Attached files
file | filename |
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EX-32.2 - EXHIBIT 32.2 - CTT PHARMACEUTICAL HOLDINGS, INC. | exhibit32-2.htm |
EX-31.2 - EXHIBIT 31.2 - CTT PHARMACEUTICAL HOLDINGS, INC. | exhibit31-2.htm |
EX-31.1 - EXHIBIT 31.1 - CTT PHARMACEUTICAL HOLDINGS, INC. | exhibit31-1.htm |
EXCEL - IDEA: XBRL DOCUMENT - CTT PHARMACEUTICAL HOLDINGS, INC. | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - CTT PHARMACEUTICAL HOLDINGS, INC. | exhibit32-1.htm |
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number 000-30651
MINDESTA INC.
---------------------------------------------------------------
(Exact
name of small business issuer as specified in its charter)
Delaware | 11-3763974 |
-------------------------- | -------------------------------- |
(State or other jurisdiction | (IRS Employer of incorporation or |
organization) | Identification No.) |
Suite 201, 290 Picton Ave., Ottawa, Ontario, Canada K1Z 8P8
----------------------------------------
(Address of principal executive
offices)
(613) 241-9959
---------------------------
(Issuer's
telephone number)
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [_] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer [_] | Accelerated Filer [_] |
Non-accelerated Filer [_] | Smaller reporting company [_] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [_] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: July 23, 2012: 9,413,581 shares.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This document contains forward-looking statements which reflect managements expectations regarding the Companys future growth, results of operations, performance and business prospects and opportunities. Such forward-looking statements may include, but are not limited to, statements with respect to the future financial or operating performance of the Company and its projects, the future price of graphite or other metal prices, the estimation of Mineral Resources, the timing and amount of estimated future production, costs of production, capital, operating and exploration expenditures, costs and timing of the development of new deposits, costs and timing of future exploration, requirements for additional capital, government regulation of mining operations, environmental risks, reclamation expenses, title disputes or claims, limitations of insurance coverage and the timing and possible outcome of regulatory matters. Often, but not always, forward-looking statements can be identified by the use of words such as plans, expects, is expected, budget, scheduled, estimates, forecasts, intends, anticipates, or believes or variations (including negative variations) of such words and phrases, or statements that certain actions, events or results may, could, would, might or will be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others: general business, economic, competitive, political and social uncertainties; the actual results of current exploration activities; conclusions of economic evaluations; fluctuations in currency exchange rates; changes in project parameters as plans continue to be refined; changes in labor costs or other costs of production; future prices of graphite or other industrial mineral prices; possible variations of mineral grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labor disputes and other risks of the mining industry, including but not limited to environmental hazards, cave-ins, pit-wall failures, flooding, rock bursts and other acts of God or unfavorable operating conditions and losses; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; actual results of reclamation activities, and other unspecified factors. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as of the date hereof and the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
CAUTIONARY STATEMENT REGARDING MINERAL RESOURCES
This Quarterly Report on Form 10-Q and other information released by the Company uses the terms resources, measured resources, indicated resources and inferred resources. United States investors are advised that, while such terms are recognized and required by Canadian securities laws, the SEC does not recognize them. Under United States standards, mineralization may not be classified as a reserve unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Mineral resources that are not mineral reserves do not have demonstrated economic viability. United States investors are cautioned not to assume that all or any part of measured or indicated resources will ever be converted into reserves. Inferred resources are in addition to measured and indicated resources. Further, inferred resources have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. It cannot be assumed that all or any part of the inferred resources will ever be upgraded to a higher category. Therefore, United States investors are also cautioned not to assume that all or any part of the inferred resources exist, or that they can be mined legally or economically. National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) is a rule developed by the Canadian Securities Administrators, which established standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. Unless otherwise indicated, all resource estimates contained in this Form 10-Q and in press releases by the Company in the past and in the future, have been or will be prepared in accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum Classification System. The requirements of NI 43-101 are not the same as those of the SEC.
