Item 1 - FINANCIAL STATEMENTS
For financial information see the financial statements and the
notes thereto for the three and six month periods ended June 30, 2013 (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, 2012, included in the Company's Form
10-K.
2
Mindesta Inc.
|
(an exploration stage company)
|
Condensed Interim Balance Sheets
|
|
|
As at
|
|
|
As at
|
|
|
|
June 30
|
|
|
December 31
|
|
|
|
2013
|
|
|
2012
|
|
|
|
$
|
|
|
$
|
|
|
|
( note 1
|
)
|
|
(note 1
|
)
|
Assets
|
|
(unaudited)
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
|
|
7,916
|
|
|
12,091
|
|
Marketable securities (note 3)
|
|
-
|
|
|
164,333
|
|
Receivables
|
|
5,500
|
|
|
8,716
|
|
Prepaid expenses and deposits
|
|
1,000
|
|
|
17,939
|
|
Total assets
|
|
14,416
|
|
|
203,079
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
297,945
|
|
|
316,534
|
|
Due
to related parties (note 6)
|
|
192,577
|
|
|
272,879
|
|
Total liabilities
|
|
490,522
|
|
|
589,413
|
|
|
|
|
|
|
|
|
Stockholders deficiency
|
|
|
|
|
|
|
Common stock 200,000,000 shares authorized, $0.0001 par
value; 9,413,581 shares issued and outstanding (note 5)
|
|
18,817
|
|
|
18,817
|
|
Additional paid-in capital
|
|
12,645,499
|
|
|
12,626,129
|
|
Accumulated other comprehensive income
|
|
-
|
|
|
4,984
|
|
Deficit accumulated during exploration stage
|
|
(13,140,422
|
)
|
|
(13,036,264
|
)
|
Total
stockholders' deficiency
|
|
(476,106
|
)
|
|
(386,334
|
)
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
14,416
|
|
|
203,079
|
|
Going Concern (Note 1)
Commitments and
contingencies (Note 8)
See accompanying notes to unaudited interim condensed
financial statements
Approved by Board:
|
(signed) Gregory Bowes
|
|
Director
|
3
Mindesta Inc.
|
(an exploration stage company)
|
Condensed Interim Statements of Operations and
Deficit
|
|
|
3 months ended June 30
|
|
|
6 months ended June 30
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(note 1
|
)
|
|
(note 1
|
)
|
|
(note 1
|
)
|
|
(note 1
|
)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
27,956
|
|
|
38,972
|
|
|
38,868
|
|
|
115,883
|
|
Management fees and salaries (note 6)
|
|
6,250
|
|
|
-
|
|
|
6,250
|
|
|
32,514
|
|
Exploration expense
|
|
220
|
|
|
101,042
|
|
|
13,454
|
|
|
618,981
|
|
General and administration
|
|
28,109
|
|
|
51,508
|
|
|
64,282
|
|
|
106,963
|
|
|
|
62,535
|
|
|
191,522
|
|
|
122,854
|
|
|
874,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(62,535
|
)
|
|
(191,522
|
)
|
|
(122,854
|
)
|
|
(874,341
|
)
|
Foreign exchange gain (loss)
|
|
(1,174
|
)
|
|
(934
|
)
|
|
(7,267
|
)
|
|
(544
|
)
|
Interest income
|
|
-
|
|
|
-
|
|
|
1,645
|
|
|
53
|
|
Gain on sale of marketable securities
|
|
-
|
|
|
156,870
|
|
|
24,318
|
|
|
156,870
|
|
Net income (loss)
|
|
(63,709
|
)
|
|
(35,586
|
)
|
|
(104,158
|
)
|
|
(717,962
|
)
|
Deficit, beginning of period
|
|
(13,076,713
|
)
|
|
(12,715,452
|
)
|
|
(13,036,264
|
)
|
|
(11,993,473
|
)
|
Dividends
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(39,603
|
)
|
Deficit, end of period
|
|
(13,140,422
|
)
|
|
(12,751,038
|
)
|
|
(13,140,422
|
)
|
|
(12,751,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on available-for-sale securities
|
|
-
|
|
|
(510,948
|
)
|
|
(4,984
|
)
|
|
282,058
|
|
Comprehensive income (loss)
|
|
(63,709
|
)
|
|
(546,534
|
)
|
|
