Golden Matrix Group, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - Golden Matrix Group, Inc.	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - Golden Matrix Group, Inc.	ex31_1.htm
EX-32.1 - EXHIBIT 32.1 - Golden Matrix Group, Inc.	ex32_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended October 31, 2010

[ ]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period __________ to __________

	Commission File Number: 333-153881

Source Gold Corp.

(Exact name of small business issuer as specified in its charter)

Nevada	N/A
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

2 Toronto Street, Suite 234

Toronto, Ontario, Canada M5C 2B5

(Address of principal executive offices)

(289) 208-6664

(Issuer’s telephone number)

_________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

[ ] Large accelerated filer	[ ] Accelerated filer
[ ] Non-accelerated filer	[X] Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

State the number of shares outstanding of each of the issuer’s classes of common stock 49,290,515 common shares as of December 1, 2010.

Table of Contents

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4T:	Controls and Procedures	17
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	18
Item 1A:	Risk Factors	18
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3:	Defaults Upon Senior Securities	18
Item 4:	(Removed and Reserved)	18
Item 5:	Other Information	18
Item 6:	Exhibits	19

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Our unaudited interim consolidated financial statements included in this Form 10-Q are as follows:
F-1	Consolidated Balance Sheets as of October 31, 2010 and July 31, 2010.
F-2	Consolidated Statements of Operations for three months ended October 31, 2010 and 2009 and period from Inception (June 4, 2008) to October 31, 2010;
F-3	Consolidated Statements of Cash Flows for the three months ended October 31, 2010 and 2009 and period from Inception (June 4, 2008) to October 31, 2010;
F-4	Consolidated Statement of Stockholders’ Equity for period from Inception (June 4, 2008) to October 31, 2010;
F-5	Notes to Unaudited Consolidated Financial Statements;

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 October 31, 2010 are not necessarily indicative of the results that can be expected for the full year.

Table of Contents

SOURCE GOLD CORP.

(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

October 31, 2010

(Stated in US Dollars)

	October 31			July 31
ASSETS	2010 (unaudited)			2010 (audited)

Current
Cash	$	40,999		$	52,147
Prepaid expenses		500			-
Advances to operator – Note 8(c)		1,676			26,968

Total current assets		43,175			79,115

Mineral Property – Note 4 and 8(d)		2,000,000			-

Total assets	$	2,043,175		$	79,115

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current
Accounts payable and accrued liabilities	$	123,180		$	81,053
Due to related party – Note 6		-			20,000

Total current liabilities		123,180			101,053

Total liabilities	$	123,180		$	101,053

STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred stock, $0.001 par value
20,000,000 shares authorized, none outstanding
Common stock, $0.001 par value – Note 7
180,000,000 shares authorized, 49,290,515 (July 31, 2010 - 45,159,265) shares issued		49,290			45,159
Additional paid in capital		7,578,085			5,512,216
Deficit accumulated during the exploration stage		(5,707,380	)		(5,579,313	)

Total stockholders’ deficit		1,919,995			(21,938	)

Total liabilities and stockholders’ deficit	$	2,043,175		$	79,115

See Accompanying Notes

F-1

Table of Contents

SOURCE GOLD CORP.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in US Dollars)

(Unaudited)

							Cumulative Inception (June 4, 2008)
	Three Months						to
	Ended October 31						October 31,
	2010			2009			2010

Expenses
Accounting and audit fees	$	21,377		$	17,891		$	101,988
Foreign exchange loss		495			1,045			6,577
General and administrative		7,659			1,642			58,640
Legal fees		9,923			13,202			161,497
Management fees – Note 6		15,000			3,000			5,032,569
Mineral property option and acquisition costs		-			46,640			203,611
Mineral property exploration costs		73,613			-			142,498

Net loss	$	(128,067	)	$	(83,420	)	$	(5,707,380	)

Basic loss per share	$	(0.00	)	$	(0.00	)

