing agreement is now the subject of a lawsuit between us and the other party to the agreement.

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Source Bonanza owns a 100% membership interest in Vulture Gold, LLC, a Nevada limited liability company.  Vulture Gold is the owner of the mineral rights to 27 unpatented mineral claims located in Maricopa County Arizona.

During the last quarter, we also entered into a property option agreement to acquire all mineral interests in three quartz claims located in British Columbia. If the option is exercised, then we will have the right to perform mining exploration work on the claims.

Our Business

Northern Bonanza, Inc.

Southern Beardmore Claims.

On May 4, 2010, we acquired a group of 21 contiguous mineral claims in the Beardmore Area and the Mary Jane Lake Area, near Beardmore, Ontario for $51,800 (CDN).

Location and Means of Access to Southern Beardmore Claims.

The property consists of nineteen contiguous mineral claims.  The area of the property is 269 hectares. The northern boundary of the property is 3 kilometers south of Beardmore, Ontario on Highway11. Highway 11 transects the property. Old logging roads also cross the property.

Title to Southern Beardmore Claims.

We only hold the mineral rights to the Southern Beardmore Claims.  We do not possess surface rights to the property.  There are no royalties, back-in rights payments or other agreements and encumbrances to which the property is subject. Additionally, there are no environmental liabilities to which the property is subject or permits that must be acquired to conduct the work proposed.

Previous Operations on the Southern Beardmore Claims.

There have been no prior operations on these claims.

Present Condition of Southern Beardmore Claims.

At the moment there are no established mineralized zones, mineral resources, mineral reserves and mine workings, tailing ponds, waste deposits and important natural features and improvements, relative to the outside property boundaries.

Proposed and Current State of Exploration and Development on the Southern Beardmore Claims.

There has been some exploration on the property.  We conducted a fixed-wing airborne survey and had a 43-101 report produced for the property.  These constituted the majority of the $47,735 in direct exploration expenditures that we incurred for the year ended July 31, 2011.

During the year ended July 31, 2011, we also made further advances to the operator of $7,040.  During the year ended July 31, 2011 the operator incurred exploration expenditures of $34,008.  As a result, the operator held no exploration advances for the year ended July 31, 2011.

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In addition to the original purchase price paid for the property, we incurred $17,436 in staking costs in relation to these claims during the year ended July 31, 2010.

During the year ended July 31, 2010, we 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.  Our exploration expenditures during the year ended July 31, 2010 were focused on the recommended airborne survey of the Southern Beardmore property and on the preparation of a geological report on the property.

No Known Presence of Reserves on the Southern Beardmore Claims.

The proposed program is exploratory in nature and there are no known reserves on the property.

Rock Formations and Mineralization of Existing or Potential Economic Significance on the Southern Beardmore Claims.

Regionally a swath of metavolcanic-metasedimentary rocks runs from Geraldton to Beardmore. The metavolcanic rocks are host to numerous showings and former producers of gold and silver. A metasedimentary sequence consists of both clastic and chemical metasediments. These are rocks from two northeast trenching belts and occur to the northwest and southeast of the central volcanic belt. The northern belt is about 3.4 km thick; the southern belt is in excess of 5.4 km. The Northern Bonanza claim group lies entirely within the southern belt. The clastic metasediments are wacked with minor intercalated siltstone and mudstone. The chemical metasediments comprise ironstone units 1-2 m thick bedded in the metavolcanics. The metavolcanics comprise mafic to intermediate flows in a belt 2.0 to 2.5 km wide and trend northeasterly between the two metasedimentary units. The metavolcanic flows are dark green to greenish black in color and typically consist of a massive medium grained basal part, a finer middle portion and a fine-grained to aphanitic upper part, which may be pillowed, amygdaloidal and/or variolitic. Proterozoic rocks comprise diabase sills of medium grain size and massive texture and form topographic highs in outcrop. Precious metals occur (i) in quartz and quartz-carbonate veins almost exclusively in metavolcanics but also in metasediments and (ii) in quartz veins in chert-hematite-magnelite-grunerite ironstone units interlaycled with the mafic metavolcanics.

Impairment of the Southern Beardsmore Claims.