(109,142
|
)
|
|
(435,904
|
)
|
Weighted
average number of common shares
outstanding basic (note 5)
|
|
9,413,581
|
|
|
9,301,081
|
|
|
9,413,581
|
|
|
9,411,727
|
|
Net income (loss) per share basic
|
|
(0.01
|
)
|
|
(0.00
|
)
|
|
(0.01
|
)
|
|
(0.08
|
)
|
Weighted
average number of common shares
outstanding fully diluted (note
5)
|
|
9,413,581
|
|
|
9,301,081
|
|
|
9,413,581
|
|
|
9,411,727
|
|
Net income (loss) per share diluted
|
|
(0.01
|
)
|
|
(0.00
|
)
|
|
(0.01
|
)
|
|
(0.08
|
)
|
See accompanying notes to unaudited condensed interim
financial statements
4
Mindesta Inc.
|
(an exploration stage company)
|
Condensed Interim Statements of Cash Flows
|
|
|
3 months ended June 30
|
|
|
6 months ended June 30
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(note 1
|
)
|
|
(note 1
|
)
|
|
(note 1
|
)
|
|
(note 1
|
)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the
company
|
|
(63,709
|
)
|
|
(35,586
|
)
|
|
(104,158
|
)
|
|
(717,962
|
)
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
42,268
|
|
Gain on sale of marketable securities
|
|
-
|
|
|
(156,870
|
)
|
|
(24,318
|
)
|
|
(156,870
|
)
|
Imputed interest on amounts due to related party
|
|
5,308
|
|
|
-
|
|
|
13,120
|
|
|
-
|
|
Value of services contributed by officer of
the Company
|
|
6,250
|
|
|
-
|
|
|
6,250
|
|
|
-
|
|
Nubian option agreement (note 6)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
127,994
|
|
Changes in non-cash operating working
capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
3,218
|
|
|
12,527
|
|
|
3,218
|
|
|
(12,237
|
)
|
Due from affiliate
|
|
-
|
|
|
16,147
|
|
|
-
|
|
|
17,119
|
|
Prepaid expenses and deposits
|
|
10,470
|
|
|
15,343
|
|
|
16,939
|
|
|
20,888
|
|
Accounts payable and accrued liabilities
|
|
4,592
|
|
|
(113,068
|
)
|
|
(18, 591
|
)
|
|
(202,208
|
)
|
|
|
(33,871
|
)
|
|
(261,507
|
)
|
|
(107,540
|
)
|
|
(881,008
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the
exercise of stock options
|
|
-
|
|
|
-
|
|
|
-
|
|
|
33,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from (payment to) related party
|
|
22,787
|
|
|
25,077
|
|
|
(80,302
|
)
|
|
223,382
|
|
Proceeds from the
sale of marketable securities
|
|
-
|
|
|
197,054
|
|
|
183,667
|
|
|
197,054
|
|
|
|
22,787
|
|
|
222,131
|
|
|
103,365
|
|
|
420,436
|
|
Net increase
(decrease) in cash
|
|
(11,084
|
)
|
|
(39,376
|
)
|
|
(4,175
|
)
|
|
(426,822
|
)
|
Cash, beginning of period
|
|
19,000
|
|
|
181,932
|
|
|
12,091
|
|
|
569,378
|
|
Cash, end of
period
|
|
7,916
|
|
|
142,556
|
|
|
7,916
|
|
|
142,556
|
|
Supplementary information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Income taxes paid
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
See accompanying notes to unaudited interim condensed
financial statements
5
NOTE 1 - BASIS OF PRESENTATION
The unaudited interim condensed financial statements of
Mindesta Inc. (the Company and formerly Industrial Minerals, Inc.), for the
three and six month periods ended June 30, 2013 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 $104,158 for the six months ended June 30, and has an accumulated
deficit of $13,140,422 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 fund further 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 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, 2012.