Weighted average number of shares outstanding – basic		45,589,088			44,413,043

See Accompanying Notes

F-2

Table of Contents

SOURCE GOLD CORP.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

(Unaudited)

							Cumulative
							Inception (June 4,2008)
	Three Months						to
	Ended October 31						October 31
	2010			2009			2010

Cash Flows used in Operating Activities
Net loss	$	(128,067	)	$	(83,420	)	$	(5,707,380	)
Adjustments to reconcile net loss to net cash used by Operating Activities
Mineral property option costs		-			-			1,842
Foreign exchange adjustment		(77	)		24			33
Mineral property and option acquisition		-			-			20,000
Management fees		-			-			4,950,000
Changes in operating assets and liabilities
Prepaid expenses		(500	)		-			(500	)
Accounts payable and accrued liabilities		42,204			26,899			123,180
Exploration advance		25,292			-			(1,676	)

Net used in operating activities		(61,148	)		(56,497	)		(614,501	)

Cash Flows from Financing Activities
Proceeds from sale of common stock, net cash commission		70,000			100,000			677,375
Due to related party		(20,000	)		2,000			(21,875	)

Net cash provided by financing activities		50,000			102,000			655,500

Increase (decrease) in cash during the period		(11,148	)		45,503			40,999

Cash, beginning of the period		52,147			8,014			-

Cash, end of the period	$	40,999		$	53,517		$	40,999

Supplemental information
Interest and taxes paid in cash	$	-		$	-		$	-

Supplementary disclosure for non-cash investing and financing activities
Shares issued for mineral property	$	2,000,000		$	-		$	2,000,000

See Accompanying Notes

F-3

Table of Contents

SOURCE GOLD CORP.

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY DEFICIT

For the period from Inception (June 4, 2008) to October 31, 2010

(Stated in US Dollars)

(Unaudited)

							Deficit
							Accumulated
				Additional			During the
	Common Shares			Paid In			Exploration
	Number	Par		Capital			Stage			Total

Common stock issued for cash:	24,000,000	$	24,000	$	24,000		$	-		$	48,000
	20,400,000		20,400		51,000			-			71,400
Less: commission	-		-		(7,025	)		-			(7,025	)
Net loss	-		-		-			(9,089	)		(9,089	)

Balance July 31, 2008	44,400,000		44,400		67,975			(9,089	)		103,286
Net loss	-		-		-			(102,804	)		(102,804	)

Balance July 31, 2009	44,400,000		44,400		67,975			(111,893	)		482
Common stock issued for cash:	400,000		400		99,600			-			100,000
	220,000		220		219,780			-			220,000
	33,333		33		49,967			-			50,000
	105,932		106		124,894			-			125,000
Capital contribution by former president – Note 5	-		-		4,950,000			-			4,950,000
Net loss	-		-		-			(5,467,420	)		(5,467,420	)

Balance July 31, 2010	45,159,265	$	45,159	$	5,512,216		$	(5,579,313	)	$	(21,938	)
Common stock issued for mineral property	4,000,000		4,000		1,996,000			-			2,000,000
Common stock issued for cash:	100,000		100		49,900			-			50,000
Common stock issued for cash:	31,250		31		19,969			-			20,000
Net loss	-		-		-			(128,067	)		(128,067	)

Balance, October 31, 2010 (unaudited)	49,290,515	$	49,290	$	7,578,085		$	(5,707,380	)	$	1,919,995

See Accompanying Notes

F-4

Table of Contents

SOURCE GOLD CORP.

(An Exploration Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2010

(Stated in US Dollars)

(Unaudited)

Note 1.

Basis of Presentation

While the information presented in the accompanying October 31, 2010 interim 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, 2010 audited financial statements.

Operating results for the three months ended October 31, 2010 are not necessarily indicative of the results that can be expected for the year ending July 31, 2011.

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 its 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, 2008, 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-5

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Source Gold Corp.