Although we possess a plan of exploration for the Southern Beadsmore Claims, we do not possess the resources to execute on that plan.  Additionally, while it is our goal to raise capital to finance the exploration, there is no assurance of additional funding being available or on acceptable terms, if at all.  Consequently the costs incurred of $68,599 for these mineral properties was deemed to be fully impaired as of July 31, 2010.

The KRK West Claims

Location and Means of Access to KRK West Claims.  The property consists of 19 claims covering 15 square miles.  It is located north of Thunder Bay in the Beardmore area of Northwestern Ontario, Canada.  The nearest townships to the property are Pifher, Sandra, and Meade. The property can be accessed via Hwy 11 through the Village of Beardmore to Hwy 801.

Title to KRK West Claims.

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Option Agreement

On October 26, 2009, we entered into an agreement with Thunder Bay Minerals, Inc. (the “Agreement” and “Thunder Bay”, respectively) under which we were granted an option to acquire an undivided 50% interest in 19 mineral claims known as the KRK West Claim, located north of Thunder Bay, Ontario, Canada.  We are currently in a dispute with Thunder Bay regarding the ownership of the claims.  The dispute is discussed more fully in the following section titled “Separate Purchase of KRK West Claims” and in Part II Item 1 Legal Proceedings.

Detailed below are the payments we have made to date and the payments we will be obligated to make in the future if the dispute with Thunder Bay is not resolved in our favor.

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Pay $110,000 (CDN) to Thunder Bay with $50,000 (CDN) of that amount due upon execution of the Agreement before commencing due diligence of the claims (paid) and the balance of $60,000 (CDN) on or before December 1, 2009 (paid);

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Incur $500,000 (CDN) in expenditures on the claims before December 31, 2010 and $500,000 in expenditures on the claims before December 31, 2011; and

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Issue 2,000,000 shares of our common stock to the shareholders of Thunder Bay within 30 days of closing the transaction.

Under the agreement, Thunder Bay will act as operator and define the nature of and execute all exploration programs and subsequent phases of development on the claims.

If we are able to pay the consideration for the claims (as set forth above), we will be entitled to a 50% interest in the claims, which are currently subject to a 3% Net Smelter Royalty in favor of James Wheeler, President of Thunder Bay. In the event we acquire an interest in the claims, we and Thunder Bay have further agreed to enter into a joint venture agreement for further exploration and development of the claims.

Separate Purchase of KRK West Claims.

During the year ended July 31, 2010, we learned that the optionor had allowed the KRK West Claims to lapse, and therefore the option agreement was null and void.  All 19 of the KRK West Claims were re-staked by a third party.  Together with our President, Lauren Notar, we were able to purchase 13 of the 19 KRK West Claims from the third party who re-staked the claims.  Ms. Notar contributed $20,000 toward the purchase and we contributed $7,578 in cash. The 13 claims were initially transferred to Ms. Notar.  Then, on June 30, 2010, Ms. Notar transferred the 13 claims to us in exchange for an unsecured non-interest bearing promissory note for $20,000 which was settled during the period ended July 31, 2011.  Our total purchase price for the 13 re-staked claims was therefore $27,578.  We also incurred exploration expenditures of $555 in relation to these claims.  Subsequent to our acquisition of the claims, they were transferred to our subsidiary Northern Bonanza.

The original optionor currently maintains that control of the KRK West Claims remains with the optionor and that we have no right to further explore the property.  We disagree 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

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for a change of venue and mediation regarding the matter was scheduled.  Two days prior to the scheduled mediation, William J. Wheeler (“Wheeler”), the principal of Thunder Bay, cancelled the mediation.

As a result of the cancellation, we decided the best course of action was to file suit.  Accordingly, we filed an action 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:

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An order transferring an application regarding mining claims to Ontario Superior Court to be consolidated with this action;

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A declaration regarding our ownership and Thunder Bay and Wheeler’s ownership with respect to certain mining claims; and

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$1,200,000 in damages from Thunder Bay and Wheeler.

Impairment of the KRK West Claims.

Due to the lapse of the underlying claims we impaired a total of $131,295 of acquisition cost incurred as of July 31, 2010 made up of the initial $103,718 payment and the additional payment of $27,577.

Previous Operations on the KRK West Claims.

The KRK West property encompasses many previous prospects and occurrences that, since 1930, have been the subject of many prospecting, geophysics, and diamond drilling as well as high grading conducted by operators dating back between 1930-1950 where copper and gold mineralization was identified.