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
For financial information see the financial statements and the notes thereto for the three month and six months period ended June 30, 2012 (the Financial Statements), attached hereto and incorporated by this reference. The Financial Statements have been adjusted with all adjustments which, in the opinion of management, are necessary in order to make the Financial Statements not misleading. The Financial Statements have been prepared by Mindesta Inc. without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. The Financial Statements include all the adjustments which, in the opinion of management, are necessary for a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. The Financial Statements should be read in conjunction with the audited financial statements as at December 31, 2011, included in the Company's Form 10-K.
Mindesta Inc. |
(an exploration stage company) |
Balance Sheets |
|
As at | As at | ||||
|
June 30 | December 31 | ||||
|
2012 | 2011 | ||||
|
$ | $ | ||||
|
( note 1 | ) | (note 1 | ) | ||
Assets |
(unaudited) | |||||
Current |
||||||
Cash |
142,556 | 569,378 | ||||
Marketable securities (note 3) |
360,459 | - | ||||
Receivables |
12,386 | 151 | ||||
Due from related parties (note 6) |
- | 145,113 | ||||
Prepaid expenses and deposits |
15,204 | 36,092 | ||||
Total current assets |
530,605 | 750,734 | ||||
Investment in non-consolidated affiliate (note 3) |
- | 3,432,261 | ||||
Mineral properties (note 6) |
100,000 | - | ||||
Total assets |
630,605 | 4,182,995 | ||||
|
||||||
Liabilities |
||||||
Current |
||||||
Accounts payable and accrued liabilities |
350,263 | 452,473 | ||||
Due to related parties (note 6) |
223,382 | - | ||||
Dividend payable (note 7) |
- | 3,274,072 | ||||
Total liabilities |
573,645 | 3,726,545 | ||||
|
||||||
Stockholders equity |
||||||
Common stock 200,000,000 shares authorized, $0.0001 par value; 9,413,581 shares issued and outstanding (note 5) |
18,817 | 18,592 | ||||
Additional paid-in capital |
12,613,109 | 12,537,316 | ||||
Accumulated other comprehensive income |
176,072 | (105,985 | ) | |||
Deficit accumulated during exploration stage |
(12,751,038 | ) | (11,993,473 | ) | ||
Total stockholders' equity |
56,960 | 456,450 | ||||
|
||||||
Total liabilities and stockholders' equity |
630,605 | 4,182,995 | ||||
Going Concern (Note 1) |
||||||
Commitments and contingencies (Note 8) |
See accompanying notes to unaudited interim financial statements
Approved by Board: | (signed) Gregory Bowes | (signed) Cam Birge |
Director | Director |
F4
Mindesta Inc. |
(an exploration stage company) |
Statements of Operations and Deficit |
|
3 months ended June 30 | 6 months ended June 30 | ||||||||||
|
2012 | 2011 | 2012 | 2011 | ||||||||
|
$ | $ | $ | $ | ||||||||
|
(note 1 | ) | (note 1 | ) | (note 1 | ) | (note 1 | ) | ||||
|
(unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||
General and administrative expenses |
||||||||||||
Professional fees |
38,972 | 61,584 | 115,883 | 71,132 | ||||||||
Management fees and salaries (note 6) |
- | 161,629 | 32,514 | 169,263 | ||||||||
Exploration expense |
101,042 | - | 618,981 | - | ||||||||
General and administration |
51,508 | 213,556 | 106,963 | 223,232 | ||||||||
|
191,522 | 436,769 | 874,341 | 463,627 | ||||||||
|
||||||||||||
Loss from operations |
(191,522 | ) | (436,769 | ) | (874,341 | ) | (463,627 | ) | ||||
Foreign exchange gain (loss) |
(934 | ) | (22 | ) | (544 | ) | (25 | ) | ||||
Interest income |
- | 5,700 | 53 | 5,700 | ||||||||
Gain on partial disposal of subsidiary |
- | - | - | 6,035,839 | ||||||||
Equity loss pick up |
- | (677,477 | ) | - | (937,392 | ) | ||||||
Gain on sale of marketable securities |
156,870 | - | 156,870 | - | ||||||||
Gain (loss) on revaluation of debt |
- | 30,000 | - | (30,000 | ) | |||||||