(An Exploration Stage Company)

Notes to the Interim Consolidated Financial Statements

October 31, 2010

(Stated in US Dollars)

(Unaudited) – Page 2

Note 2

Nature of Operations and Ability to Continue as a Going Concern - (Cont’d)

On August 7, 2010, the Company acquired a 100% interest in Vulture Gold LLC, (“Vulture”) a Nevada Limited Liability Company. (Note 4)

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 $5,707,380 since its inception, has working capital deficiency of $80,005, 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.

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-6

Table of Contents

Source Gold Corp.

(An Exploration Stage Company)

Notes to the Interim Consolidated Financial Statements

October 31, 2010

(Stated in US Dollars)

(Unaudited) – Page 3

Note 3 Summary of Significant Accounting Policies – (Cont’d)

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 British Columbia, 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.

Exploration Stage Company

The Company is 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.

Mineral property exploration costs are expensed as incurred.

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.

F-7

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Source Gold Corp.

(An Exploration Stage Company)

Notes to the Interim Consolidated Financial Statements

October 31, 2010

(Stated in US Dollars)

(Unaudited) – Page 4

Foreign Currency Translation

The Company’s functional currency is the Canadian dollar as substantially all of the Company’s operations are in Canada. 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 the Statement of Operations and Comprehensive Loss.

Basic and Diluted 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 are the same.

Newly Adopted Accounting Pronouncement

On August 1, 2010, we adopted guidance issued by the FASB on the consolidation of variable interest entities. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. Adoption of the new guidance did not have a material impact on our financial statements.

F-8

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Source Gold Corp.

(An Exploration Stage Company)

Notes to the Interim Consolidated Financial Statements

October 31, 2010

(Stated in US Dollars)

(Unaudited) – Page 5

Note 3

Summary of Significant Accounting Policies – (Cont’d)

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.

Note 4

Acquisition

On August 7, 2010, pursuant to an acquisition agreement the Company acquired 100% of the outstanding share capital of Vulture Gold LLC. (“Vulture”). 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.

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 the three levels which 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.

F-9

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Source Gold Corp.

(An Exploration Stage Company)

Notes to the Interim Consolidated Financial Statements

October 31, 2010

(Stated in US Dollars)

(Unaudited) – Page 6

Note 5 Financial Instruments – (Cont’d)

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 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 16, 2008, the Company received and accepted a subscription to purchase 24,000,000 common shares at $0.002 per share for aggregate proceeds of $48,000 from Company’s former president. The subscription agreement permitted the Company to accept US$48,000 or CDN$48,000 in full settlement of the share subscription. The share subscription was settled in Canadian dollars. On June 16, 2008 the shares were issued.

On July 1, 2008, the Company entered into a Corporate Management Services Agreement with the Company’s president at the time for management services. Pursuant to the agreement the former President receives $1,000 per month plus expenses for services rendered. The agreement was terminated effective November 1, 2009, and the former President resigned on November 6, 2009.

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 quarter ended October 31, 2010 this promissory note was settled by payment of $20,000 cash to the president.

During the three month period ended October 31, 2010, the Company incurred management fees of $15,000 (2009 - $Nil) charged by the Company’s president and $Nil (2009 - $3,000) charged by the Company’s former president.

On November 1, 2009, the Company entered into a Corporate Management Services Agreement with 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 from December 1, 2009 for services rendered plus reimbursement of company’s expenses. The agreement may be terminated by either party upon 30 days written notice.

F-10

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Source Gold Corp.

(An Exploration Stage Company)

Notes to the Interim Consolidated Financial Statements

October 31, 2010

(Stated in US Dollars)

(Unaudited) – Page 7

Note 7 Capital Stock – Note 1

Issued:

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.

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.

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 $4,950,000 using the Black-scholes valuation model based on the following inputs; exercise price $0.0025; dividend rate Nil; term 1 year; and volatility 100%.

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Source Gold Corp.

