Item 1 - FINANCIAL STATEMENTS
For financial information see the financial statements and the
notes thereto for the three and nine month periods ended September 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
|
|
|
|
September 30
|
|
|
December 31
|
|
|
|
2013
|
|
|
2012
|
|
|
|
$
|
|
|
$
|
|
|
|
( note 1)
|
|
|
(note 1)
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
|
|
1,426
|
|
|
12,091
|
|
Marketable securities (note 3)
|
|
-
|
|
|
164,333
|
|
Receivables
|
|
5,500
|
|
|
8,716
|
|
Prepaid expenses and deposits
|
|
-
|
|
|
17,939
|
|
Total assets
|
|
6,926
|
|
|
203,079
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
286,588
|
|
|
316,534
|
|
Due to related parties (note 6)
|
|
210,470
|
|
|
272,879
|
|
Total liabilities
|
|
497,058
|
|
|
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
|
|
12,657,686
|
|
|
12,626,129
|
|
Accumulated other comprehensive income
|
|
-
|
|
|
4,984
|
|
Deficit accumulated during exploration stage
|
|
(13,166,635
|
)
|
|
(13,036,264
|
)
|
Total stockholders' deficiency
|
|
(490,132
|
)
|
|
(386,334
|
)
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficiency
|
|
6,926
|
|
|
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 September 30
|
|
|
9 months
ended September 30
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(note 1)
|
|
|
(note 1)
|
|
|
(note 1)
|
|
|
(note 1)
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
5,112
|
|
|
17,703
|
|
|
43,980
|
|
|
133,586
|
|
Management fees and salaries
(note 6)
|
|
6,250
|
|
|
-
|
|
|
12,500
|
|
|
32,514
|
|
Exploration expense
|
|
1,500
|
|
|
87,324
|
|
|
14,954
|
|
|
706,304
|
|
General and administration
|
|
12,876
|
|
|
13,499
|
|
|
77,158
|
|
|
120,463
|
|
|
|
25,738
|
|
|
118,526
|
|
|
148,592
|
|
|
992,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(25,738
|
)
|
|
(118,526
|
)
|
|
(148,592
|
)
|
|
(992,867
|
)
|
Foreign exchange gain (loss)
|
|
(474
|
)
|
|
(5,434
|
)
|
|
(7,742
|
)
|
|
(5,978
|
)
|
Interest income
|
|
-
|
|
|
-
|
|
|
1,645
|
|
|
53
|
|
Income taxes
|
|
-
|
|
|
(4,577
|
)
|
|
-
|
|
|
(4,577
|
)
|
Gain
on sale of marketable securities
|
|
-
|
|
|
19,544
|
|
|
24,318
|
|
|
176,414
|
|
Net income (loss)
|
|
(26,212
|
)
|
|
(108,993
|
)
|
|
(130,371
|
)
|
|
(826,955
|
)
|
Deficit, beginning of period
|
|
(13,140,423
|
)
|
|
(12,751,038
|
)
|
|
(13,036,264
|
)
|
|
(11,993,473
|
)
|
Dividends
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(39,603
|
)
|
Deficit, end of period
|
|
(13,166,635
|
)
|
|
(12,860,031
|
)
|
|
(13,166,635
|
)
|
|
(12,860,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale securities
|
|
-
|
|
|
(178,702
|
)
|
|
(4,984
|
)
|
|
103,356
|
|
Comprehensive income (loss)
|
|
(26,212
|
)
|
|
(287,695
|
)
|
|
(135,355
|
)
|
|
(723,599
|
)
|
Weighted average number of common shares
outstanding basic (note 5)
|
|
9,413,581
|
|
|
9,301,081
|
|
|
9,413,581
|
|
|
9,412,349
|
|
Net income (loss) per share basic
|
|
(0.00
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.09
|
)
|
Weighted average number of common shares
outstanding fully diluted (note 5)
|
|
9,413,581
|
|
|
9,301,081
|
|
|
9,413,581
|
|
|
9,412,349
|
|
Net income (loss) per share diluted
|
|
(0.00
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.09
|
)
|
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 September 30
|
|
|
9 months
ended September 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
|
|
(26,212
|
)
|
|
(108,993
|
)
|
|
(130,371
|
)
|
|
(826,955
|
)
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
42,268
|
|
Gain on sale of marketable
securities
|
|
-
|
|
|
(19,544
|
)
|
|
(24,318
|
)
|
|
(176,414
|
)
|
Imputed interest on amounts due to related
party
|
|
5,937
|
|
|
-
|
|
|
19,057
|
|
|
-
|
|
Value of services contributed
by officer of the Company
|
|
6,250
|
|
|
-
|
|
|
12,500
|
|
|
-
|
|
Nubian option agreement (note 6)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
127,994
|
|
Changes in non-cash operating
working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
-
|
|
|
698
|
|
|
3,218
|
|
|
(11,539
|
)
|
Due from affiliate
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,119
|
|
Prepaid expenses and deposits
|
|
1,000
|
|
|
(9,205
|
)
|
|
17,939
|
|
|
11,682
|
|
Accounts payable and accrued liabilities
|
|
(11,358
|
)
|
|
(19,540
|
)
|
|
(29,948
|
)
|
|
(121,748
|
)
|
|
|
(24,383
|
)
|
|
(156,584
|
)
|
|
(131,923
|
)
|
|
(937,593
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
-
|
|
|
-
|
|
|
-
|
|
|
33,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from (payment to)
related party
|
|
17,893
|
|
|
22,977
|
|
|
(62,409
|
)
|
|
146,359
|
|
Proceeds from the sale of marketable securities
|
|
-
|
|
|
26,794
|
|
|
183,667
|
|
|
223,849
|
|
|
|
17,893
|
|
|
49,771
|
|
|
121,258
|
|
|
370,208
|
|
Net increase (decrease) in cash
|
|
(6,490
|
)
|
|
(106,813
|
)
|
|
(10,665
|
)
|
|
(533,635
|
)
|
Cash, beginning of period
|
|
7,916
|
|
|
142,556
|
|
|
12,091
|
|
|
569,378
|
|
Cash, end of period
|
|
1,426
|
|
|
35,743
|
|
|
1,426
|
|
|
35,743
|
|
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 nine month periods ended September 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 $130,371 for the nine months ended September 30, and has an accumulated deficit of $13,166,635 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, 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, 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 September 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 September 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 nine month period ended September 30, 2013, the
Company recorded a gain on sale of marketable securities of $24,318 (September
30, 2012 - $176,414).