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 June 30, 2013, the Company no longer held any shares in
Northern. 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 July 2012, the FASB issued ASU 2012-02, Intangibles
Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for
Impairment in Accounting Standards Update No. 2012-02. This update amends ASU
2011-08, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment and permits an entity first to assess
qualitative factors to determine whether it is more likely than not that an
indefinite-lived intangible asset is impaired as a basis for determining whether
it is necessary to perform the quantitative impairment test in accordance with
Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other
than Goodwill. The amendments are effective for annual and interim impairment
tests performed for fiscal years beginning after September 15, 2012. Early
adoption is permitted, including for annual and interim impairment tests
performed as of a date before July 27, 2012, if a public entitys financial
statements for the most recent annual or interim period have not yet been issued
or, for nonpublic entities, have not yet been made available for issuance. The
adoption of ASU 2012-02 did not have a material impact on our financial position
or results of operations.
6
In August 2012, the FASB issued ASU 2012-03, Technical
Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments
Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting
Standards Update 2010-22 (SEC Update) in Accounting Standards Update No.
2012-03. This update amends various SEC paragraphs pursuant to the issuance of
SAB No. 114. The adoption of ASU 2012-03 did not have a material impact on our
financial position or results of operations.
In October 2012, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) 2012-04, Technical Corrections
and Improvements in Accounting Standards Update No. 2012-04. The amendments in
this update cover a wide range of Topics in the Accounting Standards
Codification. These amendments include technical corrections and improvements to
the Accounting Standards Codification and conforming amendments related to fair
value measurements. The amendments in this update will be effective for fiscal
periods beginning after December 15, 2012. The adoption of ASU 2012-04 did not
have a material impact on our financial position or results of operations.
In February 2013, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive
Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other
Comprehensive Income. The guidance in ASU 2013-02 is intended to provide
guidance in the reclassification of Accumulated Other Comprehensive Income to
net income. The amendments in this ASU are effective for fiscal years beginning
after December 15, 2012. Early adoption is permitted if an entitys financial
statements for the most recent annual or interim period have yet been issued.
The adoption of ASU 2013-02 did not have a material impact on our financial
position or results of operations.
NOTE 3 MARKETABLE SECURITIES AND INVESTMENT IN
NON-CONSOLIDATED AFFILIATE
As at June 30, 2013, the Company no longer held any shares of
Northern. As at December 31, 2012, the Company recorded its investment in
Northern, a non-consolidated affiliate, at cost.
Investment
|
|
$
|
|
Balance at carrying value as at December
31, 2012
|
|
53,363
|
|
Sale of marketable
securities
|
|
(53,363
|
)
|
Balance at carrying value as at June 30, 2013
|
|
-
|
|
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 was 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 six month period ended June 30, 2013, the Company
recorded a gain on sale of marketable securities of $24,318 (June 30, 2012 -
$156,870).
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
June 30, 2013 and the results of operations and cash flows for the three and six
month periods ended June 30, 2013 and 2012. Interim results are not necessarily
indicative of results for a full year.
The Financial Statements 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, 2012.
NOTE 5 STOCKHOLDERS EQUITY
A.
COMMON STOCK
The number of common shares outstanding at June 30, 2013 and
December 31, 2012 were as follows:
|
|
Number
|
|
|
$
|
|
Outstanding at June 30, 2013 and December 31, 2012
|
|
9,413,581
|
|
|
18,817
|
|
7
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 for each share of
Company 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
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.
The following table summarizes stock option activity for the
six months ended June 30, 2013:
|
|
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 at June 30, 2013 and December 31, 2012
|
|
762,500
|
|
$
|
0.29
|
|
Exercisable at June 30, 2013 762,500.
The Company had no stock compensation expense for the six
months ending June 30, 2013 (June 30, 2012 - $42,268).