(An Exploration Stage Company)

Notes to the Interim Consolidated Financial Statements

October 31, 2010

(Stated in US Dollars)

(Unaudited) – Page 8

Note 8 Mineral Properties

On August 11, 2008, the Company’s wholly owned subsidiary, IRC Exploration Ltd. (“IRC”), entered into a property option agreement whereby IRC was granted an option to earn up to an 85% interest in one mineral claim (the “Queen” claim) consisting of 457.7 hectares located in the Omineca Mining Division of British Columbia. The option agreement is denominated in Canadian dollars. Consideration for the option is cash payments totalling $52,167 (CDN$54,000) and aggregate exploration expenditures of $232,957 (CDN$241,000) as follows:

i) Cash payments:

·	$1,875 (CDN$2,000) upon execution of the Option agreement (paid);

·	$1,842 (CDN$2,000) on or before July 31, 2009 (paid);

·	$48,450 (CDN$50,000) on or before July 31. 2010.

ii)

Exploration expenditures of $14,157 (CDN$15,000) on or before July 31, 2009 (expenses incurred), $29,467 (CDN$31,000) in aggregate on or before July 31, 2010; $232,957 (CDN$241,000) in aggregate on or before July 31, 2011.

Upon earning its 85% interest in the option, the Company shall enter into a joint venture agreement to develop and operate the property.

The property option agreement was stated in Canadian dollars. The US dollar equivalent is converted using the foreign exchange rate at July 31, 2010.

On July 31, 2010, the Company abandoned the claims.

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 is 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.

During the year ended July 31, 2010, the Company incurred exploration expenditures aggregating $31,526 (CDN$32,258) (See below regarding status of the agreement)

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Source Gold Corp.

(An Exploration Stage Company)

Notes to the Interim Consolidated Financial Statements

October 31, 2010

(Stated in US Dollars)

(Unaudited) – Page 9

Note 8 Mineral Properties – (Cont’d)

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 shall enter into a joint venture agreement to develop and operate the property.

Pursuant to the agreement, if commercial production has been achieved and the Company sells or otherwise disposes of metals and minerals that has been produced and removed from the KRK West properties, the Company will pay Thunder Bay a 3% Net Smelter Return royalty. In the event the Company sells or causes the sale of products other than to a smelter or refinery or otherwise causes the removal of products from the Property, the Company will pay a 2% Net Smelter Return Royalty. Alternatively, the Company can buy back the royalty right for $1,000,000 for each breccia pipe that reaches commercial production.

The property option agreement is stated in Canadian dollars. The US dollar equivalent is 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 $27,915.

Subsequent to acquisition the claims were transferred to the Company’s wholly owned subsidiary, Northern Bonanza Inc.

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 7, 2011 the Ministry of Northern Development, Mines and Forestry, Canada, will adjudicate upon the ownership of the claims.

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 $17,494 in staking costs in relation to these claims. Subsequent to acquisition the claims and exploration costs were transferred to NBI at cost.

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Source Gold Corp.

(An Exploration Stage Company)

Notes to the Interim Consolidated Financial Statements

October 31, 2010

(Stated in US Dollars)

(Unaudited) – Page 10

Note 8 Mineral Properties – (Cont’d)

c) - Cont’d

During the period ended October 31, 2010, the Company incurred direct exploration expenditures of $46,100 and the operator incurred expenditures of $25,292.

As at October 31, 2010, the operator held exploration advances amounting to $1,676 (July 31, 2010 - $26,968).

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.

During the quarter ended October 31, 2010, the Company incurred exploration expenditures of $2,221 on the property.

Note 9

Commitment

The Company has an ongoing agreement with a director of the company to provide management services for $5,000 per month. Either party many terminate the agreement with one months written notice.

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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” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. 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. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

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”). 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 Beardmore Area and Mary Jane Lake Area, 3 km south of Beardmore, Ontario, Canada.

·	KRK West Claims

o	Northern Bonanza either possesses, or holds an option to acquire an undivided 50% interest, in 16 mineral claims known as the KRK West Claims, located north of Thunder Bay, Ontario, Canada.

