NOTE 1 - BASIS OF PRESENTATION
The financial statements of Mindesta Inc. (the Company and
formerly Industrial Minerals, Inc.), for the year ended December 31, 2012 and
the notes thereto (the Financial Statements) have been prepared in accordance
accounting principles generally accepted in the United States of America and
have been presented in US dollars.
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 December 31, 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) Nature of Operations and Going Concern
The Company is an exploration stage company. Effective January
2, 2012, Mindesta entered into an option agreement with Nubian Gold Corporation
(Nubian), a privately owned Ontario company, which currently holds title to
three mineral exploration permits, in the Republic of Somaliland. Under the
option agreement, Mindesta can earn a 50% interest in the permits by incurring
total exploration expenditures of $2 million within two years and can increase
its interest to 80 percent by completing a bankable feasibility study. Mindesta
has incurred the first $750,000 of exploration expenditures on this project
which represented a firm commitment. Mindesta also has the option to acquire all
of Nubians remaining interest in the permits at fair market value as determined
by an independent valuator agreed to by both Mindesta and Nubian at any time
after incurring the first $750,000 of exploration expenditures.
The Company is an Exploration Stage Company that incurred a net
loss of $892,219 for the year ended December 31, 2012 (2011 gain of $3,738,515)
and has an accumulated deficit of $13,036,264 since the inception of the
Company. Current liabilities exceed current assets by $386,334. 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.
The Company will require significant financing to continue its operations and
fund planned exploration activities. There is a high degree of risk and many
inherent uncertainties in mining operations and exploration activities and
management cannot provide assurances that it will be successful in its
endeavors.
The Companys ability to continue as a going concern is
dependent upon its ability to raise additional capital for operating and
administrative costs. However, there is a high degree of risk and many inherent
uncertainties in the natural resource development industry and management cannot
provide assurances that it will be successful. The accompanying financial
statements do not include any adjustments that might result from negative
outcomes with respect to these uncertainties.
(c) Cash and Cash Equivalents
Cash and cash equivalents include bank balances, funds held in
trust with lawyers, and short term investments that are readily convertible into
cash with original maturities of three months or less.
F21
MINDESTA INC.
(formerly Industrial Minerals
Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
(d) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and judgments that affect the reported amounts of assets and liabilities at the
date of the financial statements, and revenues and expenses for the period. By
their nature, these estimates and judgments are subject to management
uncertainty and the effect on the financial statements of changes in such
estimates in future periods could be significant. Significant estimates and
judgments include those relating to the assessment of the Companys ability to
continue as a going concern, estimates to determine whether impairment of long
lived assets is required, and the fair value of stock options, depreciation
rates and estimated useful lives of buildings and equipment. Actual results may
differ from those estimates and judgments.
(e) Marketable Securities
The Company classifies its marketable securities as
available-for-sale securities. The securities are measured at fair market value
in the financial statements with unrealized gains or losses recorded in other
comprehensive income. At the time securities are sold, gains or losses are
included in net income.
(f) Long-Lived Assets
The Company monitors the recoverability of long-lived assets
based on factors such as current market value, future asset utilization,
business climate and future undiscounted cash flows expected to result from the
use of the related assets. The Company records an impairment loss in the period
it is determined that the carrying amount of the asset may not be recoverable.
The impairment loss is calculated as the amount by which the carrying value of
the asset exceeds its fair value.
(g) Comprehensive Income (Loss)
The Company adopted ASC 220 Comprehensive Income. ASC 220
establishes standards for reporting and presentation of comprehensive income
(loss) and its components in a full set of financial statements. Comprehensive
income (loss) is presented in the statement of operations. ASC 220 requires only
additional disclosures in the financial statements and does not affect the
Companys financial position or results of operations.
(h) Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurement defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. This standard is now the single source in
GAAP for the definition of fair value, except for the fair value of leased
property as defined in SFAS 13. ASC 820 establishes a fair value hierarchy that
distinguishes between (1) market participant assumptions developed based on
market data obtained from independent sources (observable inputs) and (2) an
entitys own assumptions about market participant assumptions developed based on
the best information available in the circumstances (unobservable inputs). The
fair value hierarchy consists of three broad levels, which gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1
|
Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted assets or
liabilities.
|
|
|
Level 2
|
Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly, including quoted prices for similar assets or liabilities in
active markets; quoted prices for identical or similar assets or
liabilities in markets that are not active; inputs other than quoted
prices that are observable for the asset or liability (e.g., interest
rates); and inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
|
|
|
Level 3
|
Inputs that are both significant to the fair value
measurement and unobservable.
|
F22
MINDESTA INC.