Present Condition of KRK West Claims.

At the moment there are no established mineralized zones, mineral resources, mineral reserves and mine workings, tailing ponds, waste deposits and important natural features and improvements, relative to the outside property boundaries.

Work Completed on the Claims and Proposed and Current State of Exploration and Development on the Claims.

We have undertaken an initial trenching, sampling, and geological mapping program on the KRK West Claims. The samples are being assayed by Accurassay Laboratories in Thunder Bay, Ontario, Canada.

Based upon the initial exploration program of trenching, channel sampling, geological mapping and a TEM survey covering our claim group on over 15 square miles of the KRK West Property, we have identified three main areas of interest.

The first area of interest is the Little Brother Claim Group, where a number of samples were taken from an area along a northern grandiorite with intermediate volcanics, which yielded visible gold occurrences.

The second area of interest is close to the eastern portion of the property east of Peddle Lake. This area is the most active on the property where a number of drill collars belonging to a previous operator were drilled during the 1970's. The ground observations in the trenches and

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historical assessment have indicated a large disrupted zone carrying the potential for significant gold and silver values.

The third area of interest is the most westerly area of the property near Musca Lake, along a continuous shear zone. The Musca Lake zone consists of a quartz flooded shear which pinches and swells along its strike length.

Although we have not established an overall exploration budget for the KRK West claims at this time, we intend to continue with an exploration program centered on the major fault lines and areas of interest which traverse the KRK West mineral claims. Accurassay Laboratories is currently processing more than 250 trench samples from our three main areas of interest on the KRK West Property.

No Known Presence of Reserves on the KRK West Claims.

The proposed program is exploratory in nature and there are no established reserves on the property.

Rock Formations and Mineralization of Existing or Potential Economic Significance on the KRK West Claims.

The property is located within the Northern Felsic Metavolcanic Belt. Intermediate crystal-lithic tuff is the dominant rock type and underlies most of the property. These tuffs consist of intermixed units of crystal tuffs containing feldspar crystals and lithic tuffs containing fragments of felsic to intermediate composition. Felsic crystal tuffs are easily identified by the presence of quartz-eyes within a light gray crystal tuff. The rock weathers to a very distinctive porcellaneous buff-white color. The felsic crystal tuff forms two prominent east-west trending horizons within the intermediate crystal-lithic tuff in the southern half of the western portion of the property and can be traced to the western boundary. The felsic horizons vary in width from 25 to 120 meters, and can be traced for a length of 2.8 kilometers.

Gold occurs on the property associated with white quartz veins and pyritic horizons within felsic crystal tuffs and quartz-feldspar porphyry. Earlier exploration identified quartz veins and mineralized shear zones within felsic and mafic intrusions. Base and precious metals are found all over the property. The KRK West property encompasses many previous well known prospects and occurrences that since 1930 have been the subject of many prospecting, geophysics, and diamond drilling as well as high grading conducted by operators dating back between 1930-1950 where copper and gold mineralization was identified.

Source Bonanza, LLC.

Vulture Peak Property and Gold Point Claim Group.

On August 7, 2010, we entered into an agreement with Vulture Gold LLC (“Vulture”), to purchase 100% of Vulture’s outstanding membership interests in consideration for 4 million shares of our common stock. Vulture is the owner of the mineral rights to unpatented mineral claims located in Maricopa County Arizona known collectively as the Vulture Claims.

Location and Means of Access to Vulture Claims.

The property is located approximately 15 km to 17 km southwest of Wickenburg in Maricopa County, Arizona. It consists of 27 claims located in Section(s) 23, 24, 25, 26, 35 and 36, T.6N.,

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R.GW., and in Section(s) 3D, T.6N., R.5W., Maricopa County, Arizona. Each claim is approximately 20.7 acres with a total property area of 476.1 acres, configured in three separate blocks.

The property can be accessed from Wickenburg through Vulture Mine Road south from State Highway 60. Wickenburg is located 85 km (53 miles) NW of Phoenix; 98 km (61 miles) S of Prescott; and 206 km (128 miles) SE of Kingman. Wickenburg is connected with Phoenix through State Highway 60 south; and to Prescott and Kingman through State Highways 89 and 93 respectively. Wickenburg is one of the railway stations for Prescott-Phoenix branch of Santa Fe Railway. From Vulture Mine Road various gravel roads traverse through different areas of the property providing access to almost all the mineral claims.

