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EX-31.2 - EXHIBIT 31.2 - Mindesta Inc.exhibit31-2.htm
EX-31.1 - EXHIBIT 31.1 - Mindesta Inc.exhibit31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2013

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 [X]

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: February, 7, 2014: 9,413,581 shares.

As of June 30, 2013, the aggregate market value was $94,136 based upon the closing sale price of the common stock as reported by the Over-the-Counter-Bulletin-Board (“OTCBB”) on that date.

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This document contains “forward-looking statements” which reflect management’s expectations regarding the Company’s 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 Annual Report on Form 10-K 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.

ITEM 1 - DESCRIPTION OF BUSINESS

BACKGROUND

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 Company’s sole asset and primary focus was its investment in Northern Graphite Corporation (“Northern”). Northern holds a 100% interest in a number of mineral claims and a mining lease covering a deposit of natural graphite located in Maria Township, approximately 180 miles northeast of Toronto, Ontario and between the towns of Deep River and Mattawa, Ontario (the “Bissett Creek Property”). The Bissett Creek Property was on care and maintenance from 2005 to 2010. In the latter part of 2009 and in the first quarter of 2010 Northern raised its own financing which had the effect of reducing the Company’s interest in Northern from 100% to approximately 51%. The Company’s 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 to the present time, the Company has experienced serious financial difficulties and gone 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. Effective July 5, 2013, W. Campbell Birge, Douglas Perkins, and Albert Zapanta resigned as Directors of Mindesta Inc. due to the Company’s poor financial condition and lack of prospects. There were no disagreements with the Company regarding its operations or financial reporting. Gregory Bowes is now the sole Director and Officer.

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.

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. 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 could earn a 50% interest in both permits by incurring total exploration expenditures of $2 million within two years and could 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, which it has not done, and the first $750,000 of exploration expenditures represented a firm commitment. Mindesta also had the option to acquire all of Nubian’s 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, 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 was 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 which it has not yet done.

Mindesta 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 these permits which exceeds the initial $750,000 requirement.


Somaliland is an independent democratic republic which is not yet recognized by the international community. In order to attract investment and enhance the country’s 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 km2 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 2,000km2 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 although it has not yet done 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 was responsible for all of Nubian’s obligations with respect to the MOU and the two amendments.

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 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 was required to sell its remaining shares of Northern as they were released from escrow and remit all proceeds to Bowes & Company, until all obligations to Bowes & Company were satisfied, and then remit any further proceeds to Nubian until all obligations to Nubian were 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. Over the September, 2011 to April, 2012 period, 2,500km2 of the Arapsyio and Qabri Bahar permits were sampled at a density of one sample every 1-2 km2. 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 would 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 made the first $750,000 of exploration expenditures as required but has accumulated substantial payables to Bowes & Company and Nubian in doing so. The Company did not have the resources to meet its commitments with respect to the permits in 2013 and its option to earn an interest in them terminated effective January 2, 2014.

Item 1A RISK FACTORS

The Company's business is subject to numerous risk factors, and it has the following concerns:

1. While Mindesta has undertaken mining exploration activities, it has no history of operations and it must raise capital in order to find new exploration activities. The Company has no record of earnings or cash flow from mining operations. It is also subject to all the risks inherent in a developing business enterprise including lack of cash flow, and no assurance of recovery and sale of minerals resulting from its exploration activities.

2. Mineral exploration is a highly subjective process that requires a very high degree of education, experience, expertise and luck. Furthermore, the Company will be subject to many risk factors that knowledge, expertise and perseverance may be insufficient to overcome should it continue to undertake future mining exploration activities. The Company would also compete against a large number of companies that have substantially greater financial and technical resources. The probability of finding mineralization in economic quantities that can be profitably mined are very small and no assurances can be given that the Company would be successful.

3 The Company is wholly dependent at the present time upon the personal efforts and abilities of its sole Officer and Director, who exercises control over the day-to-day affairs of the Company.

4. The Company does not have sufficient capital to undertake exploration activities or meet administrative expenses and there is no assurance that the Company will secure additional capital in order to undertake additional exploration activities.

There are no dividends anticipated by the Company.

ITEM 1B Unresolved Staff Comments

As a smaller reporting company, the Company is not required to include this Item.


ITEM 2 - DESCRIPTION OF PROPERTIES

Somaliland Project – Option Agreement

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 could earn a 50% interest in both permits by incurring total exploration expenditures of $2 million within two years and could 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, which it has not done, and the first $750,000 of exploration expenditures represented a firm commitment. Mindesta also had the option to acquire all of Nubian’s 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.

Nubian was subsequently 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 was automatically included in the Option Agreement pursuant to its terms with no change in expenditure requirements. Nubian 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 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 $758,742 on work on these permits.

Somaliland is an independent democratic republic which is not yet recognized by the international community. In order to attract investment and enhance the country’s 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 km2 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 2,000km2 in size, is subject to the same $8,000 annual fee.

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 was responsible for all of Nubian’s obligations with respect to the MOU and the two amendments.