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.

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Description of 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 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. The claims all expire in May of 2012, subject to proper renewal. 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.

Work Completed on the Southern Beardmore Claims.

No work has been completed on the claims with the exception of certain airborne survey work, discussed below.

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

During the period ended October 31, 2010, we incurred direct exploration expenditures of $46,100 and the operator incurred expenditures of $25,292. As of October 31, 2010, the operator held exploration advances amounting to $1,676.

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In addition to the foregoing exploration, we retained a geologist to conduct a study and produce a report on the exploration potential of the property. He had the following recommendation:

A fixed-wing airborne survey should be flown over the property. An airborne electromagnetic signal should be sourced by VLF-EM signals. Magnetic and radiometric surveys should he flown on the same platform. The survey should be flown on E-W lines spaced at 50m intervals. The results of the survey would receive professional evaluation, which would guide ground follow-up prospecting, sampling and assaying in an attempt to isolate quartz-gold silver + sulphide veins.

The total recommended budget estimate for the foregoing is:

·	Fixed wing airborne survey $40,000

·	Evaluation, prospecting, sampling and assaying $20,000

·	Total $60,000

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 melasediments are wackes with minor intercalated siltstone and mudstone. The chemical metasediments comprise ironstone units 1-2 m thick bedded in the metavolcanics. The metavolcanies 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 metavolcacanics but also in metasediments and (ii) in quartz veins in chert-hematite-magnelite-grunerite ironstone units interlaycled with the mafic metavolcanies.

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The KRK West Claims

Location and Means of Access to KRK West Claims. The property consists of 16 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 Access via Hwy 11 through the Village of Beardmore to Hwy 801.

Title to KRK West Claims.

Option Agreement

On October 26, 2009, we entered into an agreement with Thunder Bay Minerals, Inc. (“Thunder Bay”) under which were granted an option to acquire an undivided 50% interest in 16 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”.

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.

o 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);

o 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

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

On November 26, 2009 and December 7, 2009, we made payments of $31,785 (CDN) and $28,215 (CDN) respectively.

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.

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Separate Purchase of KRK West Claims.

During the year, 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 falls due on November 30, 2010. 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 and 7, 2011, the Ministry of Northern Development, Mines and Forestry, Canada, will adjudicate upon the ownership of the claims.

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.

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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 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.

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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., 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:

o	Bureau of Land Management Claim Maintenance Fee = $ 125 per claim per year ($3,625 each year, due on or before September 1)

o	Maricopa County Recorder "Notice of Intent to Hold" Fee = $104 per year (due on or before November 1).

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.

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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.

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 1127 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 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 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.

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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.

·	Red Cloud Mine

This shaft is located at 0329733 E, 3745506 N at an elevation of 2,222 ft (692 m). The shaft area is fenced. Mine dump material is lying in the immediate surrounding area. Groundwater was observed in the shaft by throwing a piece of rock in the shaft and is estimated to be at a depth of 60 to 80 m below ground surface. Three old trenches were observed; two on the west and one on the east side along strike of this shaft.

·	Red Cloud Mill and Shaft

o	An old shaft, foundations of a stamp mill and an approximately 30 m long trench was observed at this location. A small dump of old milling material was also observed.

·	Vulture Mine Extension

This area is marked by the presence of a shaft, an abandoned mill site with remnants of hoist, head frame, ball mills, generator, etc. This area is located on Vulture claim at 0330263 E, 3744219 N with an elevation of 2162 ft (659 m). The shaft is fenced and was observed to be plugged with rock material at 6 to 7 m depth.

Mohawk

Gold Point claims 27-29 located immediately to the west of Vulture Mine private property were historically called Mohawk group of claims reportedly located 2 miles (3 km) to the west of historical Vulture and Black Hawk mines. Historical work done in this area included a shaft down to about 48 feet which passed through 24 feet of ledge matter.

Work Completed on the Vulture Claims.