Title to Vulture Claims.

The Vulture Claims are owned by Vulture Gold, LLC, which is owned 100% by Source Bonanza. The following claim maintenance fees are applicable for the property:

A "Mineral Exploration Permit" application will be required to get a permit for the proposed exploration work to be carried out on the property. A minimum bond required is $3,000 but the actual bond amount is based upon the type of exploration and the degree of disturbance. The department responsible for issuing this is the Minerals Section of the Arizona State Land Department.  Additionally, the Arizona State Land Commissioner, at his discretion, may also change the amount of the damage and restoration bond when warranted by any changes in the Plan of Operation.

Previous Operations on the Vulture Claims.

The Vulture Claims were part of the historical Red Cloud Mine, Vulture Mine, Vulture Mine Extension, and Mohawk Mines. The first prospecting party to explore the mountains of north-central Arizona was guided by Pauline Veaver, a pioneer trapper and Indian Scout of the period. Henry Wickenburg, one of the party members, while prospecting south of Wickenburg located the Vulture lode in 1863. He established a camp on the Hassayampa River six miles east of the location, and for the next three years worked the richer parts of the outcrop ore. No records are available for his production.

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In November 1, 1866, the Vulture Claims and adjoining area was acquired from Wickenburg by the Vulture Company of New York. This company established a camp at the mine, and built a forty stamp amalgamation and concentration mill at Wickenburg. This pioneer company operated steadily from 1867 to July 1872. Chinese miners were employed. Concentrates were stored, and the production was in gold bullion saved on the plates. The property was closed due to excessive transportation costs and to the apparent pinching of the ore at water level.

In 1870 a new corporation was formed to operate the Vulture and Vulture Extension of Taylor and Smith. This company was known as the Arizona Central Mining Company. Vulture Extension property was reportedly located to the north of the Vulture Mine and is believed to be located on claim 27 and 28, an area staked by Gold Point LLC.  An 80 stamp mill was built at the mine, and water was pumped from Hassayampa at Seymour, through a seven mile pipe line. Power was supplied by wood­burning boilers. Work was continued by this company for nine years on a large scale. A great deal of very low grade ore was treated. No exact figures are available on the production but scattered estimates of the Art one Daily Star and U.S. Mint reports indicate a probable gross of 3,000,000 ounces. The mine was worked down about 300 feet to a fault which cut off the ore body.

In 1908 the property was acquired by the Vulture Mines Company. This company at first used 20 stamps of the Arizona Central Company mill. In 1910 a new 20 stamp mill was erected driven by a gasoline engine, which treated from 100 to 120 tons a day of ore. This company operated the mine up to 1917. The gross output of this company which worked on the faulted segment of ore was $1,839,375, 30 percent of which was concentrates and 70 percent bullion.

In 1927 D.R. Finlayson acquired the property and organized the Vulture Mining and Milling Company. A 5-stamp amalgamation mill was built at the mine using water pumped from the mine, power being supplied by a diesel engine. Old pillars were treated.

In 1929, a diamond drill campaign was started, after a careful geological study, to prospect for the second faulted segment of the ore. Vein matter carrying free gold was encountered. Financial help was enlisted from the United Verde Extension Mining Company of Jerome. In 1930 and 1931 an 800 foot shaft was sunk to prospect the ground cut by the drill. A large vein was encountered. After six months lateral work and a little drilling, work was abandoned.

Present Condition of Vulture Claims.

There are several areas of past producing mines and old workings located on the property. Detailed below are some of the old workings on the property.

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Work Completed on the Vulture Claims.

During the year ended July 31, 2011, we incurred exploration expenditures of $2,221 on the property.  