On November 27, 2012, Mindesta announced that it had received assay results from its first stage stream sediment and rock sampling program on the Arapsyo, Qabri Bahar and Abdul Qadir exploration permits. Over the September, 2011 to April, 2012 period, 2,500km2 of the Arapsyio and Qabri Bahar permits were sampled at a density of one sample every 1-2 km2. A total of 1,659 stream sediment and 58 rock samples were submitted to the assay laboratory and a number of anomalies were identified. From March to July, 2012, approximately 1,400km2 more were sampled and a total of 1,045 stream sediment and 98 rock samples were submitted to the assay laboratory and a number of additional anomalous areas identified.

While encouraging regional anomalies were identified, and Mindesta made the first $750,000 of exploration expenditures as required, it owes money to both Nubian and Bowes & Company and was faced with the challenge of financing a second stage program in a very difficult market for junior explorers. Under the option agreement, Mindesta was to be able to earn a 50% interest in both permits by incurring total exploration expenditures of $2 million within two years. As at January 2, 2014, the two year anniversary of the option agreement, the Company had not incurred the required total exploration expenditures of $2 million and thereby, relinquished all rights under the option agreement.

ITEM 3 - LEGAL PROCEEDINGS

The Company has been named in a lawsuit filed by Windale Properties in the amount of $19,781Cdn. The claim is the result of termination of leased premises in Oakville, Ontario prior to expiry of the lease.

ITEM 4 – REMOVED AND RESERVED


PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) The Registrant's common stock is traded in the over-the-counter market under the symbol MDST (OTC Bulletin Board Symbol). The table below sets forth the high and low bid prices of the Registrant's common stock for the periods indicated. Such prices are inter-dealer prices, without mark-up, mark-down or commissions and do not necessarily represent actual sales.

Fiscal Quarter Ending High Low
March 31, 2008 $1.60 $1.40
June 30, 2008 $1.60 $1.20
September 30, 2008 $0.80 $0.40
December 31, 2008 $0.20 $0.20
March 31, 2009 $1.00 $1.00
June 30, 2009 $0.40 $0.40
September 30, 2009 $0.80 $0.80
December 31, 2009 $0.40 $0.20
March 31, 2010 $0.60 $0.20
June 30, 2010 $0.40 $0.20
September 30, 2010 $0.40 $0.20
December 31, 2010 $0.80 $0.20
March 31, 2011 $2.00 $0.80
June 30, 2011 $1.60 $0.60
September 30, 2011 $1.50 $0.50
December 31, 2011 $0.85 $0.36
March 31, 2012 $1.20 $0.08
June 30, 2012 $0.20 $0.08
September 30, 2012 $0.09 $0.04
December 31, 2012 $0.05 $0.03
March 31, 2013 $0.12 $0.00
June 30, 2013 $0.04 $0.01
September 30, 2013 $0.03 $0.01
December 31, 2013 $0.03 $0.01

(b) As of December 31, 2013, there were 319 shareholders of record of the registrant's common stock.

(c) The Registrant has neither declared nor paid any cash dividends on its common stock, and it is not anticipated that any such dividend will be declared or paid in the foreseeable future.

Effective August 11, 1993, the Securities and Exchange Commission (the "Commission") adopted Rule 15g-9, which established the definition of a "penny stock," for purposes relevant to the Company, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) that the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form,(i)sets forth the basis on which the broker or dealer made the suitability determination; and (ii) states that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Equity Compensation Plan Information

  (a) Number of securities to be   (c) Number of securities
  issued upon exercise of (b) Weighted average exercise remaining available for future
Plan Category outstanding options, warrants price of outstanding options, issuance under equity
  and rights warrants and rights compensation plans (excluding
      securities reflected in column
      (a)
Equity compensation plans approved by security holders None n/a n/a
Equity compensation plans not approved by security holders 762,500 $0.29 None


The Company had no stock compensation expense for the year.

Dividends

The Company has not paid any cash dividends to date, and has no plans to do so in the immediate future.

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 common stock for each share of Company common stock held. The U.S. Financial Industry Regulatory Authority (“FINRA”) established January 26, 2012 as the ex-dividend date (the “Ex-Dividend Date”) for this distribution.

ITEM 6 - SELECTED FINANCIAL DATA

As a smaller reporting company, the Company is not required to include this Item.

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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 Company’s 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 Company’s interest in Northern from 100% to approximately 51%. The Company’s 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 no longer holds any shares of Northern.

From 2004 until the present, 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. Effective July 5, 2013, W. Campbell Birge, Douglas Perkins, and Albert Zapanta resigned as Directors of Mindesta Inc. due to the Company’s poor financial condition and lack of prospects. Gregory Bowes is now the sole Director and Officer.

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 of 9,413,581 shares of Northern (approximately 25% of the Northern common shares outstanding) 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.


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 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 could earn a 50% interest in both permits by incurring total exploration expenditures of $2 million within two years and could 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, which it has not done, and the first $750,000 of exploration expenditures represented a firm commitment. Mindesta also had the option to acquire all of Nubian’s 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 focussed 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.

