For financial information see the financial statements and the
notes thereto for the three month and nine months period ended September 30,
2012 (the Financial Statements), attached hereto and incorporated by this
reference. The Financial Statements have been adjusted with all adjustments
which, in the opinion of management, are necessary in order to make the
Financial Statements not misleading. The Financial Statements have been prepared
by Mindesta Inc. without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted as allowed by such rules and regulations, and management
believes that the disclosures are adequate to make the information presented not
misleading. The Financial Statements include all the adjustments which, in the
opinion of management, are necessary for a fair presentation of financial
position and results of operations. All such adjustments are of a normal and
recurring nature. The Financial Statements should be read in conjunction with
the audited financial statements as at December 31, 2011, included in the
Company's Form 10-K.
NOTE 1 - BASIS OF PRESENTATION
The unaudited interim financial statements of Mindesta Inc.
(the Company and formerly Industrial Minerals, Inc.), for the three and nine
month periods ended September 30, 2012 and the notes thereto (the Financial
Statements) have been prepared in accordance with generally accepted accounting
principles for interim financial information with the instructions to Form 10-Q
and Rule 8-03 of Regulation S-X. Accordingly, the Financial Statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of only normal accruals)
considered necessary for a fair presentation have been included.
The Company is an Exploration Stage Company that incurred a net
loss of $826,955 for the nine months ended September 30, and has an accumulated
deficit of $12,860,031 since the inception of the Company. The Companys ability
to continue as a going concern is dependent upon its ability to raise additional
capital to pay expenses and further planned exploration activities.
There is continued uncertainty over the Companys ability to
generate sufficient funds from public or private debt or equity financing for
the Company to continue to operate. The accompanying financial statements do not
include any adjustments that might result from negative outcomes with respect to
these uncertainties
For further information, refer to the financial statements and
notes thereto included in the Company's Annual Report on Form 10K for the year
ended December 31, 2011.
The Company's fiscal year-end is December 31.
NOTE 2 ORGANIZATION AND ACCOUNTING POLICIES
(a) Organization
Mindesta, Inc. was incorporated on November 6, 1996, as
Winchester Mining Corporation in the State of Delaware. On May 13, 2000, in
connection with its merger with Hi-Plains Energy Corp., the Company changed its
name from Winchester Mining Corporation to PNW Capital, Inc. On January 31,
2002, the Company acquired 91% of the outstanding shares of Industrial Minerals,
Inc. On May 2, 2002, the Company merged the remaining 9% of Industrial Minerals,
Inc. into PNW Capital, Inc. and changed its name to Industrial Minerals, Inc.
Operations have been historically carried out through the Companys former
subsidiary and principal asset, Northern Graphite Corporation (Northern),
formerly Industrial Minerals Canada Inc. Northern owns a 100% interest in the
Bissett Creek graphite property located in Renfrew County in the Province of
Ontario, Canada (the Bissett Creek Property). As a result of a number of
financings and other transactions, including an initial public offering by
Northern, the Companys interest in Northern was reduced from 100% to 26.1% as
at December 31, 2011. On December 12, 2011, the Board of Directors declared a
pro rata dividend-in-kind, payable January 25, 2012 to shareholders whereby most
of the shares of Northern owned by the Company would be distributed to Mindesta
shareholders. At the close of trading on January 25, 2012, Mindesta completed
the distribution to Company shareholders of 9,413,581 shares of Northern owned
by the Company on the basis of one share of Northern for each share of Company
common stock held. As at September 30, 2012, the Companys interest in Northern
had decreased to less than 1%. Effective July 26, 2011, the Company changed its
name to Mindesta Inc. and consolidated its stock on a 20:1 basis. The Company
trades on the OTCBB under the symbol MDST.
(b) Recently Adopted Pronouncements
Fair Value Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS
In May 2011, the FASB issued Accounting Standards Update (ASU)
2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRS. The Update amends fair value measurements
and disclosures to (1) clarify the boards intent in respect of existing
measurement guidance, (2) revise certain measurement guidance that changes or
modifies a principle, and (3) add disclosure requirements concerning the
measurement uncertainty of level 3 measurements. This guidance is effective for
the Company for the first interim or annual period beginning on or after
December 15, 2011. Adoption of this guidance did not have a material effect on
the financial condition, results of operation, or cash flows of the Company.
7
Comprehensive Income (Topic 220): Presentation of Comprehensive
Income
In June 2011, the FASB issued Accounting Standards Update (ASU)
2011-02, Comprehensive Income (Topic 220): Presentation of Comprehensive Income.
Under the amendments, an entity has the option to present the total of
comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. This guidance is effective
for the Company for the fiscal year beginning after December 15, 2011. Adoption
of this guidance did not have a material effect on its financial condition,
results of operation, or cash flows of the Company.