During the quarter ended October 31, 2010, we incurred exploration expenditures of $2,221 on the property.

Proposed and Current State of Exploration and Development on the Vulture Claims. In addition to the foregoing exploration expenditures, 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:

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

This work should be completed in two stages. The first stage should include compilation of all the historical geological data available for property and putting it into a data base to generate several layers of maps in GIS format for further interpretation. This work will also include geo-referencing historical geological maps, sampling and trenching data, and collecting available historical production records from shafts and mines.

In the second stage, the geological fieldwork program should be carried out. This program should include, geological mapping 1:5,000 scale, conducting systematic rock sampling on each claim, and trenching at selected locations. All the accessible old shafts should be studied and sampled in detail to understand the local mineralization trend and to get an insight into the type of ore historically mined. The intent of this work should be to define ground geophysical surveying targets for Phase 2 work Program.

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

PHASE 1 BUDGET – GEOLOGICAL MAPPING, TRENCHING AND SAMPLING

Item	No. of Units	Rate		Total
Bonds and Permitting	1	$	5,000	$	5,000
Data Compilation	10	$	500	$	5,000
Maps production	1	$	1,000	$	1,000
Geological mapping (2 geologists)	21	$	1,100	$	23,100
Prospecting (Prospectors 2)	21	$	900	$	18,900
Assaying rock samples	500	$	40	$	20,000
Soil Samples	300	$	40	$	12,000
Excavator	10	$	1,500	$	15,000
Accommodation and Meals	50 Man days	$	200	$	10,000
Vehicles: 1	25	$	100	$	2,500
Supplies, Blasting Equipment and Rentals	Lump Sum	$	10,000	$	10,000
Reports	Lump Sum	$	10,000	$	10,000
TOTAL (CANADIAN DOLLARS)				$	132,500

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Phase 2 - Ground Geophysical Surveying, Diamond Drilling

Based on the results of 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

The IP technique will help in measuring the amount of disseminated metallic sulphides in the underlying porphyritic rocks and quartz veins. This technique energizes the ground surface with an alternating square wave pulsar via a pair of current electrodes and the IP effect is measured as a time diminishing voltage at the receiver electrodes.

o	The very-low frequency (VLF) EM method will help to detect any subsurface conducting zone by utilizing radio signals in the 15 to 30 kilohertz (kH) range that are used for military communications.

Magnetometer survey measures the earth's magnetic field which can be influenced due to presence of magnetic or relatively non-magnetic rocks in the survey area. This survey will be helpful in identifying gold bearing zones associated with pyrrhotite or magnetite depleted porphyry type copper-gold mineralization. In some property areas with potential for porphyry copper-gold type ore bodies the mineralizing fluids might have destroyed the magnetite associated with the original intrusive or volcanic rocks. Magnetic surveys would outline positive magnetic anomalies over the unaltered rock formations. The exploration target would be the relatively magnetic lows within these formations where magnetite has altered to a non-magnetic mineral, such as pyrite.

o	The geophysical survey is initially recommended to be carried out at 50 m x 50 m grid on selected areas within the following claim blocks: Red Cloud, Vulture Extension Mohawk.

The type of geophysical survey on each claim would depend on the style of mineralization. This work will help to define the trends and continuity of the anomalous surface mineralization and locate targets for drilling. A 10 to 15 drill hole program for up to 2,000 m diamond drilling is proposed which will be contingent upon the findings of Phase 1 program and geophysical surveys.

Estimated cost of Phase 2 work program is $522,000, which would be expended as follows:

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PHASE 2 BUDGET – GROUND GEOPHYSICAL SURVEYING, DIAMOND DRILLING

Item	No. of Units	Rate		Total
Bond and permitting	1	$	10,000	$	10,000
Geologist	10	$	600	$	6,000
Geophysical Survey Induced Polarization	42	$	2,000	$	84,000
Magnetometer, EM-VLF Survey Crew	28	$	1,200	$	33,600
Diamond Core Drilling (m), if warranted	2,000	$	150	$	300,000
Accommodation and Meals	200	$	200	$	40,000
Vehicles: 2 – 4x4 truck	20	$	200	$	4,000
Supplies and Rentals	Lump Sum	$	10,000	$	10,000
Data Interpretation	Lump Sum	$	20,000	$	20,000
Reports	Lump Sum	$	15,000	$	15,000
TOTAL (CANADIAN DOLLARS)				$	522,600

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.