In 2012, 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 was 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 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 exceeded the initial $750,000 requirement.

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 was required to sell its remaining shares of Northern as they were released from escrow and remit all proceeds to Bowes & Company, until all obligations to Bowes & Company are satisfied, and then 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. Over the September, 2011 to April, 2012 period, 2,500km2 of the Arapsyio and Qabri Bahar permits were sampled at a density of one sample every 1-2 km2. A total of 1,659 stream sediment and 58 rock samples were submitted to the assay laboratory. Encouraging regional anomalies were identified, particularly for gold,. However, substantial additional work is required to follow up on these anomalies..

Mindesta has not yet made the first $100,000 payment required under the agreement and made the $750,000 of exploration expenditures as required as a firm commitment but it 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. Under the option agreement, Mindesta was to earn a 50% interest in both permits by incurring total exploration expenditures of $2 million within two years and could increase its interest to 80 per cent by completing a bankable feasibility study. As at January 2, 2014, the two year anniversary of the option agreement, the Company had not incurred the required total exploration expenditures of $2 million and thereby, relinquished all rights under the option agreement.


RESULTS OF OPERATIONS

For the year ended December 31, 2013, the Company recorded a gain of $110,464, or $0.01 per share, compared to a net loss of $1,003,188 for the year ended December 31, 2012, or $0.11 per share. The Company had no revenues for the years ended December 31, 2013 and 2012.

For the year ended December 31, 2013, expenses amounted to ($92,201) compared to $1,194,907 for the year ended December 31, 2012. There were lower expenses for the year ended December 31, 2013 as a result of a significant reduction in exploration expenses to $14,954 having been incurred by Nubian Gold and funded by Mindesta in 2013. In addition, in 2013, the Company revised its estimate for potential penalties related to past US tax filings from $249,804 to zero which resulted in a credit to the general and administrative expenses by this same amount. The estimate was based on a “worst case scenario” and was revised when the IRS ruled that no penalties were payable. The Company expensed $12,500 in management fees and salaries in the year ended December 31, 2013, compared to $32,514 for the year ended December 31, 2012. Professional fees decreased to $40,727 in the year ended December 31, 2013 from $145,298 in 2012 as a result of additional fees related to the Company’s pro rata dividend-in-kind that were incurred in 2012. General and administration expenses decreased from $158,353 in 2012 to ($160,382) in 2013 as the Company has scaled back all activities and reversed the provision for potential penalties related to past US tax filings.

The Company currently has no full time employees. Where required, the Company contracts with consultants for management, engineering, technical, administrative and financial services.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash as at December 31, 2013 of $823 versus $12,091 as at December 31, 2012. All funds received from the sale of the remaining shares of Northern Graphite and any funding received from Bowes & Company were more than offset by exploration expenditures incurred under the property option agreement with Nubian, payment of operating expenses, 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. The Company has survived because of cash advances from its sole director and officer and there is no assurance that such financing will be available in the future. Effective July 5, 2013, W. Campbell Birge, Douglas Perkins, and Albert Zapanta resigned as Directors of Mindesta Inc. due to the Company’s poor financial condition and lack of prospects. Gregory Bowes is now the sole Director and Officer.

CRITICAL ACCOUNTING ESTIMATES

The consolidated financial statements of Mindesta, Inc. are prepared in conformity with GAAP, which requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Mindesta, Inc.'s accounting policies are described in Note 2 to the consolidated financial statements. Critical accounting estimates are described in this section. An accounting estimate is considered critical if the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made, different estimates reasonably could have been used, or if changes in the estimate that would have a material impact on the Company’s financial condition or results of operations are reasonably likely to occur from period to period. Management believes that the accounting estimates employed are appropriate and resulting balances are reasonable. However, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The Company has discussed the development, selection and disclosures of these critical accounting estimates with the Audit Committee and the Board of Directors, and the Audit Committee has reviewed the Company's disclosures relating to these estimates.

GOING CONCERN

The Company's auditors in their report for the year ended December 31, 2013 have expressed a concern that the Company may not be able to continue as a going concern. The Company had a net gain from operations of $92,201 for the year ended December 31, 2013 and it has had recurring losses and an accumulated deficit of $12,925,800 since inception. The net gain from operations was not the result of cash provided by operations; it was a non-cash gain. The Company’s 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 December 31, 2013, the Company had $823 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.


