Filing summary
Entity and period: The supplied filing identifies the registrant as Source Gold Corp., an exploration-stage mineral company—not Meridian Holdings Inc. It is a Form 10-Q for the quarter ended April 30, 2013, the third quarter of the company’s fiscal year, with year-to-date results for the nine months ended that date. Financial statements are unaudited and presented in U.S. dollars.
Financial performance and position
- Revenue: No revenue in the three- or nine-month periods ended April 30, 2013 or in the comparable 2012 periods. The company says it does not expect revenue before commercial production.
- Loss: Net loss was $147,442 for the quarter, versus $96,003 a year earlier; nine-month net loss was $349,974, versus $201,047. Nine-month operating expenses were $168,992, up from $154,098. Management attributed the larger year-to-date loss primarily to convertible-note discount accretion and interest.
- Margins: Not meaningful because there were no sales.
- Cash flow: Nine-month operating cash use was $109,709, compared with $176,542 in 2012; financing provided $94,353, compared with $140,897. Investing cash flow was zero in both periods. Cash fell by $15,511 to $110.
- Liquidity: Current assets were $925 and current liabilities were $421,005, producing a $420,080 working-capital deficit, compared with a $275,373 deficit at July 31, 2012.
- Liabilities and equity: Total liabilities were $421,005, up from $291,133; total assets were $87,036. Shareholders’ deficit was $333,969. Current notes payable were $124,474, accrued note interest $6,273, and the embedded-conversion derivative liability $94,922. The balance sheet also reports $178,843 of accounts payable and accrued liabilities.
- Shares: Issued and outstanding shares rose from 51,381,765 at July 31, 2012 to 80,370,066 at April 30, 2013, principally through conversions of notes into shares.
Changes, outlook, and risks
- The year-to-date loss increased by $148,927 from the comparable period; management cited higher convertible-note discount accretion and interest. Management fees also increased.
- The company states that it has no recurring revenue, has not achieved profitable operations, and has an accumulated deficit of $14,560,344. It reports substantial doubt about its ability to continue as a going concern and says it has no formal plan to address the issue. It expects to seek equity financing and/or related-party advances, with no assurance funding will be available on acceptable terms. Further share issuance would dilute existing holders.
- Convertible notes include conversion prices set at 51% of a market-price measure. Note conversions during the period issued substantial numbers of shares; additional conversions were reported after quarter-end. These terms and the resulting dilution are material risks.
- The company says limited funding has left it with no immediate plans to explore certain properties. It reports an option requiring $25,000 of exploration expenditures by September 15, 2013, with none incurred by April 30, 2013.
- A dispute over ownership of the KRK West mining claims remains in litigation. The company seeks a declaration concerning ownership and $1.2 million in damages; the filing does not provide a clear estimate of the outcome or any associated potential recovery.
- On May 9, 2013, President, CEO, CFO, Secretary, Treasurer, Chairman, and Director Jon Fullenkamp resigned; Dhugald Pinchin was appointed to several of those roles. The filing says the resignation was for personal reasons and not related to a known disagreement.
- Management concluded disclosure controls were not effective as of March 15, 2013, citing the absence of independent directors and an audit committee financial expert, and deficiencies in ensuring required disclosures were addressed in the financial statements.
Key facts for investors to verify
- Confirm the issuer identity: the filing is for Source Gold Corp., despite the request metadata naming Meridian Holdings Inc.
- Assess near-term solvency and the company’s ability to secure funding, given $110 of cash, a $420,080 working-capital deficit, and the stated going-concern uncertainty.
- Review note maturities, conversion provisions, derivative-liability valuations, and subsequent share conversions for the potential impact on dilution and repayment obligations.
- Check the status and possible financial consequences of the KRK West ownership litigation and the British Columbia exploration-spending commitment.
- Reconcile the financial statements with the MD&A: the MD&A describes operating cash use as having increased, while the reported amount decreased versus 2012; confirm the figures and explanation against the filed statements.