Net income (loss) |
(35,586 | ) | (1,078,568 | ) | (717,962 | ) | 4,610,495 | |||||
Deficit, beginning of period |
(12,715,452 | ) | (6,768,853 | ) | (11,993,473 | ) | (12,457,916 | ) | ||||
Dividends |
- | - | (39,603 | ) | - | |||||||
Deficit, end of period |
(12,751,038 | ) | (7,847,421 | ) | (12,751,038 | ) | (7,847,421 | ) | ||||
|
||||||||||||
Other comprehensive income |
||||||||||||
Unrealized gain (loss) on available-for-sale securities |
(510,948 | ) | - | 282,058 | - | |||||||
Comprehensive income (loss) |
(546,534 | ) | (1,078,568 | ) | (435,904 | ) | 4,610,495 | |||||
Weighted average number of common shares outstanding basic (note 5) |
9,301,081 | 8,885,081 | 9,411,727 | 8,885,081 | ||||||||
Net income (loss) per share basic |
(0.00 | ) | (0.12 | ) | (0.08 | ) | 0.52 | |||||
Weighted average number of common shares outstanding fully diluted (note 5) |
9,301,081 | 8,885,081 | 9,411,727 | 9,379,832 | ||||||||
Net income (loss) per share diluted |
(0.00 | ) | (0.12 | ) | (0.08 | ) | 0.49 |
See accompanying notes to unaudited interim financial statements
F5
Mindesta Inc. |
(an exploration stage company) |
Statements of Cash Flows |
|
3 months ended June 30 | 6 months ended June 30 | ||||||||||
|
2012 | 2011 | 2012 | 2011 | ||||||||
|
$ | $ | $ | $ | ||||||||
|
(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 |
(35,586 | ) | (1,078,568 | ) | (717,962 | ) | 4,610,495 | |||||
Stock-based compensation |
- | 155,396 | 42,268 | 155,396 | ||||||||
Gain on deconsolidation |
- | - | - | (6,035,839 | ) | |||||||
Equity loss pick-up |
- | 677,477 | - | 937,392 | ||||||||
Gain on sale of marketable securities |
(156,870 | ) | - | (156,870 | ) | - | ||||||
(Gain) loss on amounts due to related party |
- | (30,000 | ) | - | 30,000 | |||||||
Nubian option agreement (note 6) |
127,994 | |||||||||||
Changes in non-cash operating working capital: |
||||||||||||
Receivables |
12,527 | 462,966 | (12,237 | ) | 121,936 | |||||||
Due from affiliate |
16,147 | - | 17,119 | - | ||||||||
Prepaid expenses and deposits |
15,343 | 6,327 | 20,888 | 170,626 | ||||||||
Accounts payable and accrued liabilities |
(113,068 | ) | 272,735 | (202,208 | ) | (345,829 | ) | |||||
|
(261,507 | ) | 466,333 | (881,008 | ) | (355,823 | ) | |||||
Financing activities |
||||||||||||
Proceeds from the exercise of stock options |
- | - | 33,750 | - | ||||||||
Change in notes payable |
- | - | - | (150,000 | ) | |||||||
|
33,750 | (150,000 | ) | |||||||||
Investing activities |
||||||||||||
Due from related party |
25,077 | - | 223,382 | (3,017 | ) | |||||||
Proceeds from the sale of marketable securities |
197,054 | - | 197,054 | - | ||||||||
Change in investments |
- | - | - | 319,596 | ||||||||
Proceeds from the sale of shares of subsidiary |
- | - | - | 1,005,400 | ||||||||
|
222,131 | - | 420,436 | 1,321,979 | ||||||||
Net increase (decrease) in cash |
(39,376 | ) | 466,333 | (426,822 | ) | 816,156 | ||||||
Cash, beginning of period |
181,932 | 396,014 | 569,378 | 46,191 | ||||||||
Cash, end of period |
142,556 | 862,347 | 142,556 | 862,347 | ||||||||
Supplementary information |
||||||||||||
Interest paid |
- | - | - | - | ||||||||
Income taxes paid |
- | - | - | - |
See accompanying notes to unaudited interim financial statements
F6
NOTE 1 - BASIS OF PRESENTATION
The unaudited interim financial statements of Mindesta Inc. (the Company and formerly Industrial Minerals, Inc.), for the three and six month periods ended June 30, 2012 and the notes thereto (the Financial Statements) have been prepared in accordance with generally accepted accounting principles for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, the Financial Statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, all adjustments (consisting of only normal accruals) considered necessary for a fair presentation have been included.