IMPAIRMENT OF LONG-LIVED ASSETS

Mindesta periodically reviews the carrying value of its long-lived assets held and used, other than goodwill and intangible assets with indefinite lives, and assets to be disposed of when events and circumstances warrant such a review. This review is performed using estimates of future cash flows as well as industry and market conditions and the Company’s future development plans. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. 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 Company’s ability to expend the required $2 million dollars within two years to earn its interest on the option agreement with Nubian.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Mindesta Inc.:

We have audited the accompanying balance sheets of Mindesta Inc. (the “Company”) as of December 31, 2013 and 2012, and the related statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for each of the years in the two year period ended December 31, 2013. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the two period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in the exploration stage, has no established source of revenue and is dependent on its ability to raise capital from existing shareholders or other sources to sustain operations. These factors, along with other matters as set forth in Note 2, raise substantial doubt that the Company will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

   
Vancouver, Canada

MNP LLP, Chartered Accountants

February 7, 2014  



Mindesta Inc.
(formerly Industrial Minerals Inc.)
(an exploration stage company)
Balance Sheets

    As at     As at  
    December 31     December 31  
    2013     2012  
             
  $   $  
             
Assets            
Current            
   Cash and cash equivalents   823     12,091  
   Marketable securities (note 3)   -     164,333  
   Receivables   5,429     8,716  
   Prepaid expenses and deposits   -     17,939  
Total current assets   6,252     203,079  
             
Total assets   6,252     203,079  
             
Liabilities            
Current            
   Accounts payable and accrued liabilities   35,205     316,534  
   Due to related parties (note 6)   214,173     272,879  
Total current liabilities   249,378     589,413  
             
Total liabilities   249,378     589,413  
             
Stockholders’ equity (deficiency)            
Common stock 200,000,000 shares authorized, $0.0001 par value; 9,300,634 shares issued and outstanding (note 4)   18,817     18,817  
Additional paid-in capital   12,663,857     12,626,129  
Accumulated other comprehensive income   -     4,984  
Deficit accumulated during exploration stage   (12,925,800 )   (13,036,264 )
Total stockholders' equity (deficiency)   (243,126 )   (386,334 )
             
Total liabilities and stockholders' equity   6,252     203,079  
Nature of operations and going concern (note 2b)            
Commitments and contingencies (note 5)            
Subsequent event (note 9)            

See accompanying notes to financial statements

Approved by Board: (signed) Gregory Bowes
  Director

F14



Mindesta Inc.
(formerly Industrial Minerals Inc.)
(an exploration stage company)
Statements of Operations and Comprehensive Income (Loss)

    Year ended December 31  
    2013     2012  
  $   $  
             
General and administrative expenses            
Professional fees   40,727     145,298  
Management fees and salaries (note 6)   12,500     32,514  
Exploration expense   14,954     758,742  
Impairment of mineral property (note 7)   -     100,000  
General and administration (note 8)   (160,382 )   158,353  
    (92,201 )   1,194,907  
             
Gain (loss) from operations   92,201     (1,194,907 )
Interest and other income   1,645     53  
Foreign exchange loss   (7,700 )   (6,206 )
Gain on sale of marketable securities (note 3)   24,318     197,872  
Income (loss) for the year   110,464     (1,003,188 )
             
Other comprehensive loss            
Unrealized gain (loss) on available for sale securities (note 3)   (4,984 )   110,969  
Total comprehensive income (loss) for the year   105,480     (892,219 )
             
Net income (loss) per share – basic   0.01     (0.11 )
Weighted average number of common shares outstanding – basic (note 4)   9,413,581     9,412,659  
Net income (loss) per share – fully diluted   0.01     (0.11 )
Weighted average number of common shares outstanding – fully diluted (note 4)   9,413,581     9,412,659  

See accompanying notes to financial statements

F15



Mindesta Inc.
(formerly Industrial Minerals Inc.)
(an exploration stage company)
Statements of Cash Flows

    Year ended December 31  
    2013     2012  
  $   $  
             
Cash provided by (used in)            
Operating activities            
Income (loss) for the year   110,464     (1,003,188 )
Stock-based compensation   -     42,268  
Gain on reversal of income tax penalty accrual (note 8)   (249,805 )   -  
Gain on sale of marketable securities (note 3)   (24,318 )   (197,872 )
Imputed interest on loan from related party (note 6)   25,228     13,020  
Value of services provided by officer (note 6)   12,500     -  
Write-down of mineral property (note 7)   -     100,000  
Nubian option agreement (note 7)   -     127,994  
Changes in non-cash operating working capital:            
   Receivables   3,287     (8,565 )
   Due from affiliate   -     17,119  
   Prepaid expenses and deposits   17,939     18,153  
   Accounts payable and accrued liabilities   (31,524 )   (135,940 )
    (136,229 )   (1,027,011 )
Financing activities            
Proceeds from the exercise of options   -     33,750  
    -     33,750  
Investing activities            
   Due to (from) related party (note 6)   (58,706 )   172,879  
   Proceeds from the sale of marketable securities (note 3)   183,667     263,076  
   Change in investments   -     19  
    124,961     435,974  
Net increase (decrease) in cash and cash equivalents   (11,268 )   (557,287 )
Cash and cash equivalents, beginning of period   12,091     569,378  
Cash and cash equivalents, end of period   823     12,091  
             
Supplementary information            
   Interest paid   -     -  
   Income taxes paid   -     -  

See accompanying notes to financial statements

F16



Mindesta Inc.
(formerly Industrial Minerals Inc.)
(An exploration stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
For the period from November 6, 1996 (Date of Inception of Exploration Stage) to December 31, 2012