NOTE 3 MARKETABLE SECURITIES AND INVESTMENT IN
NON-CONSOLIDATED AFFILIATE
As at December 31, 2011 and September 30, 2012, the Company
recorded its investment in Northern, a non-consolidated affiliate, at cost.
Investment
|
|
$
|
|
Balance at December 31, 2011
|
|
3,432,261
|
|
Stock dividend paid on January 25, 2012
|
|
(3,313,675
|
)
|
Sale of marketable securities
|
|
(47,435
|
)
|
Balance at
carrying value as at September 30, 2012
|
|
71,151
|
|
Following the payment of the stock dividend on January 25,
2012, the Companys investment in Northern was reclassified as an
available-for-sale security and is reflected as marketable securities in the
current asset section of the Balance Sheet. The following table summarizes the
Companys available-for sale securities as of September 30, 2012:
Equity securities
|
|
Cost
|
|
|
Gross unrealized gains
|
|
|
Fair value
|
|
Outstanding
|
|
71,151
|
|
|
103,356
|
|
|
174,507
|
|
During the nine month period ended September 30, 2012, the
Company recorded an unrealized gain on available-for-sale securities of
$103,356. This gain is recorded as other comprehensive income.
NOTE 4 - PRESENTATION OF INTERIM INFORMATION
The accompanying interim financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and, in the opinion of management, include all normal
adjustments considered necessary to present fairly the financial position as of
September 30, 2012 and the results of operations and cash flows for the three
and nine month periods ended September 30, 2012 and 2011. Interim results are
not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted
by Form 10-Q, and do not include information included in the Company's audited
financial statements and notes for the year ended December 31, 2011.
NOTE 5 STOCKHOLDERS EQUITY
A.
COMMON STOCK OPTIONS
The Company adopted ASC 718 (formerly SFAS 123) Stock-Based
Compensation, effective April 1, 2007. Compensation cost for the Companys
stock options have been determined in accordance with the fair value based
method prescribed as ASC 718. The fair value of option grants is estimated on
the date of grant utilizing the Black-Scholes option pricing model. The fair
value of each option is estimated on the date of the grant using the
Black-Scholes option-pricing model.
On July 26, 2011, the Company consolidated its common stock on
a 20:1 basis. All common stock numbers and stock option numbers have been
restated to reflect the consolidation.
On April 19, 2011, the Company granted stock options to
purchase 112,500 common shares at a price of $1.40 per share until April 19,
2016. All options vested immediately. The fair value of the option grant was
estimated using the Black-Scholes option-pricing model with the following
assumptions: expected volatility of 220%; risk-free interest rate of 2.09%; and
an expected term of 5 years.
On March 15, 2012, the Company granted stock options to
purchase 650,000 common shares at a price of $0.10 per share until March 15,
2017. All options vested immediately. The fair value of the option grant was
estimated using the Black-Scholes option-pricing model with the following
assumptions: expected volatility of 122%; risk-free interest rate of 1.11%; and
an expected term of 5 years.
8
The following table summarizes stock option activity for the 9
months ended September 30, 2012:
|
|
Number of securities to be
|
|
|
|
|
Equity compensation plans not approved by security
|
|
issued upon exercise of
|
|
|
Weighted-average exercise
|
|
holders
|
|
outstanding options
|
|
|
price of outstanding options
|
|
Outstanding December 31, 2011
|
|
225,000
|
|
$
|
0.85
|
|
Issued
|
|
650,000
|
|
$
|
0.10
|
|
Exercised
|
|
(112,500
|
)
|
$
|
0.30
|
|
Outstanding at
September 30, 2012
|
|
762,500
|
|
$
|
0.29
|
|
Exercisable at September 30, 2012 762,500.
Using the Black-Scholes option pricing model, the Company had
stock compensation expense for the nine months ending September 30, 2012 of
$42,268 ($155,396 in 2011).
B.