(formerly Industrial Minerals
Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
The following table sets forth the Companys financial assets
and liabilities measured at fair value within the fair value hierarchy. As
required by ASC 820, assets and liabilities are classified in their entirety
based on the lowest level of input that is significant to the fair value
measurement.
|
|
Fair Value at December 31,
|
|
|
December 31,
|
|
|
|
Total
|
|
|
2012
|
|
|
|
|
|
2011
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
$
|
|
Assets
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
12,091
|
|
|
12,091
|
|
|
-
|
|
|
-
|
|
|
569,378
|
|
Marketable securities
|
|
164,333
|
|
|
164,333
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Cash and marketable securities are classified within level 1 of
the fair value hierarchy because they are valued using quoted market prices.
Cash and cash equivalents that are valued based on quoted market prices in
active markets are primarily composed of commercial paper, short-term
certificates of deposit and US Treasury securities. Marketable securities are
primarily composed of common shares of Northern (note 3) and are valued based on
publicly quoted market prices. Accounts receivable, accounts payable, and due
to/from related parties are reflected in the balance sheets at carrying value,
which approximates fair value due to the short-term nature of these instruments.
(i) Income Taxes
Income taxes are determined using assets and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date. In addition, a valuation allowance is established
to reduce any deferred tax asset for which it is determined that it is more
likely than not that some portion of the deferred tax asset will not be
realized.
Potential benefits of income tax losses are not recognized in
the accounts until realization is more likely than not. The Company has adopted
FASB ASC 740 as of its inception. Pursuant to FASB ASC 740 the Company is
required to compute tax asset benefits for net operating losses carried forward.
Potential benefits of net operating losses have not been recognized in these
financial statements because the Company cannot be assured it is more likely
than not it will utilize the net operating losses carried forward in future
periods; and accordingly is offset by a valuation allowance. FIN No.48
prescribes a recognition threshold and measurement attribute for financial
statement recognition and measurement of tax positions taken into in tax
returns.
To the extent interest and penalties may be assessed by taxing
authorities on any underpayment of income tax, such amounts would be accrued and
classified as a component of income tax expense in our Consolidated Statements
of Operations and Comprehensive Loss. The Company elected this accounting
policy, which is a continuation of our historical policy, in connection with our
adoption of FIN 48.
(j) Translation of Foreign Currencies
The functional currency of the Company has been determined to
be the U.S. dollar. Foreign currency transaction gains or losses are reflected
in the results of operations. For the year ended December 31, 2012 and 2011,
foreign currency losses of $6,206 and $19,021, respectively, were recognized.
(k) Mineral Properties
Mineral property acquisition costs are capitalized when
incurred and will be amortized using the units of production method over the
estimated life of the reserve following the commencement of production. If a
mineral property is subsequently abandoned or impaired, any capitalized costs
will be expensed in the period of abandonment or impairment.
Acquisition costs include cash consideration and the fair
market value of shares issued on the acquisition of mineral properties.
(l)
Exploration Costs
Exploration costs, which include maintenance, development and
exploration of mineral claims, are expensed as incurred. When it is determined that a mineral deposit can be economically developed
as a result of establishing proven and probable reserves, the costs incurred
after such determination will be capitalized and amortized over their useful
lives. To date, the Company has not established the commercial feasibility of
its exploration prospects; therefore, all exploration costs are being expensed.
F23
MINDESTA INC.
(formerly Industrial Minerals
Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
(m) Stock Based Compensation
The Company has adopted the provisions of FASB ASC 718,
Stock Compensation
(ASC 718), which establishes accounting for equity
instruments exchanged for employee services. Under the provisions of ASC 718,
stock-based compensation cost is measured at the grant date, based on the
calculated fair value of the award, and is recognized as an expense over the
employees requisite service period (generally the vesting period of the equity
grant). New shares of the Companys Common Stock will be issued for any options
exercised or awards granted
(n) Basic and Diluted Loss Per Share
Basic loss per share was computed by dividing the amount of the
loss for the period by the weighted average number of common shares outstanding
during the period. Diluted loss per share is calculated using the treasury stock
method, whereby the weighted average number of shares outstanding used in the
calculation assumes that the deemed proceeds received from the exercise of stock
options that are in the money would be used to repurchase common shares of the
Company at the average market price during the year. Existing stock options have
not been included in the computation of diluted loss per share as they are
anti-dilutive, and therefore, basic and diluted loss per share amounts are the
same.