  Common Stock     Additional Paid-in Capital     Accumulated Deficit During Exploration Stage     Accumulated Other Comprehensive Income     Non Controlling Interest     Common Stock Subscriptions Received     Total Stockholders' Equity (Deficit)  
Number of Shares   Amount  
                                                 
Inception - November 6, 1996 - See Note A below   -   $  -   $  -   $  -   $  -     -   $  -     -  
Balance at December 31, 1998   40,928     76     505,092     (750,830 )   -     -     -     (245,662 )
Issuance of common stock for cash   4,500     9     146,612     -     -     -     -     146,621  
Issuance of common stock for services   8,250     17     274,983     -     -     -     -     275,000  
                                                 
Net Loss         -     -     (259,404 )   -     -     -     (259,404 )
                                                 
Balance at December 31, 1999   53,678     102     926,687     (1,010,234 )   -     -     -     (83,445 )
                                                 
Issuance of common stock for cash   12,735     25     413,045     -     -     -     -     413,070  
Issuance of common stock for services   10,500     21     349,979     -     -     -     -     350,000  
Issuance of common stock for Multiplex stock   450     1     29     -     -     -     -     30  
Issuance of common stock for acquisition   71,319     143     4,603     -     -     -     -     4,746  
                                                 
Net Loss         -     -     (694,758 )   -     -     -     (694,758 )
                                                 
Balance at December 31, 2000   148,682     292     1,694,343     (1,704,992 )   -     -     -     (10,357 )
                                                 
Issuance of common stock for compensation   4,500     9     59,991     -     -     -     -     60,000  
                                                 
Net Loss         -     -     (67,251 )   -     -     -     (67,251 )
                                                 
Balance at December 31, 2001   153,182     301     1,754,334     (1,772,243 )   -     -     -     (17,608 )
Issuance of common stock re acquisition of Industrial Minerals Incorporated   5,250,000     10,500     (1,747,393 )   1,696,982     -     -     -     (39,911 )
Minimum 50 shares post- split allocation   4,614     6     (6 )   -     -     -     -     -  
                                                 
Net Loss   -     -     -     (520,242 )   -     -     -     (520,242 )

See accompanying notes to financial statements

F17



  Common Stock     Additional Paid-in Capital     Accumulated Deficit During Exploration Stage     Accumulated Other Comprehensive Income     Non Controlling Interest     Common Stock Subscriptions Received     Total Stockholders' Equity (Deficit)  
Number of Shares   Amount  
                                                 
Balance at December 31, 2002   5,407,796     10,807     6,935     (595,503 )   -     -     -     (577,761 )
                                                 
Minimum 50 shares post- split allocation   49     -     -     -     -     -     -     -  
                                                 
Net Loss         -     -     (1,133,197 )   -     -     -     (1,133,197 )
                                                 
Balance at December 31, 2003   5,407,845     10,807     6,935     (1,728,700 )   -     -     -     (1,710,958 )
                                                 
Allocation on round-up of shares   0     -     -     -     -     -     -     -  
Issuance of common stock in settlement of debt   174,606     349     4,190,189     -     -     -     -     4,190,538  
                                                 
Net Loss         -     -     (561,153 )   -     -     -     (561,153 )
                                                 
Balance at December 31, 2004   5,582,451     11,156     4,197,124     (2,289,853 )   -     -     -     1,918,427  
                                                 
Net Loss         -     -     (1,844,219 )   -     -     -     (1,844,219 )
                                                 
Balance at December 31, 2005   5,582,451     11,156     4,197,124     (4,134,072 )   -     -     -     74,208  
                                                 
Issuance of common stock for cash   10,000     20     69,640     -     -     -     -     69,660  
Issuance of common stock in settlement of debt   312,791     625     1,876,118     -     -     -     -     1,876,743  
                                                 
Net Loss         -     -     (1,255,584 )   -     -     -     (1,255,584 )
                                                 
Balance at December 31, 2006   5,905,242     11,801     6,142,882     (5,389,656 )   -     -     -     765,027  
                                                 
Issuance of common stock for cash   659,685     1,319     1,569,486     -     -     -     -     1,570,805  
Issuance of common stock for services   320,350     641     641,976     -     -     -     -     642,617  
Stock compensation expense       -     446,853     -     -     -     -     446,853  
Foreign Currency Translation       -     -     -     (105,985 )   -     -     (105,985 )
                                                 
Net Loss   5,407,796     -     -     (2,761,455 )   -     -     -     (2,761,455 )

See accompanying notes to financial statements

F18



  Common Stock     Additional Paid-in Capital     Accumulated Deficit During Exploration Stage     Accumulated Other Comprehensive Income     Non Controlling Interest     Common Stock Subscriptions Received     Total Stockholders' Equity (Deficit)  
Number of Shares   Amount  
                                                 