Proposed State of Exploration and Development on the Vulture Claims and Impairment of Vulture Claims. We have not carried out any exploration work on the property. However, on March 13, 2008 Gold Point LLC, the party that staked the current Vulture Claims, contracted Fred B. Brost, P.E. to carry out rock sampling on Red Cloud, Red Rock, and Vulture claims. A total of six samples were collected during this work at various locations. The samples were analyzed at Jacobs Assay Office in Tucson. Following receipt of the assay results, we retained a geologist to conduct a study and produce a report on the exploration potential of the property.  He recommended the following two stage exploration program:

Phase 1- Data Compilation, Geological Mapping, Trenching and Sampling

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The estimated cost of this program is $132,500, which would be expended as follows:

PHASE 1 BUDGET - GEOLOGICAL MAPPING, TRENCHING AND SAMPLING

Phase 2 - Ground Geophysical Surveying, Diamond Drilling

Based on the results of the Phase 1 program, the following ground geophysical surveys should be carried out at suitable locations: 3D Induced Polarization (IP), Magnetometer Survey, and Electromagnetic (EM) - VLF Survey

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Estimated cost of Phase 2 work program is $522,600, which would be expended as follows:

PHASE 2 BUDGET - GROUND GEOPHYSICAL SURVEYING, DIAMOND DRILLING

No Known Presence of Reserves on the Vulture Claims.  The proposed program is exploratory in nature and there are no known reserves on the property.

Rock Formations and Mineralization of Existing or Potential Economic Significance on the Vulture Claims. Mineralization on the claims and adjoining areas can be classified into three types: i) mineralized veins, ii) porphyritic masses of rock, iii) mixed deposits in which veins and porphyry are both present.

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Mineralized Veins.  Fractures, filled with quartz and other veining material, were observed at places on the claims but no strong or regular veins were located. Most of the veins are at the contact of volcanics and metasediments. Gold, silver, and other metals may concentrate in quartz veins and in silicified and altered rocks. Some irregular quartz veins were observed in schistose rocks where vein filling occur mainly along the cleavage of schist.

Porphyritic Masses of Rock. At many places quartz monzonite volcanic dykes were observed containing pyrite in disseminated crystalline grains with in porphyritic masses of rocks. The distribution of this sulphide looks like independent of fractures or fracture filling. Moderate to severe alteration of dykes and wall rocks has converted feldspar and mafic minerals to a fine­ grained sericite, hematite, and clay minerals. Altered dyke rocks commonly consist of quartz "eyes" in a fine-grained matrix of alteration minerals. Conceptual restoration of the rocks of the Vulture mine area to their pre-rotations orientation reveals that the mineralization and alteration originally occurred along a north-northeast-trending subvertical dyke that projected upward from the structural top of a Cretaceous granitoid pluton. The association of gold with dyke and gradation of the dyke into the granitic rocks of the pluton indicate that gold mineralization was intimately related to Cretaceous magmatism and dyke emplacement. Later erosion and subsequent burial by lower Miocene volcanic rocks was followed by structural dismemberment and tilting and eventual uncovering by late Cenozoic erosion.

Mixed Mineralization. Combined veining and porphyritic style of mineralization was observed to be a common feature especially on Gold Point Vulture claim and Gold Point claims 27-29 located in the southwestern part of the property. Granitoid rocks are intersected by porphyritic volcanic rocks in these areas. Hematitic alteration is common and covers large areas at the contact of granite and volcanic dykes.

Impairment of the Vulture Claims.

Although we possess a plan of exploration for the Vulture Claims, we do not possess the resources to execute on that plan.  Additionally, while it is our goal to raise capital to finance the exploration, there is no assurance of additional funding being available or on acceptable terms, if at all.  As a result, we have fully impaired the value of the Vulture Claims.

British Columbia Claims.

On March 28, 2012, we entered into a property option agreement with Blair Naughty (“Naughty”), an individual, to acquire all mineral interests in three quartz claims located in British Columbia (the “Agreement” and the “British Columbia Claims”, respectively).  The British Columbia Claims cover approximately 2,785 acres in Northern British Columbia on the Yukon Border. Pursuant to the terms of the Property Option Agreement:

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We can acquire mineral interests in and to the British Columbia Claims by 1) paying to Naughty $5,000 within 5 days of the effective date of the Agreement (paid), 2) issuing to Naughty 1,000,000 shares of our common stock (issued) and 3) incurring expenditures (as defined in the Agreement, a copy of which is attached hereto) of $25,000 on or before September 15, 2013 for the purpose of developing the British Columbia Claims. A further description of the British Columbia Claims can be found in Exhibit A to the Agreement,;

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We can serve as the operator on the British Columbia Claims;

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Naughty will retain a 3.0% royalty in the British Columbia Claims. A further description of the royalty on the British Columbia Claims can be found in the Agreement;