(o) Concentrations
The Company explored mineral concessions all of which are
located in Somaliland. The Company uses primarily one supplier to supply the
exploration licenses, manpower and technical expertise for mineral exploration
in Somaliland (notes 6 and 7).
(p) Recently Adopted Pronouncements
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 Companys financial condition, results of operation, or cash flows.
In September 2011, the FASB issued ASU 2011-08 Intangibles
Goodwill and Other. This new guidance on testing goodwill provides an entity
the option to first perform a qualitative assessment to determine whether it is
more likely than not that the fair value of a reporting unit is less than its
carrying amount. If an entity determines that this is the case, it is required
to perform the currently prescribed two-step goodwill impairment test to
identify potential goodwill impairment and measure the amount of goodwill
impairment loss to be recognized for that reporting unit (if any). If an entity
determines that the fair value of a reporting unit is not less than its carrying
amount, the two-step goodwill impairment test is not required.ASU 2011-08 is
effective for fiscal years, and interim periods within those years, beginning
after December 15, 2011 with prospective application required. The adoption of
this guidance did not have a material effect on the Company`s financial
position, results of operations or cash flows.
In June 2011, the FASB issued ASU 2011-05, Presentation of
Comprehensive Income. This update amended the presentation options in
Accounting Standards Codification (ASC) 220, Comprehensive Income, to
provide an entity 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. ASU2011-05 is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2011 with
retrospective application required. The adoption of this guidance did not have a
material effect on the Company`s financial position, results of operations or
cash flows
(q) New Accounting Pronouncements
A variety of proposed or otherwise potential accounting
standards are currently under study by standard setting organizations and
various regulatory agencies. Due to the tentative and preliminary nature of
those proposed standards, management has not determined whether implementation
of such proposed standards would be material to our financial statements.
F24
MINDESTA INC.
(formerly Industrial Minerals
Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 3 MARKETABLE SECURITIES AND INVESTMENT IN
NON-CONSOLIDATED AFFILIATE
On January 7, 2011, the Company sold 2,000,000 common shares of
Northern for CDN $0.50 per share and realized total proceeds of CDN$1,000,000.
Due to the reduction in the Companys interest in Northern arising from this
transaction, the results of Northern are no longer consolidated. The Company
recognized a gain on deconsolidation of $6,035,839, of which $5,835,457 related
to the remeasurement of the Companys retained investment in the former
subsidiary to its fair value. Subsequent to deconsolidation Northern remains a
related party by way of directors and officers in common.
As at December 31, 2011, the Company owned 9,750,000 common
shares of Northern which represented a 26.1% interest. The estimated fair value
of this investment at December 31, 2011 was $8,872,500 based on the quoted
trading price of these shares on the Toronto Stock Exchange. As at December 31,
2011, the Company recorded its investment in Northern, a non-consolidated
affiliate, at cost.
The carrying value of this investment is as follows:
Investment
|
|
$
|
|
Non-consolidated balance at December 31,
2010
|
|
11,069,565
|
|
Proceeds from sale of investment
|
|
(1,005,400
|
)
|
Retained deficits of Northern Graphite
|
|
(11,148,954
|
)
|
Gain on deconsolidation
|
|
6,035,839
|
|
Equity pickup for year ending December 31, 2011
|
|
(1,518,789
|
)
|
Non-consolidated balance at December 31, 2011
|
|
3,432,261
|
|
Stock dividend paid on January 25, 2012
|
|
(3,313,675
|
)
|
Sale of marketable
securities
|
|
(65,223
|
)
|
Balance at carrying value as at December 31, 2012
|
|
53,363
|
|
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 December 31, 2012:
Equity securities
|
|
Cost
|
|
|
Gross unrealized gains
|
|
|
Fair value
|
|
Outstanding
|
|
53,363
|
|
|
110,969
|
|
|
164,332
|
|
During the year ended December 31, 2012, the Company recorded
an unrealized gain on available-for-sale securities of $110,969. This gain is
recorded as other comprehensive income.
NOTE 4 STOCKHOLDERS EQUITY
A.
CAPITAL STOCK
The number of common shares outstanding at December 31, 2012
and December 31, 2011 was as follows:
|
|
|
|
|
Par Value
|
|
|
|
Number
|
|
|
$
|
|
Outstanding December 31, 2011
|
|
9,301,081
|
|
|
18,592
|
|
Issued pursuant to
the exercise of stock options
|
|
112,500
|
|
|
225
|
|
Outstanding at December 31, 2012
|
|
9,413,581
|
|
|
18,817
|
|
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.