Balance at December 31, 2007   6,885,277     13,761     8,801,197     (8,151,111 )   (105,985 )   -     -     557,862  
Issuance of common stock for cash   462,447     925     484,275     -     -     -     (265,000 )   220,200  
Issuance of common stock for services   630,250     1,261     445,439     -     -     -     -     446,700  
Stock compensation expense       -     176,427     -     -     -     -     176,427  
Common stock subscriptions received               -     -     -     265,000     265,000  
Issuance of common stock for settlement of debt   62,500     125     64,875     -     -     -     -     65,000  
                                                 
Net Loss         -     -     (1,579,801 )   -     -     -     (1,579,801 )
                                                 
Balance at December 31, 2008   8,040,474     16,072     9,972,214     (9,730,913 )   (105,985 )   -     -     151,388  
                                                 
Issuance of common stock for services   125,000     250     49,750     -     -     -     -     50,000  
Stock compensation expense       -     179,221     -     -     -     -     179,221  
                                                 
Net Loss         -     -     (1,629,281 )   -     -     -     (1,629,281 )
                                                 
Balance at December 31, 2009   8,165,474     16,322     10,201,185     (11,360,194 )   (105,985 )   -     -     (1,248,672 )
Issuance of common stock for services and debt settlement   722,660     1,445     215,353                     216,798  
Net Loss         -     -     (1,097,722 )   -     (495,451 )   -     (1,593,173 )
Gain in dilution in interest of subsidiary           1,657,299                     1,657,299  
NCI pickup on dilution in interest of subsidiary                       814,686     -     814,686  
Stock compensation expense       -     154,408         -         -     154,408  
Consolidated Balance at December 31, 2010   8,888,134     17,767     12,228,245     (12,457,916 )   (105,985 )   319,235     -     1,346  

See accompanying notes to financial statements

F19



  Common Stock     Additional Paid-in Capital     Accumulated Deficit During Exploration Stage     Accumulated Other Comprehensive Income     Non Controlling Interest     Common Stock Subscriptions Received     Total Stockholders' Equity (Deficit)  
Number of Shares   Amount  
                                                 
Balance subsequent to 1:20 stock consolidation   8,888,134     17,767     12,228,245     (12,457,916 )   (105,985 )   319,235     -     1,346  
Issuance of common stock for debt   75,000     150     53,100     -     -     -     -     53,250  
Issuance of common stock pursuant to the exercise of stock options   337,500     675     100,575     -     -     -     -     101,250  
Stock compensation expense   -     -     155,396     -     -     -     -     155,396  
                                                 
Net Loss   -     -     -     (770,285 )   -     -     -     (770,285 )
Gain on deconsolidation   -     -     -     6,035,839     -     -     -     6,035,839  
Equity loss pickup   -     -     -     (1,518,789 )   -     -     -     (1,518,789 )
Loss on due to related party   -     -     -     (8,250 )   -     -     -     (8,250 )
NCI pickup on dilution in interest in subsidiary   -     -     -         -     (319,235 )   -     (319,235 )
Dividends   -     -     -     (3,274,072 )                     (3,274,072 )
Balance at December 31, 2011   9,301,081     18,592     12,537,316     (11,993,473 )   (105,985 )   -     -     456,450  
Issuance of common stock pursuant to the exercise of stock options   112,500     225     33,525     -     -     -     -     33,750  
Stock compensation expense   -     -     42,268     -     -     -     -     42,268  
Imputed interest on related party loan   -     -     13,020     -     -     -     -     13,020  
                                                 
Net Loss   -     -     -     (1,003,188 )   -     -     -     (1,003,188 )
Unrealized gains on sale of NGC shares   -     -     -     -     110,969     -     -     110,969  
Dividends   -     -     -     (39,603 )   -     -     -     (39,603 )
Balance at December 31, 2012   9,413,581     18,817     12,626,129     (13,036,264 )   4,984     -     -     (386,334 )
Value of services contributed by officer of the Company   -     -     12,500     -     -     -     -     12,500  
Imputed interest on related party loan   -     -     25,228     -     -     -     -     25,228  
                                                 
Net Gain   -     -     -     110,464     -     -     -     110,464  
Unrealized gains on sale of NGC shares   -     -     -     -     (4,984 )   -     -     (4,984 )
Balance at December 31, 2013   9,413,581     18,817     12,663,857     (12,925,800 )   -     -     -     (243,126 )

See accompanying notes to financial statements
The number of common shares used in this statement is accounted for after giving effect to the 20:1 stock consolidation on July 29, 2011 (note 6 B.)

F20



MINDESTA INC.
(formerly Industrial Minerals Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2013 and 2012

NOTE 1 - BASIS OF PRESENTATION

The financial statements of Mindesta Inc. (the “Company” and formerly “Industrial Minerals, Inc.”), for the year ended December 31, 2013 and the notes thereto (the “Financial Statements”) have been prepared in accordance accounting principles generally accepted in the United States of America and have been presented in US dollars.

The Company's fiscal year-end is December 31.