COMMON STOCK
The number of common shares outstanding at September 30, 2012
and December 31, 2011 was as follows:
|
|
Number
|
|
|
$
|
|
Outstanding December 31, 2011
|
|
9,301,081
|
|
|
18,592
|
|
Issued pursuant to
the exercise of stock options
|
|
112,500
|
|
|
225
|
|
Outstanding at September 30, 2012
|
|
9,413,581
|
|
|
18,817
|
|
The number of common shares outstanding for September 30, 2012
and December 31, 2011, before and after giving effect to the 20:1 stock
consolidation on July 29, 2011 was as follows:
|
|
Before giving effect to the
|
|
|
After giving effect to the 20:1
|
|
As at:
|
|
20:1 consolidation
|
|
|
consolidation
|
|
September 30, 2012
|
|
n/a
|
|
|
9,413,581
|
|
December 31, 2011
|
|
n/a
|
|
|
9,301,081
|
|
The basic weighted average number of common shares outstanding
before and after giving effect to the 20:1 stock consolidation on July 29, 2011
was as follows:
|
|
Before giving effect to the
|
|
|
After giving effect to the 20:1
|
|
For the 9 months ended:
|
|
20:1 consolidation
|
|
|
consolidation
|
|
September 30, 2012
|
|
n/a
|
|
|
9,412,349
|
|
September 30, 2011
|
|
177,822,500
|
|
|
8,891,125
|
|
The fully-diluted weighted average number of common shares
outstanding before and after giving effect to the 20:1 stock consolidation on
July 29, 2011 was as follows:
|
|
Before giving effect to the
|
|
|
After giving effect to the 20:1
|
|
For the 3 months ended:
|
|
20:1 consolidation
|
|
|
consolidation
|
|
September 30, 2012
|
|
n/a
|
|
|
9,301,081
|
|
September 30, 2011
|
|
178,060,300
|
|
|
8,903,015
|
|
For the nine months ended September 30, 2012, the inclusion of
common stock equivalents in the calculation of the weighted average number of
shares is anti-dilutive.
9
NOTE 6 RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2012:
a) The Company granted 500,000 options to directors and
officers of the Company. Each option entitles the holder to purchase one common
share at an exercise price of $0.10 until March 15, 2017. Stock-compensation
expense of $32,514 was recognized during the period in connection with this
option grant.
b) On October 6, 2011, the Board of Directors approved a
revolving loan agreement between Mindesta Inc., as the lender, and Nubian Gold
Corporation (Nubian), as the borrower, to fund the ongoing exploration
activities of Nubian in anticipation of the companies negotiating and entering
into a property option agreement with respect to Nubians two exploration
licenses, Arapsyo and Qabri Bahar, located in the Republic of Somaliland. Nubian
is a corporation incorporated under the laws of Ontario, Canada and Gregory
Bowes, CEO, is its major shareholder. Mr. Bowes is also an officer and director
of Mindesta. Mr. Bowes declared his conflict of interest to the Board of
Directors and abstained from voting on the consent resolution approving the
revolving loan agreement. On December 2, 2011, this facility was amended to
increase the maximum of the revolving loan agreement credit facility. Under the
revolving loan agreement, all amounts due from Nubian to the Company were
provided under a $150,000 credit facility which was repayable upon the earlier
of one year from the date of the agreement or the signing of a property option
agreement. The terms stated that the revolving loan agreement becomes repayable
upon the signing of a property option agreement and that all obligations of
Nubian would be applied against the expenditure requirements of the Company
under the property option agreement. Upon the inception of property option
agreement, the obligations were considered paid in full, and the revolving loan
agreement was terminated and had no further force or effect. Advances under the
facility bore interest from October 6, 2011 at an annual rate of 7.5 per cent,
payable annually, or earlier at anytime that the advances are repaid in
full.
Mindesta entered into the option agreement with Nubian,
effective January 2, 2012. As at January 2, 2012, Nubian had received advances
of $127,994 under this revolving loan agreement and the Company had accrued
$1,025 of interest receivable. As per the terms of the revolving loan agreement,
Nubian applied these advances as expenditures under the option agreement and
Mindesta recorded $127,944 of exploration expenses related to these expenses in
the first nine months of 2012. In addition, Mindesta incurred $467,309 of
exploration expenses during the first nine months of 2012 and accrued a payable
of $100,000 for mineral properties under the option agreement, to Nubian.
Mindesta can earn a 50% interest in both permits by incurring total exploration
expenditures of $2 million within two years and can increase its interest to 80
per cent by completing a bankable feasibility study. The first $750,000 of
exploration expenditures represents a firm commitment. Mindesta also has the
option to acquire all of Nubians remaining interest in the permits at fair
market value at any time after incurring the first $750,000 of exploration
expenditures.
c) On February 10, 2012, Mindesta approved the reimbursement of
$47,686 in exploration expenses incurred by Nubian but paid by Bowes &
Company, Management Ltd. (Bowes & Company) to keep exploration activities
advancing in the Republic of Somaliland during the period that the revolving
loan agreement was being finalized. Bowes & Company is a corporation
incorporated under the laws of Ontario, Canada and Gregory Bowes, CEO, is its
major shareholder. Mr. Bowes declared his conflict of interest with respect to
authorizing these expenses and they were approved by the Audit Committee
chairman.
d) Effective August 1, 2012, the Board of Directors approved a
loan agreement between Nubian and Bowes & Company, as the lenders, and
Mindesta Inc., as the borrower, to fund the ongoing exploration activities of
Mindesta Inc. Nubian and Bowes & Company are corporations incorporated under
the laws of Ontario, Canada and Gregory Bowes is the CEO and major shareholder
of both companies. Mr. Bowes is also an officer and director of Mindesta. Mr.