D.
EARNINGS PER SHARE
The basic weighted average number of common shares outstanding
was as follows:
For the three months ended:
|
|
|
|
June 30, 2013
|
|
9,413,581
|
|
June 30, 2012
|
|
9,301,081
|
|
For the six months ended:
|
|
|
|
June 30, 2013
|
|
9,413,581
|
|
June 30, 2012
|
|
9,411,727
|
|
The fully-diluted weighted average number of common shares
outstanding was as follows:
For the three months ended:
|
|
|
|
June 30, 2013
|
|
9,413,581
|
|
June 30, 2012
|
|
9,301,081
|
|
For the six months ended:
|
|
|
|
June 30, 2013
|
|
9,413,581
|
|
June 30, 2012
|
|
9,411,727
|
|
For the three and six months ended June 30, 2013, the inclusion
of common stock equivalents in the calculation of the weighted average number of
shares is anti-dilutive.
8
NOTE 6 RELATED PARTY TRANSACTIONS
a)
|
During the six months ended June 30, 2013, the Company
did not grant any options to officers and directors. During the six months
ending June 30, 2012, 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
ending March 31, 2012 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. The mineral property was written off during the year
ended December 31, 2012 (Note 8).
|
|
|
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
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. During the six month period ending June 30, 2013,
payments of $106,694 (June 30, 2012 - $nil) were made on amounts owing
under this credit facility. As at June 30, 2013, $192,577 (December 31,
2012 - $272,879) 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. At June 30, 2013, $14,728 (December
31, 2012 - $7,428) of interest was accrued in respect of this obligation.
Additional interest of $13,120 (December 31, 2012 - $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.
|
9
|
|
As at
|
|
|
As at
|
|
Due to related parties
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
Due to Nubian
|
|
104,961
|
|
|
119,251
|
|
Due to Bowes &
Company
|
|
87,616
|
|
|
153,628
|
|
Total due to related parties
|
|
192,577
|
|
|
272,879
|
|
An amount of $6,250 was recorded as management fees and
additional paid in capital to reflect the value of services contributed to the
Company by an officer and shareholder of the Company. As at June 30, 2013 and
December 31, 2012, 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% . The Company no longer holds any shares of Northern
Graphite.
NOTE 8 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 title of the mineral properties in which it has an interest.
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 within two years to earn its interest. During the first six months of
2013, the Company incurred an additional $13,454 of exploration expenses related
to the option agreement (June 30, 2012 - $618,981).
NOTE 9 - COMMITMENTS AND CONTINGENCIES
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 10 - SUBSEQUENT EVENT
Efffective July 5, 2013, W. Campbell Birge, Douglas Perkins,
and Albert Zapanta resigned as Directors of Mindesta Inc.. There were no
disagreements with the Company regarding its operations or financial
reporting.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Unaudited
Overview
Mindesta Inc. (Mindesta or "the Company"), a Delaware
Corporation, was incorporated on November 6, 1996 under the name Winchester
Mining Corp. The name of the Company was changed to PNW Capital, Inc. on May 16,
2000. In 2002, PNW Capital, Inc. acquired Industrial Minerals Incorporated, a
private Nevada Corporation, and changed its name to Industrial Minerals, Inc.
Effective July 26, 2011, the Company adopted the new name of Mindesta Inc.. In
conjunction with this action, the Company consolidated its stock on a 20:1
basis.
The Company is an exploration stage company. Prior to 2012, the
Companys sole asset and primary focus was its investment in Northern Graphite
Corporation (Northern). Northern holds a 100% interest in a number of mineral
claims and a mining lease covering a deposit of natural graphite located in
Maria Township, approximately 180 miles northeast of Toronto, Ontario and
between the towns of Deep River and Mattawa, Ontario (the Bissett Creek
Property). The Bissett Creek Property was on care and maintenance from 2005 to
2010. In the latter part of 2009 and in the first quarter of 2010 Northern
raised its own financing which had the effect of reducing the Companys interest
in Northern from 100% to approximately 51%. The Companys interest was
subsequently reduced to 26.2% as the result of it selling 2,000,000 Northern
shares and of Northern completing an initial public offering of shares, becoming
listed on the TSX Venture Exchange, and subsequent warrant exercises. As at
December, 31, 2012, the Company owned less than 0.5% of Northern due to the
distribution of its Northern shares to Mindesta shareholders. The Company
currently no longer holds any shares of Northern.