There were 112,500 common shares of capital stock issued during
2012 (2011 337,500) as a result of the exercise of options. There were no
common shares issued for settlement of debt (2011 75,000). The share issuances
were recorded for total consideration of $33,750 (2011 - $154,500). The Company
had 9,413,581 shares issued and outstanding at December 31, 2012 (2011-
9,301,081).
F25
MINDESTA INC.
(formerly Industrial Minerals
Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
B.
DIVIDENDS
On December 12, 2011, the Board of Directors declared a pro
rata dividend-in-kind on the basis of one share of Northern common stock for
each share of Company common stock held, payable January 25, 2012 to
shareholders of record as at January 5, 2012. The Company recorded $3,274,072 of
dividends and dividends payable in the year ending December 31, 2011 related to
the declared dividend-in-kind.
C.
COMMON STOCK OPTIONS
On September 20, 2010, the Company granted stock options to
purchase 450,000 common shares at a price of $0.30 per share until September 20,
2015. 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 2.24%; and
an expected term of 5 years.
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.
The following table summarizes stock option activity for the
year ended December 31, 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 December 31, 2012
|
|
762,500
|
|
|
$0.29
|
|
There were 762,500 options outstanding and exercisable at
December 31, 2012 (December 31, 2011 225,000).
The intrinsic value of outstanding and exercisable options at
December 31, 2012 was $Nil (December 31, 2011 - $Nil).
The weighted average remaining contractual term of options
outstanding at December 31, 2012 was 4.07 years (2011 4.01 years)
During the year 112,500 stock options were exercised for
proceeds of $33,750. These options had an intrinsic value of $60,750.
Using the Black-Scholes option pricing model, the Company had
stock compensation expense for the year ending December 31, 2012 of $42,268
(2011-$155,396).
D.
EARNINGS PER SHARE
The basic weighted average number of common shares outstanding
was as follows:
For the year ended:
|
|
|
|
December 31, 2012
|
|
9,412,659
|
|
December 31, 2011
|
|
8,920,188
|
|
F26
MINDESTA INC.
(formerly Industrial Minerals
Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
The fully-diluted weighted average number of common shares
outstanding was as follows:
For the year ended:
|
|
|
|
December 31, 2012
|
|
9,412,659
|
|
December 31, 2011
|
|
9,492,038
|
|
For the year ended December 31, 2012, the inclusion of common
stock equivalents in the calculation of the weighted average number of shares is
anti-dilutive.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company has been named in a lawsuit filed by Windale
Properties in the amount of CAD $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 6 RELATED PARTY TRANSACTIONS
During the year ended December 31, 2012:
a) The Company granted 650,000 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 $42,268 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 initial
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 the 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
during 2012. In addition, Mindesta incurred $630,750 of exploration expenses
during 2012 and accrued a payable of $100,000 for mineral properties under the
option agreement, to Nubian. Mindesta can earn a 50% interest in the initial two
permits and any other permits obtained in Somaliland during the option agreement
by incurring total exploration expenditures of $2 million within two years and
can increase its interest to 80 percent by completing a bankable feasibility
study. Mindesta exceeded the first $750,000 of exploration expenditures which
represented 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 as
it has incurred 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.
F27
MINDESTA INC.
(formerly Industrial Minerals
Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
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 percent, 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. As at December 31, 2012 $272,879 (2011 - $Nil) of
principal and accrued interest was outstanding related to this credit facility,
and is included in the amount listed as due to related parties in the table
below. $7,428 of interest was accrued in respect of this obligation during the
year ended December 31, 2012. Additional interest of $13,020 was imputed on this
loan to approximate a market interest rate. This interest has been recognized in
general and administration expense and additional paid-in capital, as the
imputed interest is not payable.
|
|
As at
|
|
|
As at
|
|
Due from related parties
|
|
December 31, 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
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
$
|
|
|
$
|
|
Due to Nubian
|
|
119,251
|
|
|
-
|
|
Due to Bowes &
Company
|
|
153,628
|
|
|
-
|
|
Total due to related parties
|
|
272,879
|
|
|
-
|
|
As at December 31, 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 MINERAL PROPERTIES
Although the Company has taken steps to verify title to mineral
properties in which it has an interest in accordance with industry standards for
the current stage of exploration of such properties, these procedures do not
guarantee the Companys title. Property title may be subject to unregistered
prior agreements and non-compliance with regulatory requirements.