Bowes declared his conflict of interest to the Board of Directors and abstained
from voting on the consent resolution approving the revolving loan agreement.
Under this loan agreement, all amounts due from Mindesta to Nubian and Bowes
& Company are provided under a $250,000 credit facility which is repayable
upon the termination date of December 31, 2012. Any obligation outstanding after
the Termination Date shall accrue interest at a rate of 7.5% per annum. Under
the terms of the loan agreement, Mindesta is required to sell its remaining
shares of Northern as they are released from escrow and remit all proceeds to
Bowes & Company, until all obligations to Bowes & Company are satisfied,
and then shall remit any further proceeds to Nubian until all obligations to
Nubian are satisfied. All advances under this facility bear interest from August
1, 2012 at an annual rate of 7.5 per cent, payable annually, or earlier at
anytime that the advances are repaid in full. At any time, before or after the
termination date, Bowes & Company and Nubian shall have the right to convert
any part of, or all of, the obligations into common shares of Mindesta Inc. at a
price of $0.075 per share.
10
|
|
As at
|
|
|
As at
|
|
Due from related parties
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
$
|
|
|
$
|
|
Due from Northern
|
|
-
|
|
|
16,147
|
|
Due from Nubian
|
|
-
|
|
|
128,966
|
|
Total due from related parties
|
|
-
|
|
|
145,113
|
|
|
|
As at
|
|
|
As at
|
|
Due to related parties
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
$
|
|
Due to Nubian
|
|
96,830
|
|
|
-
|
|
Due to Bowes &
Company
|
|
149,529
|
|
|
-
|
|
Total due to related parties
|
|
246,359
|
|
|
-
|
|
As at September 30, 2012 and December 31, 2011, accounts
payable and accrued liabilities did not include any amounts due to directors and
to companies controlled by directors for professional management fees related to
the services of the directors and officers.
NOTE 7 DIVIDEND PAYABLE
On December 12, 2011, the Board of Directors declared a pro
rata dividend-in-kind, payable January 25, 2012 to shareholders of record as at
January 5, 2012, whereby most of the shares of Northern owned by the Company
would be distributed to Mindesta shareholders. At the close of trading on
January 25, 2012, Mindesta completed the distribution to Company shareholders of
9,413,581 shares of Northern owned by the Company (approximately 25% of the
Northern common shares outstanding) on the basis of one share of Northern for
each share of the Company held and the dividend payable of $3,313,675 was paid
in full. The dividend payable had increased by $39,603 from $3,274,072 as at
December 31, 2011 as a result of options exercised as at January 4, 2012. As at
the close of trading January 25, 2012, the Companys interest in Northern
Graphite decreased to 0.8% and is 0.5% as at September 30, 2012.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The property option agreement between the Company and Nubian
included a firm commitment on the first $750,000 of exploration expenditures
within a year of January 2, 2012. As at September 30, 2012, the Company has
incurred expenditures of $595,303 towards this commitment and is required incur
an additional $154,697 of expenditures before January 2, 2013 in order to
continue its progress towards earning its initial interest.
The Company has been named in a lawsuit filed by Windale
Properties in the amount of CDN$19,781. The claim is the result of termination
of leased premises in Oakville, Ontario prior to expiry of the lease. No amount
related to this contingency has been accrued as the outcome at this time is
indeterminable.
NOTE 9 - CORRECTION OF ERROR IN PREVIOUSLY ISSUED FINANCIAL
STATEMENTS
During its review of the June 30, 2012 financial statements,
management has determined that certain errors were contained in the Companys
financial statements for quarter ended March 31, 2012. Upon entering into the
option agreement with Nubian effective January, 2, 2012, the Company had not
capitalized the acquisition cost of $100,000 as a mineral interest. The Company
had recorded this amount as an exploration expense. In accordance with ASC 805
mineral rights to explore, extract and retain at least a portion of the benefits
from mineral deposits are to be considered tangible assets. The adjustments
required to appropriately record this adjustment are material to the filed
financial statements, thus management is restating the March 31, 2012 amounts.
The effect of the Company's previously issued March 31, 2012
financial statement is summarized as follows:
Statements of Operations
|
|
Previously issued
|
|
|
Increase (decrease)
|
|
|
Restated
|
|
Three months ended March 31, 2012
|
|
$
|
|
|
$
|
|
|
$
|
|
Exploration Expense
|
|
517,936
|
|
|
(100,000
|
)
|
|
417,936
|
|
Net loss
|
|
682,376
|
|
|
(100,000
|
)
|
|
582,376
|
|
Basic loss per share
|
|
(0.07
|
)
|
|
0.01
|
|
|
(0.06
|
)
|
Diluted loss per share
|
|
(0.07
|
)
|
|
0.01
|
|
|
(0.06
|
)
|
11