The Company is an Exploration Stage Company that incurred a net loss of $717,962 for the six months ended June 30, and has an accumulated deficit of $12,751,038 since the inception of the Company. The Companys ability to continue as a going concern is dependent upon its ability to raise additional capital to pay expenses and further planned exploration activities.
The Companys management believes that it will continue to be able to generate sufficient funds from public or private debt or equity financing for the Company to continue to operate. The accompanying financial statements do not include any adjustments that might result from negative outcomes with respect to these uncertainties
For further information, refer to the financial statements and notes thereto included in the Company's Annual Report on Form 10K for the year ended December 31, 2011.
The Company's fiscal year-end is December 31.
NOTE 2 ORGANIZATION AND ACCOUNTING POLICIES
(a) Organization
Mindesta, Inc. was incorporated on November 6, 1996, as Winchester Mining Corporation in the State of Delaware. On May 13, 2000, in connection with its merger with Hi-Plains Energy Corp., the Company changed its name from Winchester Mining Corporation to PNW Capital, Inc. On January 31, 2002, the Company acquired 91% of the outstanding shares of Industrial Minerals, Inc. On May 2, 2002, the Company merged the remaining 9% of Industrial Minerals, Inc. into PNW Capital, Inc. and changed its name to Industrial Minerals, Inc. Operations have been historically carried out through the Companys former subsidiary and principal asset, Northern Graphite Corporation (Northern), formerly Industrial Minerals Canada Inc. Northern owns a 100% interest in the Bissett Creek graphite property located in Renfrew County in the Province of Ontario, Canada (the Bissett Creek Property). As a result of a number of financings and other transactions completed in 2010, the Companys interest in Northern was reduced from 100% to 51.2% as at December 31, 2010. On January 7th, 2011, the Company sold 2,000,000 shares of Northern and on April 18, 2011, Northern completed an initial public offering which, along with warrants of Northern being exercised since the offering, reduced the Companys ownership 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 Graphite 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 Graphite owned by the Company on the basis of one share of Northern Graphite for each share of Company common stock held. As at June 30, 2012, the Companys interest in Northern Graphite had decreased to less than 1%. Effective July 26, 2011, the Company changed its name to Mindesta Inc. and consolidated its stock on a 20:1 basis. The Company trades on the OTCBB under the symbol MDST.
(b) Recently Adopted Pronouncements
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS
In May 2011, the FASB issued Accounting Standards Update (ASU) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The Update amends fair value measurements and disclosures to (1) clarify the boards intent in respect of existing measurement guidance, (2) revise certain measurement guidance that changes or modifies a principle, and (3) add disclosure requirements concerning the measurement uncertainty of level 3 measurements. This guidance is effective for the Company for the first interim or annual period beginning on or after December 15, 2011. Adoption of this guidance did not have a material effect on the financial condition, results of operation, or cash flows of the Company.
F7
Comprehensive Income (Topic 220): Presentation of Comprehensive Income
In June 2011, the FASB issued Accounting Standards Update (ASU) 2011-02, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under the amendments, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective for the Company for the fiscal year beginning after December 15, 2011. Adoption of this guidance did not have a material effect on its financial condition, results of operation, or cash flows of the Company.
NOTE 3 MARKETABLE SECURITIES AND INVESTMENT IN NON-CONSOLIDATED AFFILIATE
As at December 31, 2011 and June 30, 2012, the Company recorded its investment in Northern, a non-consolidated affiliate, at cost.