NOTE 2 –ORGANIZATION AND ACCOUNTING POLICIES

(a) Organization
Mindesta, Inc. was incorporated on November 6, 1996, as Winchester Mining Corporation in the State of Delaware. On May 13, 2000, in connection with its merger with Hi-Plains Energy Corp., the Company changed its name from Winchester Mining Corporation to PNW Capital, Inc. On January 31, 2002, the Company acquired 91% of the outstanding shares of Industrial Minerals, Inc. On May 2, 2002, the Company merged the remaining 9% of Industrial Minerals, Inc. into PNW Capital, Inc. and changed its name to Industrial Minerals, Inc.. 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.

Operations have been historically carried out through the Company’s former subsidiary and principal asset, Northern Graphite Corporation (“Northern”), formerly Industrial Minerals Canada Inc. Northern owns a 100% interest in the Bissett Creek graphite property located in Renfrew County in the Province of Ontario, Canada (the “Bissett Creek Property”). As a result of a number of financings and other transactions, including an initial public offering by Northern, the Company’s interest in Northern was reduced from 100% to 26.1% as at December 31, 2011. On December 12, 2011, the Board of Directors declared a pro rata dividend-in-kind, payable January 25, 2012 to shareholders whereby most of the shares of Northern owned by the Company would be distributed to Mindesta shareholders. At the close of trading on January 25, 2012, Mindesta completed the distribution to Company shareholders of 9,413,581 shares of Northern owned by the Company on the basis of one share of Northern for each share of Company common stock held. As at December 31, 2013, the Company no longer held any shares in Northern.

(b) Nature of Operations and Going Concern
The Company is an exploration stage company. Effective January 2, 2012, Mindesta entered into an option agreement with Nubian Gold Corporation (“Nubian”), a privately owned Ontario company, which currently holds title to three mineral exploration permits, in the Republic of Somaliland. Under the option agreement, Mindesta could earn a 50% interest in the permits by incurring total exploration expenditures of $2 million within two years and could increase its interest to 80 percent by completing a bankable feasibility study. Mindesta incurred the first $750,000 of exploration expenditures which represented a firm commitment. Mindesta also had the option to acquire all of Nubian’s remaining interest in the permits at fair market value as determined by an independent valuator agreed to by both Mindesta and Nubian at any time after incurring the first $750,000 of exploration expenditures. As at January 2, 2014, the two year anniversary of the option agreement, the Company had not incurred the required total exploration expenditures of $2 million and thereby, relinquished all rights under the option agreement. These factors raise substantial doubt as to the Company's ability to continue to operate as a going concern.

The Company is an Exploration Stage Company that incurred a net gain of $110,464 for the year ended December 31, 2013 (2012 – net loss of $1,003,188) and has an accumulated deficit of $12,925,800 since the inception of the Company. Current liabilities exceed current assets by $243,126. The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital to pay expenses and carry out any further exploration activities. The Company will require significant financing to continue its operations and fund any further activities. There is a high degree of risk and many inherent uncertainties in mining operations and exploration activities and management cannot provide assurances that it will be successful in any future endeavors.

The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital for operating and administrative costs. However, there is a high degree of risk and many inherent uncertainties in the natural resource development industry and management cannot provide assurances that it will be successful. The accompanying financial statements do not include any adjustments that might result from negative outcomes with respect to these uncertainties.

(c) Cash and Cash Equivalents
Cash and cash equivalents include bank balances, funds held in trust with lawyers, and short term investments that are readily convertible into cash with original maturities of three months or less.

F21


MINDESTA INC.
(formerly Industrial Minerals Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2013 and 2012

(d) Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements, and revenues and expenses for the period. By their nature, these estimates and judgments are subject to management uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Significant estimates and judgments include those relating to the assessment of the Company’s ability to continue as a going concern, estimates to determine whether impairment of long lived assets is required, and the fair value of stock options, depreciation rates and estimated useful lives of buildings and equipment. Actual results may differ from those estimates and judgments.

(e) Marketable Securities
The Company classifies its marketable securities as available-for-sale securities. The securities are measured at fair market value in the financial statements with unrealized gains or losses recorded in other comprehensive income. At the time securities are sold, gains or losses are included in net income.

(f) Long-Lived Assets
The Company monitors the recoverability of long-lived assets based on factors such as current market value, future asset utilization, business climate and future undiscounted cash flows expected to result from the use of the related assets. The Company records an impairment loss in the period it is determined that the carrying amount of the asset may not be recoverable. The impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value.

(g) Comprehensive Income (Loss)
The Company adopted ASC 220 “Comprehensive Income”. ASC 220 establishes standards for reporting and presentation of comprehensive income (loss) and its components in a full set of financial statements. Comprehensive income (loss) is presented in the statement of operations. ASC 220 requires only additional disclosures in the financial statements and does not affect the Company’s financial position or results of operations.

(h) Fair Value of Financial Instruments
FASB ASC 820, “Fair Value Measurement” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in SFAS 13. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3

Inputs that are both significant to the fair value measurement and unobservable.