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, 2013 and the results of operations and cash flows for the three
and nine month periods ended September 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 September 30, 2013
and December 31, 2012 were as follows:
|
|
Number
|
|
|
$
|
|
Outstanding at September 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
nine months ended September 30, 2013:
|
|
Number of securities to
be
|
|
|
|
|
|
|
issued upon exercise of
|
|
|
Weighted-average exercise
|
|
Equity compensation plans not approved by
security holders
|
|
outstanding options
|
|
|
price of outstanding
options
|
|
Outstanding at September 30, 2013 and December 31, 2012
|
|
762,500
|
|
$
|
0.29
|
|
Exercisable at September 30, 2013 762,500.
The Company had no stock compensation expense for the nine
months ending September 30, 2013 (September 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:
|
|
|
|
September 30, 2013
|
|
9,413,581
|
|
September 30, 2012
|
|
9,301,081
|
|
|
|
|
|
For the nine months ended:
|
|
|
|
September 30, 2013
|
|
9,413,581
|
|
September 30, 2012
|
|
9,412,349
|
|
The fully-diluted weighted average number of common shares
outstanding was as follows:
For the three months ended:
|
|
|
|
September 30, 2013
|
|
9,413,581
|
|
September 30, 2012
|
|
9,301,081
|
|
|
|
|
|
For the nine months ended:
|
|
|
|
September 30, 2013
|
|
9,413,581
|
|
September 30, 2012
|
|
9,412,349
|
|
For the three and nine months ended September 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 nine months ended September 30, 2013, the Company did not grant any options to officers and directors. During the nine months ending September 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 September 30, 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)
|
In 2012 Mindesta was no longer able to meet its obligations under the option agreement to continue funding exploration in Somaliland. 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 nine month period ending September 30, 2013, payments of $106,694 (September 30, 2012 - $nil) were made on amounts owing under this credit
facility. As at September 30, 2013, $210,470 (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 September 30, 2013, $17,781 (December 31, 2012 - $7,428) of interest was accrued in respect of this obligation. Additional interest of $19,057 (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
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
Due to Nubian
|
|
106,851
|
|
|
119,251
|
|
Due
to Bowes & Company
|
|
103,619
|
|
|
153,628
|
|
Total due to related parties
|
|
210,470
|
|
|
272,879
|
|
An amount of $12,500 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 September 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 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 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 nine months of
2013, the Company incurred an additional $14,954 of exploration expenses related
to the option agreement (September 30, 2012 - $706,304).
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.
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 (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 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 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.
Nubian made application to reduce the size of the Arapsyo and Qabri Bahar permits by 50% in 2012. Agreement on the new permit has not yet been reached and Nubian has not pursued the issue due to the depressed state of equity markets for junior
exploration companies. Under the various agreements signed with the government of Somaliland, Nubian retains the exploration rights to the areas covered by the permits until such time as a new Mining Code is passed and at such time they will become
subject to the provisions of the new Mining Code. As the government of Somaliland has made no progress in passing a new Mining Code, a force majeure situation essentially exists during which Nubian retains the exploration rights to the
three permits.
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 nine months ended September 30, 2013, the Company recorded a net loss of $130,371 or ($0.01) per share, compared to a loss of $826,955 for the nine months ended September 30, 2012, or ($0.09) per share. The Company had no
revenues for the period ended September 30 in both 2013 and 2012 as the Company is an exploration stage company with no source of revenues.
For the nine months ended September 30, 2013, expenses amounted to $148,592 compared to $992,867 for the nine months ended September 30, 2012. There were lower expenses for the nine months ended September 30, 2013 as a result of lower
exploration expenses incurred by Nubian Gold. The Company expensed $12,500 in management fees and salaries in the nine months ended September 30, 2013, compared to $32,514 for the nine months ended September 30, 2012. Professional fees
decreased to $43,980 in the nine months ended September 30, 2013 from $133,586 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
$120,463 in the first nine months of 2012 to $77,158 in the first nine 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 September 30, 2013 of $1,426 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 nine months ended September 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.
13
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 $130,371 for the nine months
ended September 30, 2013 and has had recurring losses and an accumulated deficit of $13,166,635 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.
The Company no longer has ownership in Northern and operates as a distinct entity. As at September 30, 2013, the Company had $1,426 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 the Company could cease to operate and if this occurs, 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.