Investment | $ | ||
Balance at December 31, 2011 | 3,432,261 | ||
Stock dividend paid on January 25, 2012 | (3,313,675 | ) | |
Sale of marketable securities | (40,185 | ) | |
Balance at carrying value as at June 30, 2012 | 78,401 |
Following the payment of the stock dividend on January 25, 2012, the Companys investment in Northern was reclassified as an available-for-sale security and is reflected as marketable securities in the current asset section of the Balance Sheet. The following table summarizes the Companys available-for sale securities as of June 30, 2012:
Equity securities | Cost | Gross unrealized gains | Fair value | ||||||
Outstanding | 78,401 | 282,058 | 360,459 |
During the six month period ended June 30, 2012, the Company recorded an unrealized gain on available-for-sale securities of $282,058. This gain is recorded as other comprehensive income.
NOTE 4 - PRESENTATION OF INTERIM INFORMATION
The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, in the opinion of management, include all normal adjustments considered necessary to present fairly the financial position as of June 30, 2012 and the results of operations and cash flows for the three and six month periods ended June 30, 2012 and 2011. Interim results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-Q, and do not include information included in the Company's audited financial statements and notes for the year ended December 31, 2011.
NOTE 5 STOCKHOLDERS EQUITY
A. COMMON STOCK OPTIONS
The Company adopted ASC 718 (formerly SFAS 123) Stock-Based Compensation, effective April 1, 2007. Compensation cost for the Companys stock options have been determined in accordance with the fair value based method prescribed as ASC 718. The fair value of option grants is estimated on the date of grant utilizing the Black-Scholes option pricing model. The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model.
On July 26, 2011, the Company consolidated its common stock on a 20:1 basis. All common stock numbers and stock option numbers have been restated to reflect the consolidation.
On April 19, 2011, the Company granted stock options to purchase 112,500 common shares at a price of $1.40 per share until April 19, 2016. All options vested immediately. The fair value of the option grant was estimated using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 220%; risk-free interest rate of 2.09%; and an expected term of 5 years.
On March 15, 2012, the Company granted stock options to purchase 650,000 common shares at a price of $0.10 per share until March 15, 2017. All options vested immediately. The fair value of the option grant was estimated using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 122%; risk-free interest rate of 1.11%; and an expected term of 5 years.
F8
The following table summarizes stock option activity for the 6 months ended June 30, 2012:
Number of securities to be | ||||||
Equity compensation plans not approved by security | issued upon exercise of | Weighted-average exercise | ||||
holders | outstanding options | price of outstanding options | ||||
Outstanding December 31, 2011 | 225,000 | $ | 0.85 | |||
Issued | 650,000 | $ | 0.10 | |||
Exercised | (112,500 | ) | $ | 0.30 | ||
Outstanding at June 30, 2012 | 762,500 | $ | 0.29 |
Exercisable at June 30, 2012 762,500.
Using the Black-Scholes option pricing model, the Company had stock compensation expense for the six months ending June 30, 2012 of $42,268. The Company did not incur stock-based compensation expense in the six month period ended June 30, 2011.
B. COMMON STOCK
The number of common shares outstanding at June 30, 2012 and December 31, 2011 was as follows:
Number | $ | |||||
Outstanding December 31, 2011 | 9,301,081 | 18,592 | ||||
Issued pursuant to the exercise of stock options | 112,500 | 225 | ||||
Outstanding at June 30, 2012 | 9,413,581 | 18,817 |
The number of common shares outstanding for June 30, 2012 and December 31, 2011, before and after giving effect to the 20:1 stock consolidation on July 29, 2011 was as follows:
Before giving effect to the | After giving effect to the 20:1 | |||||
As at: | 20:1 consolidation | consolidation | ||||
June 30, 2012 | n/a | 9,413,581 | ||||
December 31, 2011 | n/a | 9,301,081 |
The basic weighted average number of common shares outstanding before and after giving effect to the 20:1 stock consolidation on July 29, 2011 was as follows:
Before giving effect to the | After giving effect to the 20:1 | |||||
For the 6 months ended: | 20:1 consolidation | consolidation | ||||
June 30, 2012 | n/a | 9,411,727 | ||||
June 30, 2011 | 177,701,620 | 8,885,081 |
The fully-diluted weighted average number of common shares outstanding before and after giving effect to the 20:1 stock consolidation on July 29, 2011 was as follows:
Before giving effect to the | After giving effect to the 20:1 | |||||
For the 6 months ended: | 20:1 consolidation | consolidation | ||||
June 30, 2012 | n/a | 9,411,727 | ||||
June 30, 2011 | 187,596,640 | 9,379,832 |
For the six months ended June 30, 2012, the inclusion of common stock equivalents in the calculation of the weighted average number of shares is anti-dilutive.