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Under certain terms and conditions we will have the ability to purchase 2% of the 3% royalty held by Naughty;

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If Naughty desires to sell the royalty, then we have a first right of refusal;

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We can assign the agreement with the consent of Naughty;

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We and Naughty agreed to the establishment of an area of common interest which covers all land within 2 kilometres of the British Columbia Claims. If Naughty acquires mining permits in such area of common interest, then he must offer us the mining permits at staking cost plus 20%. If acquired, the mining permits would fall under the terms of the Agreement;

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Conduct such prospecting, exploration and development work as we deem advisable;

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Remove and dispose of reasonable quantities of ores, minerals and metals for the purpose of obtaining assays or making other tests.

The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Agreement attached hereto as Exhibit 10.1 and incorporated herein by reference.

At this point in time we are still gathering information on the British Columbia Claims. Once we have gathered sufficient information, then there will be disclosures regarding the British Columbia Claims similar to the disclosures regarding our other claims.

Results of Operations for the Nine Months Ended April 30, 2012 and 2011 and Period from Inception (June 4, 2008) until April 30, 2012

We generated no revenue for the period from Inception (June 4, 2008) until April 30, 2012. We do not anticipate earning revenues until such time that we enter into commercial production of our claims.  We are presently in the exploration stage of our business and we can provide no assurance that we will discover commercially exploitable levels of mineral resources, or if such resources are discovered, that we will enter into commercial production.

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We incurred operating expenses in the amount of $54,833 for the three months ended April 30, 2012, compared with $46,056 for the three months ended April 30, 2011. Operating expenses for the three months ended April 30, 2012 consisted of management fees of $18,000, office expenses of $15,881, legal fees of $9,993, accounting and audit expenses of $7,458 and mineral property exploration costs of $3,317. Operating expenses for the three months ended April 30, 2011 consisted of management fees of $15,000, mineral property exploration costs of $9,163, legal fees of $8,647, accounting and audit expenses of $6,407 and office expenses of $6,707.  

We incurred operating expenses in the amount of $159,877 for the nine months ended April 30, 2012, compared with $4,258,168 for the nine months ended April 30, 2011.  Operating expenses for the nine months ended April 30, 2012 consisted primarily of management fees of $54,000, accounting and audit expenses of $38,409, legal fees of $29,985, office expenses of $28,387 and mineral exploration costs of $3,317.  Operating expenses for the nine months ended April 30, 2012, consisted primarily of management fees of $4,037,571, mineral exploration costs of $83,564, legal fees of $60,551, accounting and audit expenses of $57,846 and office expenses of $17,990.  The overwhelming amount of the operating expense attributable to management fees for the nine months ended April 30, 2011, was an expense incurred as a result of options to purchase common stock granted from our former president to our current president.

We incurred operating expenses in the amount of $14,071,959 for the period from Inception (June 4, 2008) through April 30, 2012 consisting primarily of management fees of $11,143,569, mineral property option impairment of $2,203,611, legal fees of $233,686, accounting and audit expenses of $173,042, mineral property exploration costs of $155,946, office expenses of $105,199 and tax penalties and interest of $47,847.

With respect to our Management Fees, on November 6, 2009, our former president granted an option to our current president to acquire up to 20,000,000 shares of our common stock, held by our former president, at a price of $0.0025 per share effective December 20, 2010 until May 1, 2011.  The Option was originally determined to have a fair value of $4,960,000 and this was fully expensed in the year ended July 31, 2010.  Upon review, the Option has been determined to have a fair value of $10,960,000, which was be expensed over the vesting period.  

Liquidity and Capital Resources

As of April 30, 2012, we had total current assets of $17,787 as compared to $47,586 as of July 31, 2011.  We had $189,810 in current liabilities as of April 30, 2012 as compared to $129,748 as of July 31, 2011. Thus, we had working capital deficit of $172,023 as of April 30, 2012 as compared to $82,162 as of July 31, 2011.

Net cash used in operating activities was $176,542 and $221,238 for the nine months ended April 30, 2012 and April 30, 2011, respectively, and $797,620 for the period from Inception (June 4, 2008) to April 30, 2012. Our main source of cash was from the sale of our common stock which generated $75,000, $230,000 and $952,375 for the nine months ended April 30, 2012 and April 30, 2011 and for the period from Inception (June 4, 2008) to April 30, 2012, respectively.