From 2004 until late 2009 the Company experienced serious
financial difficulties and went through many changes to the Board and
management. Chris Crupi, CA and Gregory Bowes, MBA, were appointed directors of
the Company and Mr. Robert Dinning, CA was appointed President and CEO on June
23, 2008. In May 2009, Gregory Bowes was appointed CEO of Northern. Robert
Dinning resigned as a director and CFO of Northern effective April 1, 2010 and
resigned as a director, CEO and CFO of the Company effective May 10, 2010. Miles
Nagamatsu CA was appointed CFO of Northern on April 1, 2010 and Gregory Bowes
was appointed CEO and CFO of the Company effective May 10, 2010. Cam Birge was
appointed a director to replace Mr. Dinning, on June 3, 2010. Chris Crupi
resigned as a director effective August 18, 2010. On April 19, 2011, Douglas
Perkins joined the Board of Directors and was appointed Chairman of the Audit
Committee. On December 15, 2011, Albert Zapanta joined the Board of Directors
and was appointed to the Audit Committee, the Nominating Committee, and
Compensation Committee.
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 this distribution to Company shareholders
of a majority of the shares of Northern common stock owned by the Company. The
distribution of 9,413,581 shares of Northern owned by the Company (approximately
25% of the Northern common shares outstanding) was made to Company shareholders
on the basis of one share of Northern for each share of the Company. The U.S.
Financial Industry Regulatory Authority (FINRA) established January 26, 2012
as the ex-dividend date (the Ex-Dividend Date) for this distribution. The
Companys interest in Northern has decreased to 0.5% primarily as a result of
the distribution of Northern shares.
Effective January 2, 2012, Mindesta entered into an option
agreement with Nubian Gold Corporation (Nubian), a privately owned Ontario
company, which holds title to two 2,000 km
2
mineral exploration
permits, Arapsyo and Qabri Bahar, which were the first two ever issued by 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. Under the option agreement, 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. Mindesta was required to
make an upfront cash payment of $100,000 to Nubian as compensation for expenses
incurred, and 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 as determined by an independent
valuator at any time after incurring the first $750,000 of exploration
expenditures. On October 6, 2011, the Board of Directors approved a revolving
loan agreement between Mindesta, as the lender, and Nubian, as the borrower, to
fund the ongoing exploration activities of Nubian in anticipation of the
companies negotiating and entering into the option agreement. Under the
revolving loan agreement, all amounts due from Nubian to the Company were
provided under a $100,000 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 revolving loan agreement became repayable upon the signing of a
property option agreement and all obligations of Nubian were applied against the
expenditure requirements of the Company under the property option agreement. The
obligations under the revolving loan agreement are now considered paid in full,
and the revolving loan agreement has terminated and has 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. On December 2, 2011, this
facility was amended to increase the maximum of the revolving loan agreement to
$150,000. In 2012, Mindesta is focusing its efforts on mineral exploration in East Africa, and in
particular the Republic of Somaliland and Ethiopia, as it believes the region
has very attractive geology and an improving political environment.
11
In 2012, Nubian was awarded a third permit, Abdul Qadir, which
is approximately 2,000 km
2
in size and is located in the northeast
part of Somaliland adjacent to the borders with Djibouti and Ethiopia. Abdul
Qadir is automatically included in the Option Agreement pursuant to its terms
with no change in expenditure requirements. Nubian has agreed with the
government of Somaliland to reduce the size of the Arapsyo and Qabri Bahar
permits by 50% following completion of the first phase exploration program.