F9
NOTE 6 RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2012:
a) The Company granted 500,000 options to directors and officers of the Company. Each option entitles the holder to purchase one common share at an exercise price of $0.10 until March 15, 2017. Stock-compensation expense of $32,514 was recognized during the period in connection with this option grant.
b) On October 6, 2011, the Board of Directors approved a revolving loan agreement between Mindesta Inc., as the lender, and Nubian Gold Corporation (Nubian), as the borrower, to fund the ongoing exploration activities of Nubian in anticipation of the companies negotiating and entering into a property option agreement with respect to Nubians two exploration licenses, Arapsyo and Qabri Bahar, located in the Republic of Somaliland. Nubian is a corporation incorporated under the laws of Ontario, Canada and Gregory Bowes, CEO, is its major shareholder. Mr. Bowes is also an officer and director of Mindesta. Mr. Bowes declared his conflict of interest to the Board of Directors and abstained from voting on the consent resolution approving the revolving loan agreement. On December 2, 2011, this facility was amended to increase the maximum of the revolving loan agreement credit facility. Under the revolving loan agreement, all amounts due from Nubian to the Company were provided under a $150,000 credit facility which was repayable upon the earlier of one year from the date of the agreement or the signing of a property option agreement. The terms stated that the revolving loan agreement becomes repayable upon the signing of a property option agreement and that all obligations of Nubian would be applied against the expenditure requirements of the Company under the property option agreement. Upon the inception of property option agreement, the obligations were considered paid in full, and the revolving loan agreement was terminated and had no further force or effect. Advances under the facility bore interest from October 6, 2011 at an annual rate of 7.5 per cent, payable annually, or earlier at anytime that the advances are repaid in full.
Mindesta entered into the option agreement with Nubian, effective January 2, 2012. As at January 2, 2012, Nubian had received advances of $127,994 under this revolving loan agreement and the Company had accrued $1,025 of interest receivable. As per the terms of the revolving loan agreement, Nubian applied these advances as expenditures under the option agreement and Mindesta recorded $127,944 of exploration expenses related to these expenses in the first six months of 2012. In addition, Mindesta incurred $412,171 of exploration expenses during the first six months of 2012 and accrued a payable of $100,000 for mineral properties under the option agreement, to Nubian. Mindesta can earn a 50% interest in both permits by incurring total exploration expenditures of $2 million within two years and can increase its interest to 80 per cent by completing a bankable feasibility study. The first $750,000 of exploration expenditures represents a firm commitment. Mindesta also has the option to acquire all of Nubians remaining interest in the permits at fair market value at any time after incurring the first $750,000 of exploration expenditures.
c) On February 10, 2012, Mindesta approved the reimbursement of $47,686 in exploration expenses incurred by Nubian but paid by Bowes & Company, Management Ltd. (Bowes & Company) to keep exploration activities advancing in the Republic of Somaliland during the period that the revolving loan agreement was being finalized. Bowes & Company is a corporation incorporated under the laws of Ontario, Canada and Gregory Bowes, CEO, is its major shareholder. Mr. Bowes declared his conflict of interest with respect to authorizing these expenses and they were approved by the Audit Committee chairman.
As at | As at | |||||
Due from related parties | June 30, 2012 | December 31, 2011 | ||||
$ | $ | |||||
Due from Northern | - | 16,147 | ||||
Due from Nubian | - | 128,966 | ||||
Total due from related parties | - | 145,113 |
As at | As at | |||||
Due to related parties | June 30, 2012 | December 31, 2011 | ||||
$ | ||||||
Due to Nubian | 175,696 | - | ||||
Due to Bowes & Company | 47,686 | - | ||||
Total due to related parties | 223,382 | - |
As at June 30, 2012 and December 31, 2011, accounts payable and accrued liabilities did not include any amounts due to directors and to companies controlled by directors for professional management fees related to the services of the directors and officers.