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During the quarter ended April 30, 2012, we raised money through the issuance of a convertible promissory note for $30,000 to Greenshoe Investments, on March 19, 2012.  The promissory note is unsecured, interest free and repayable upon demand. The terms of the conversion and additional detail are contained in the attached Exhibit 10.2 of the promissory note.  

We also raised money through the issuance of a promissory note for $32,500 to Asher Enterprises, Inc., a Delaware corporation, on February 1, 2012.  The foregoing promissory note is dated January 23, 2012 but the money was not received until February 1, 2012, and thus is being treated as occurring in the quarter ending April 30, 2012.  Interest on the promissory note is eight percent (8%) per annum.  The promissory note is due on October 25, 2012. Beginning six months from the date of the promissory note until October 25, 2012, Asher has the ability to convert the promissory note to stock of the Company.  The terms of the conversion and additional detail regarding the promissory note are contained in Exhibit 10.1 to our Form 10-Q for the quarter ended January 31, 2012, which was filed on March 15, 2012.  

Subsequent to the end of the quarter ending April 30, 2012, we raised additional money through the issuance of a promissory note for $52,500 to Asher Enterprises, Inc., a Delaware corporation. The foregoing promissory note is dated May 14, 2012.  Interest on the promissory note is eight percent (8%) per annum.  The promissory note is due on February 18, 2013. Beginning six months from the date of the promissory note until February 18, 2013, Asher has the ability to convert the promissory note to stock of the Company.  The terms of the conversion and additional detail regarding the promissory note are contained in Exhibit 10.3.  

We have not attained profitable operations and are dependent upon obtaining financing to pursue significant exploration activities beyond those planned for the current fiscal year.  For these reasons, our auditors stated in their report to our audited financial statements for the period from Inception (June 4, 2008) to July 31, 2011 that they have substantial doubt we will be able to continue as a going concern.

Off Balance Sheet Arrangements

As of April 30, 2012, there were no off balance sheet arrangements.

Going Concern

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that we will be able to meet our obligations and continue our operations for the next fiscal year.  Realization values may be substantially different from carrying values as shown.  At April 30, 2012, we had working capital which will not be sufficient to sustain operations and conduct exploration activities over the next twelve months. We have yet to achieve profitable operations, have accumulated losses of $14,113,129 since our inception, have a working capital deficiency of $172,023, have no source of recurring revenues, and expect to incur further losses in the development of our business, all of which casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing from shareholders or other sources to meet our obligations and repay our liabilities arising from normal business operations when they come due.

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Management has no formal plan in place to address this concern but considers that we 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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, being April 30, 2012. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this quarterly report.

Limitations on the Effectiveness of Internal Controls.

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.   Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On October 26, 2009, we entered into an agreement with Thunder Bay Minerals, Inc. (the “Agreement” and “Thunder Bay”, respectively) under which we were granted an option to acquire an undivided 50% interest in 19 mineral claims known as the KRK West Claim, located north of Thunder Bay, Ontario, Canada.  During the year ended July 31, 2010 we learned that Thunder Bay had allowed the KRK West Claims to lapse, and therefore the option agreement was null and void.  As discussed above, we were able to re-purchase 13 of the 19 KRK West Claims from persons who re-staked the claims for an aggregate amount of $27,578.  We also incurred exploration expenditures of $555 in relation to these claims.  Subsequent to acquisition of the claims they were transferred to our wholly owned subsidiary, Northern Bonanza, Inc.

Thunder Bay currently maintains that control of the KRK West Claims remains with it and that we have no right to further explore the property.  We disagree 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 and mediation regarding the matter was scheduled.  Two days prior to the scheduled mediation, William J. Wheeler (“Wheeler”), the principal of Thunder Bay, cancelled the mediation.  

As a result of the cancellation, we decided the best course of action was to file suit.  Accordingly, we filed an action 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:

o

An order transferring an application regarding mining claims to Ontario Superior Court to be consolidated with this action;

o

A declaration regarding our ownership and Thunder Bay and Wheeler’s ownership with respect to certain mining claims; and

o

$1,200,000 in damages from Thunder Bay and Wheeler.

Other than the foregoing, we are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

Item 1A. Risk Factors

A smaller reporting company is not required to provide the information required by this Item.

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

None

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Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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