Mindesta has completed a stream and rock sampling program over
the Arapsyo, Qabri Bahar and Abdul Qadir permits which involved taking over
3,000 samples. To date, Mindesta has incurred expenditures of approximately
$758,694 on work on these permits which exceeds the initial $750,000
requirement. The Company will require additional financing to execute the second
stage program.
Somaliland is an independent democratic republic which is not
yet recognized by the international community. In order to attract investment
and enhance the countrys reputation and standing in the international
community, the government desired to update its antiquated mining code and
attract foreign companies to explore and ultimately develop its mineral
potential. Nubian signed a Memorandum of Understanding (MOU) with the
government, effective June 10, 2010, whereby Nubian would assist the government
in drafting a new, modern mining code and generally provide consulting services
with respect to legal, financial and technical matters relating to the new
mining code. In exchange, the government agreed to grant Nubian prospecting
permits under the existing mining code and to automatically renew the
prospecting permits for successive one year terms until such time as a new
mining code is passed into law at which time the prospecting permits would
become subject to the new mining code.
Following the election of a new government and the appointment
of a new mines minister, Nubian signed an amendment to the MOU, effective June
14, 2011. Under the amendment the new government confirmed the validity of the
MOU and granted Nubian the exclusive mineral exploration rights to two 2,000
km
2
areas being Arapsyo (from 430 30 00 to 440 10 00 and from 90
40 00 to 90 55 00) and Qabri Bahar (100 00 00 to 100 15 00 and from 430
20 00 to 440 00 00).
Nubian retains the exclusive mineral rights to the above areas,
provided that it meets certain expenditure commitments, until such time as the
new mining code is enacted and becomes law at which time the exclusive mineral
rights will convert into exploration permits according to the terms of the new
mining code. The expenditure commitments consist of $50,000 to be spent on a
literature review and remote sensing program, a minimum of $200,000 on a ground
exploration and sampling program provided the government had made progress in
establishing a new mining code, and that after the new mining code was passed
Nubian would spend $1,250,000 on exploration within a two year period.
Nubian will be subject to the exploration period terms, fees,
relinquishment requirements and expenditure requirements contained in the new
mining code with respect to the areas for which it holds exclusive mineral
exploration rights. In the interim, Nubian agreed to reduce the size of the
areas of exclusive mineral rights by 50 per cent on the second anniversary from
the date of the MOU amendment and will reduce the remaining area by a further 50
per cent on the fourth anniversary date (unless specified otherwise in the new
mining code), and provided that the Government has made significant progress in
passing the new mining code and Nubian has been able to carry out its
exploration programs.
Effective September 1, 2011 Nubian was officially granted the
two permits which are subject to a US$8,000 annual licensing fee. Effective
March 28, 2012 Nubian signed a second MOU amendment with the government of
Somaliland whereby Nubian was granted a third permit, Abdul Qadir, which is
approximately 2,000km
2
in size, is subject to the same $8,000 annual
fee and has the following coordinates/corner posts:
1)
|
100 55 N 420 58 E (border)
|
2)
|
100 55 N 430 00 E
|
3)
|
100 38 N 430 00 E
|
4)
|
100 38 N 430 28 E
|
5)
|
100 24 N 430 28 E
|
6)
|
100 24 N 420 32 E (border).
|
7)
|
Somaliland Ethiopia and Somaliland Djibouti border
between 1) and 6).
|
Nubian agreed to relinquish 50% of the Arapsyo and Qabri Bahar
permits by July 31, 2012 as part of obtaining the new permit and is in the
process of doing so. As the permits will fall under the terms of the new mining
code when passed, it is not possible at this time to determine what conditions
they will be subject to with respect to tenure, expenditure requirements,
development, etc. However, it is anticipated that the new mining code will be
based on, and competitive with, the mining codes in other African countries.
Under the option agreement, Mindesta is responsible for all of Nubians
obligations with respect to the MOU and the two amendments.