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NOTE 7 DIVIDEND PAYABLE
On December 12, 2011, the Board of Directors declared a pro rata dividend-in-kind, payable January 25, 2012 to shareholders of record as at January 5, 2012, whereby most of the shares of Northern owned by the Company would be distributed to Mindesta shareholders. At the close of trading on January 25, 2012, Mindesta completed the distribution to Company shareholders of 9,413,581 shares of Northern owned by the Company (approximately 25% of the Northern common shares outstanding) on the basis of one share of Northern for each share of the Company held and the dividend payable of $3,313,675 was paid in full. The dividend payable had increased by $39,603 from $3,274,072 as at December 31, 2011 as a result of options exercised as at January 4, 2012. As at the close of trading January 25, 2012, the Companys interest in Northern Graphite decreased to 0.8% and is 0.5% as at June 30, 2012.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The property option agreement between the Company and Nubian included a firm commitment on the first $750,000 of exploration expenditures within a year of January 2, 2012. As at June 30, 2012, the Company has incurred expenditures of $512,479 towards this commitment and has committed to $237,521 of additional expenditures before January 2, 2013.
The Company has been named in a lawsuit filed by Windale Properties in the amount of CDN$19,781. The claim is the result of termination of leased premises in Oakville, Ontario prior to expiry of the lease. No amount related to this contingency has been accrued as the outcome at this time is indeterminable.
NOTE 9 - CORRECTION OF ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS
During its review of the June 30, 2012 financial statements, management has determined that certain errors were contained in the Companys financial statements for quarter ended March 31, 2012. Upon entering into the option agreement with Nubian effective January, 2, 2012, the Company had not capitalized the acquisition cost of $100,000 as a mineral interest. The Company had recorded this amount as an exploration expense. In accordance with ASC 805 mineral rights to explore, extract and retain at least a portion of the benefits from mineral deposits are to be considered tangible assets. The adjustments required to appropriately record this adjustment are material to the filed financial statements, thus management is restating the March 31, 2012 amounts.
The effect of the Company's previously issued March 31, 2012 financial statement is summarized as follows:
Statements of Operations | Previously issued | Increase (decrease) | Restated | ||||||
Three months ended March 31, 2012 | $ | $ | $ | ||||||
Exploration Expense | 517,936 | (100,000 | ) | 417,936 | |||||
Net loss | 682,376 | (100,000 | ) | 582,376 | |||||
Basic loss per share | (0.07 | ) | 0.01 | (0.06 | ) | ||||
Diluted loss per share | (0.07 | ) | 0.01 | (0.06 | ) |
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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 has been 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 near the town of Bissett Creek (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. The Company currently owns less than 1% of Northern due to the distribution of its Northern shares to Mindesta shareholders. The 2010 and 2011 financing transactions enabled the Company and Northern to deal with the serious debt and creditor issues that existed in 2009 and to move the Bissett Creek Property forward.
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.
Under the mandate of the restructured Board of Directors, the Company significantly reduced its monthly operating expenses and focused its efforts on settling payables, reducing debt, raising financing and developing a plan to move the Company forward.
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 Graphite Corporation (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 Graphite 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 km2 mineral exploration permits, Arapsyo and Qabri Bahar, which are the first two ever issued by the Republic of Somaliland. 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 is 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 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 plans on 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.
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Subsequent to the end of the first quarter, Nubian was awarded a third permit, Abdul Qadir, which is approximately 2,000 km2 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. The Company has received some preliminary assay results. Once all results are received, the Company will analyze and compile the data and plan a second stage exploration program to follow up on the most promising targets. To date, Mindesta has incurred expenditures of approximately $12,114 on the permits and believes that the initial $750,000 threshold will be close to being achieved when all work on the new permit is completed. The Company will require additional financing to execute the second stage program.