Mining Option Agreement Nubian
Effective January 2, 2012, Mindesta entered into an option
agreement with Nubian, a privately owned Ontario company, which initially held
title to two mineral exploration permits, in the Republic of Somaliland (note
6). During 2012, Nubian obtained a third exploration permit in Somaliland. Under
the option agreement, Mindesta can earn a 50% interest in the permits by
incurring total exploration expenditures of $2 million within two years and can
increase its interest to 80 percent by completing a bankable feasibility study.
Mindesta has incurred the first $750,000 of exploration expenditures on this
project which represents a firm commitment. Mindesta also has the option to
acquire all of Nubians remaining interest in the permits at fair market value
as determined by an independent valuator at any time after incurring the first
$750,000 of exploration expenditures.
The Company recorded acquisition costs of $100,000 related to
the option agreement with Nubian. During the year ended December 31, 2012 the
Company recorded an impairment of acquisition costs of $100,000 due to
uncertainty with respect to the Companys ability to expend the required $2
million dollars within two years to earn its interest.
F28
MINDESTA INC.
(formerly Industrial Minerals
Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 8 INCOME TAXES
As at December 31, 2012, the Company's deferred tax asset
attributable to its net operating loss carry forward is approximately $400,007
(2011 - $2,986,224). This benefit has been fully offset by a valuation allowance
based on management's determination that it is not more likely than not that
some or all of this benefit will be realized. These losses expire as follows:
|
|
$
|
|
|
|
|
|
2028
|
|
34,341
|
|
2029
|
|
365,666
|
|
Total
|
|
400,007
|
|
As at December 31, 2012, the Company's deferred tax asset
attributable to capital loss carry forward is approximately $596,705 (2011 -
$596,705). This benefit has been fully offset by a valuation allowance based on
management's determination that it is not more likely than not that some or all
of this benefit will be realized. These losses expire as follows:
|
|
$
|
|
|
|
|
|
2026
|
|
596,705
|
|
Total
|
|
596,705
|
|
For the years ended December 31, 2011 and 2010, a
reconciliation of income tax benefit at the U.S. federal statutory rate to
income tax benefit at the Company's effective tax rates is as follows.
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) for the year
|
|
(1,003,188
|
)
|
|
3,738,515
|
|
|
|
|
|
|
|
|
Expected income tax
(Recovery)
|
|
(339,528
|
)
|
|
1,271,095
|
|
Deconsolidation of Northern
|
|
-
|
|
|
(1,227,231
|
)
|
Distribution of Northern
shares
|
|
2,291,318
|
|
|
-
|
|
Change in estimates
|
|
176,767
|
|
|
-
|
|
Non-deductible items
|
|
8,214
|
|
|
59,627
|
|
Change in valuation allowance
|
|
(2,136,771
|
)
|
|
(103,491
|
)
|
Total income tax payable
|
|
|
|
|
- -
|
|
Deferred income taxes reflect the tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred tax
assets (liabilities) at December 31, 2012 and 2011 are comprised of the
following:
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Net operating loss
carryforward
|
|
136,002
|
|
|
652,654
|
|
Capital loss carryforward
|
|
202,880
|
|
|
202,880
|
|
Investment in Northern
Graphite
|
|
-
|
|
|
1,897,093
|
|
Mineral Property Interest
|
|
276,974
|
|
|
-
|
|
|
|
615,856
|
|
|
2,752,627
|
|
Valuation allowance
|
|
(615,856
|
)
|
|
(2,752,627
|
)
|
Deferred income tax asset
|
|
-
|
|
|
-
|
|
F29
MINDESTA INC.
(formerly Industrial Minerals
Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
Accounting for uncertainty for Income Tax
Effective
January 1, 2009, we adopted the interpretation for accounting for uncertainty in
income taxes which was an interpretation of the accounting standard accounting
for income taxes. This interpretation created a single model to address
accounting for uncertainty in tax positions. This interpretation clarifies the
accounting for income taxes, by prescribing a minimum recognition threshold a
tax position is required to meet before being recognized in the financial
statements.
The Company files income tax returns in the U.S. federal
jurisdiction, and various state and foreign jurisdictions. During 2011, the
Company filed all statutory income tax returns outstanding. The Company had
$250,605 accrued for penalties as of December 31, 2012, and December 31, 2011,
respectively related to statutory income tax returns that have now been filed.
We do not have any unrecognized tax benefits or loss contingencies. Unrecognized
tax benefits are not expected to increase or decrease within the next twelve
months. Interest and penalties are included in general and administrative costs.
NOTE 9 SUBSEQUENT EVENTS
As at March 7, 2013, Mindesta has sold the remaining 151,388 of
Northern shares for proceeds of $187,184.
F30