12
Due to weak equity markets and the inability of Mindesta to
raise additional capital, especially for an early stage exploration program in
Somaliland, Nubian and Bowes & Company agreed to advance funds to the
Company to fund ongoing exploration activities. Effective August 1, 2012, the
Board of Directors approved a loan agreement between Nubian and Bowes &
Company. 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
the 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.
On November 27, 2012, Mindesta announced that it received assay
results from its first stage stream sediment and rock sampling program on the
Arapsyo, Qabri Bahar and Abdul Qadir exploration permits in the Republic of
Somaliland. Over the September, 2011 to April, 2012 period, 2,500km
2
of the Arapsyio and Qabri Bahar permits were sampled at a density of one sample
every 1-2 km
2
. A total of 1,659 stream sediment and 58 rock samples
were submitted to the assay laboratory.
Encouraging regional anomalies have been identified,
particularly for gold, and future work will be centered on narrowing them down
by infill stream sediment sampling and prospecting followed by soil sampling
and/or geophysics. A Cu/Mo/Bi occurrence is already at a stage where soil
sampling and that ground geophysics could be carried out. Future work would also
include ground checking a significant number of secondary anomalies on a case by
case basis.
Mindesta has made the first $750,000 of exploration
expenditures as required as a firm commitment but has accumulated substantial
payables to Bowes & Company and Nubian in doing so. The Company does not
have the resources to repay these amounts or make ongoing commitments with
respect to the permits. Options are currently being evaluated.
Efffective July 5, 2013, W. Campbell Birge, Douglas Perkins,
and Albert Zapanta resigned as Directors of Mindesta Inc.. There were no
disagreements with the Company regarding its operations or financial reporting.
RESULTS OF OPERATIONS
For the six months ended June 30, 2013, the Company recorded a
net loss of $104,158 or ($0.01) per share, compared to a loss of $717,962 for
the six months ended June 30, 2012, or ($0.08) per share. The Company had no
revenues for the period ended June 30 in both 2013 and 2012 as the Company is an
exploration stage company with no source of revenues.
For the six months ended June 30, 2013, expenses amounted to
$122,854 compared to $874,341 for the six months ended June 30, 2012. There were
lower expenses for the six months ended June 30, 2013 as a result of lower
exploration expenses incurred by Nubian Gold. The Company expensed $6,250 in
management fees and salaries in the six months ended June 30, 2013, compared to
$32,514 for the six months ended June 30, 2012. Professional fees decreased to
$38,868 in the six months ended June 30, 2013 from $115,883 in 2012 as a result
of additional fees related to the Companys pro rata dividend-in-kind in 2012.
General and administration expenses decreased from $106,963 in the first six
months of 2012 to $64,282 in the first six months of 2013 as the Company has
scaled back all activities.
The Company currently has no full time employees and contracts
with consultants for administrative and financial services.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash as at June 30, 2013 of $7,916 versus
$12,091 as at December 31, 2012 due to the sale of shares of Northern Graphite,
offset by exploration expenditures incurred under the property option agreement
with Nubian, payment of operating expenses incurred during the six months ended
June 30, 2013, and repayment of amounts due to related parties.
The Company requires additional funding to continue operations
and there is no assurance that such financing will be available or will be
available on terms acceptable to the Company.
Going Concern Consideration
The Company's auditors in their report for the year ended
December 31, 2012 have expressed a concern that the Company may not be able to
continue as a going concern. The Company had a net loss from operations of
$104,158 for the six months ended June 30, 2013 and has had recurring losses and
an accumulated deficit of $13,140,422 since inception. 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.
13
The Company no longer has ownership in Northern and operates as
a distinct entity. As at June 30, 2013, the Company had $7,916 in cash. If the
Company cannot continue as a going concern the value of the Company's assets may
approach a level close to zero. Investors should be cautioned that should the
Company cease to operate, the Company may only recover a small fraction of the
original costs of its assets should a liquidation of the Company's assets occur.
The Financial Statements do not include any adjustments that might result if the
going concern assumption is not valid.