Mineralized Veins. Fractures filled with quartz and other veining material was 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.

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Results of Operations for the Three Months Ended October 31, 2010 and 2009 and Period from Inception (June 4, 2008) until October 31, 2010

We generated no revenue for the period from Inception (June 4, 2008) until October 31, 2010. 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.

We incurred operating expenses in the amount of $128,067 for the three months ended October 31, 2010, compared with $83,420 for the three months ended October 31, 2009. Operating expenses for the three months ended October 31, 2010 consisted primarily of mineral property exploration costs of $73,613, accounting and audit expenses of $21,377, management fees of $15,000, legal fees of $9,923 and general and administrative expenses of $7,659. Operating expenses for the three months ended October 31, 2009 consisted primarily of mineral property option costs of $46,640, accounting and audit expenses of $17,891, legal fees of $13,202, and management fees of $3,000. We incurred operating expenses in the amount of $5,707,380 for the period from Inception (June 4, 2008) through October 31, 2010. These operating expenses consisted primarily of management fees of $5,032,569, mineral property option and acquisition costs of $203,611, mineral property exploration costs of $142,498, accounting and audit expenses of $101,988, and legal fees of $161,497.

Liquidity and Capital Resources

As of October 31, 2010, we had total current assets of $43,175 as compared to $79,115 for the year ended July 31, 2010. We had $123,180 in current liabilities as of October 31, 2010 as compared to $101,053 for the year ended July 31, 2010. Thus, we had working capital deficit of $80,005 as of October 31, 2010 as compared to $21,938 as of July 31, 2010.

Net cash used in operating activities was $61,148 and $56,497 for the three months ended October 31, 2010 and October 31, 2009, respectively, and $614,501 for the period from Inception (June 4, 2008) to October 31, 2010. Our main source of cash was from the sale of our common stocks which generated $70,000, $100,000 and $677,375 for the three months ended October 31, 2010 and October 31, 2009 and for the period from Inception (June 4, 2008) to October 31, 2010, respectively.

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, 2010 that they have substantial doubt we will be able to continue as a going concern.

Off Balance Sheet Arrangements

As of October 31, 2010, 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 October 31, 2010, 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 $5,707,380 since our inception 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.

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

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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 4T. Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of October 31, 2010. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, Lauren Notar. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2010, our disclosure controls and procedures were ineffective as of the end of the period covered, due to the following material weaknesses which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both United States generally accepted accounting principles and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated. We will be unable to remediate the material weakness in our disclosure controls and procedures until we can hire additional employees. Currently, we do not have sufficient funds to hire another employee. There have been no changes in our internal controls over financial reporting during the quarter ended October 31, 2010.

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 Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

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. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be cosidered 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

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

o	On September 29, 2010, the Company issued 100,000 common shares at $0.50 per share Somerset Management, Ltd., for total proceeds of $50,000 pursuant to a private placement. We completed this offering pursuant Regulation S of the Securities Act of 1933.

o	On October 22, 2010, the Company issued 31,250 common shares at $0.64 per share for total proceeds of $20,000 Somerset Management, Ltd., pursuant to a private placement. We completed this offering pursuant Regulation S of the Securities Act of 1933.

Item 3. Defaults upon Senior Securities

None

Item 4. (Removed and Reserved)

Item 5. Other Information

(a) None.

(b) None.

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Item 6. Exhibits

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Source Gold Corp.

Date:	December 20, 2010

	By: /s/ Lauren Notar Lauren Notar Title: Chief Executive Officer and Director

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