RESULTS OF OPERATIONS
For the six months ended June 30, 2012, the Company recorded a net loss of $717,962, or $0.08 per share, compared to a gain of $4,610,495 for the six months ended June 30, 2011, or $0.52 per share. This net gain during the six months ending June 30, 2011 resulted from the Company recognized a gain of $6,035,839 on the deconsolidation of its investment holdings. The deconsolidation was due to the sale of 2,000,000 shares of Northern and the resultant decline in the Companys interest below 50% which made it necessary for the Company to change its accounting treatment for the investment. The Company had no revenues for the period ended June 30 in both 2012 and 2011 as the Company is an exploration stage company with no source of revenues.
For the six months ended June 30, 2012, expenses amounted to $874,341 compared to $463,627 for the six months ended June 30, 2011. There were higher expenses for the six months ended June 30, 2012 as a result of exploration expenses incurred by Nubian Gold. Management fees and salaries decreased to $32,514 for the six months ended June 30, 2012 compared to $169,263 for the six months ended June 30, 2011, as a result of less management involvement as the focus of expenditures shifted to exploration activities. Professional fees increased to $115,883 in the six months ended June 30, 2012 from $71,132 in 2011 as a result of additional fees related to the Companys pro rata dividend-in-kind. General and administration expenses decreased from $223,232 in the first six months of 2011 to $106,963 in the first six months of 2012 as the focus of expenditures shirted to exploration 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, 2012 of $142,556 versus $569,378 as at December 31, 2011 due to exploration expenditures incurred under the property option agreement with Nubian Gold and expenses related to the payment of the share dividend.
The Company has access to additional financing through the possible sale of marketable securities, which had a market value at June 30, 2012 of $360,459. The Company received proceeds of $197,054 from the sale of 114,000 shares of Northern Graphite Corporation during the six months ended June 30, 2012. Although the Company currently has no revenue sources, the funding raised by the Company and through the sale of shares of Northern, is sufficient to pay operating and administrative costs for the time being. In the future, the Company will require 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, 2011 have expressed a concern that the Company may not be able to continue as a going concern. The Company had a net loss of $717,962 for the six months ended June 30, 2012, and has had recurring losses and an accumulated deficit of $12,751,038 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.
As of January 25, 2012, the Company no longer had significant ownership in Northern. The Company no longer raises capital for the support of Northern and operates as a distinct entity. As at June 30, 2012, the Company had $142,556 in cash and marketable securities with a fair value of $360,459. The Company believes that it will continue to be able to raise additional funds from public or private debt or equity sources to continue to operate. 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 accompanying financial statements do not include any adjustments that might result if the going concern assumption is not valid.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
IMI is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide information under this item.
Item 4. CONTROLS AND PROCEDURES
At the end of the period covered by this report, an evaluation was carried out under the supervision of and with the participation of the Companys management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operations of the Companys disclosure controls and procedures (as defined in Rule 13(a) 15(e) and Rule 15(d) 15(e) under the Exchange Act). Based on that evaluation and in light of the discussion of the material weakness discussed below in the Managements Report on Internal Control over Financial Reporting, the CEO/CFO has concluded that as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective in ensuring that: (i) information required to be disclosed by the Company in reports that it files or submits to the Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the CEO/CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the CEO and implemented by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The evaluation of internal controls over financial reporting includes an analysis under the COSO framework, an integrated framework for the evaluation of internal controls issued to identify the risks and control objectives related to the evaluation of the control environment by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on the evaluation described above, management has concluded that the Companys internal control over financial reporting was not effective during the period ended June 30, 2012. Management has determined that (i) the ability of management to override internal control systems, and (ii) the significant amount of manual intervention required in the accounting and financial reporting process are material weaknesses in the Companys internal control over financial reporting.
This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter and the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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 the expiry of the lease.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS: None.
Item 3. DEFAULTS UPON SENIOR SECURITIES: None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None.
Item 5. OTHER INFORMATION: None.
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Item 6. EXHIBITS
EXHIBIT NO. DESCRIPTION
31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: July 23, 2012 MINDESTA INC.
By:
/s/ Gregory
Bowes
---------------------------------
President
and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: July 23, 2012 MINDESTA INC.
By:
/s/ Gregory
Bowes
-----------------------------------------
Gregory
Bowes, Chief Financial Officer
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