F22


MINDESTA INC.
(formerly Industrial Minerals Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2013 and 2012

The following table sets forth the Company’s financial assets and liabilities measured at fair value within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

          Fair value at December 31,     December 31,  
    Total     2013     2012  
  $         $         $  
Assets         Level 1     Level 2     Level 3     Total  
Cash and cash equivalents   823     823     -     -     12,091  
Marketable securities   -     -     -           164,333  

Cash and marketable securities are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices. Cash and cash equivalents that are valued based on quoted market prices in active markets are primarily composed of commercial paper, short-term certificates of deposit and US Treasury securities. Marketable securities are primarily composed of common shares of Northern (note 3) and are valued based on publicly quoted market prices. Accounts receivable, accounts payable, and due to/from related parties are reflected in the balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments.

(i) Income Taxes
Income taxes are determined using the balance sheet method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted FASB ASC 740 as of its inception. Pursuant to FASB ASC 740 the Company is required to compute tax asset benefits for net operating losses carried forward. Potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future periods; and accordingly is offset by a valuation allowance. FIN No.48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken into in tax returns.

To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts would be accrued and classified as a component of general and administrative expenses in our Statements of Operations and Comprehensive Loss. The Company elected this accounting policy, which is a continuation of our historical policy, in connection with our adoption of FIN 48.

(j) Translation of Foreign Currencies
The functional currency of the Company has been determined to be the U.S. dollar. Foreign currency transaction gains or losses are reflected in the results of operations. For the year ended December 31, 2013 and 2012, foreign currency losses of $7,700 and $6,206, respectively, were recognized.

(k) Mineral Properties
Mineral property acquisition costs are capitalized when incurred and will be amortized using the units –of – production method over the estimated life of the reserve following the commencement of production. If a mineral property is subsequently abandoned or impaired, any capitalized costs will be expensed in the period of abandonment or impairment.

Acquisition costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties.

(l) Exploration Costs

Exploration costs, which include maintenance, development and exploration of mineral claims, are expensed as incurred. When it is determined that a mineral deposit can be economically developed as a result of establishing proven and probable reserves, the costs incurred after such determination will be capitalized and amortized over their useful lives. To date, the Company has not established the commercial feasibility of its exploration prospects; therefore, all exploration costs are being expensed.

F23


MINDESTA INC.
(formerly Industrial Minerals Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2013 and 2012

(m) Stock Based Compensation
The Company has adopted the provisions of FASB ASC 718, “Stock Compensation” (“ASC 718”), which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). New shares of the Company’s Common Stock will be issued for any options exercised or awards granted

(n) Basic and Diluted Loss Per Share
Basic loss per share was computed by dividing the amount of the loss for the period by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated using the treasury stock method, whereby the weighted average number of shares outstanding used in the calculation assumes that the deemed proceeds received from the exercise of stock options that are “in the money” would be used to repurchase common shares of the Company at the average market price during the year. Existing stock options have not been included in the computation of diluted loss per share as they are anti-dilutive, and therefore, basic and diluted loss per share amounts are the same.

(o) Concentrations
The Company explored mineral concessions all of which are located in Somaliland. The Company uses primarily one supplier to supply the exploration licenses, manpower and technical expertise for mineral exploration in Somaliland (notes 6 and 7).

(p) Recently Adopted Pronouncements
In 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 entity’s 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.

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 entity’s 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.

F24


MINDESTA INC.
(formerly Industrial Minerals Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2013 and 2012

(q) New Accounting Pronouncements

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not believed to have a material impact on the Company's present or future financial statements.

NOTE 3 – MARKETABLE SECURITIES AND INVESTMENT IN NON-CONSOLIDATED AFFILIATE

On January 7, 2011, the Company sold 2,000,000 common shares of Northern for CDN $0.50 per share and realized total proceeds of CDN$1,000,000. Due to the reduction in the Company’s interest in Northern arising from this transaction, the results of Northern are no longer consolidated. The Company recognized a gain on deconsolidation of $6,035,839, of which $5,835,457 related to the remeasurement of the Company’s retained investment in the former subsidiary to its fair value. Subsequent to deconsolidation Northern remains a related party by way of directors and officers in common.

As at December 31, 2011, the Company owned 9,750,000 common shares of Northern which represented a 26.1% interest. The estimated fair value of this investment at December 31, 2011 was $8,872,500 based on the quoted trading price of these shares on the Toronto Stock Exchange. As at December 31, 2011, the Company recorded its investment in Northern, a non-consolidated affiliate, at cost.

The carrying value of this investment is as follows:

Investment $  
Non-consolidated balance at December 31, 2011   3,432,261  
Stock dividend paid on January 25, 2012   (3,313,675 )
Sale of marketable securities   (65,223 )
Balance at carrying value as at December 31, 2012   53,363  
Sale of marketable securities   (53,363 )
Balance at carrying value as at December 31, 2013   -  

Following the payment of the stock dividend on January 25, 2012, the Company’s 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 Company’s available-for sale securities as of December 31, 2012:

Equity securities   Cost     Gross unrealized gains     Fair value  
Outstanding   53,363     110,969     164,332  

During the year ended December 31, 2013, the Company sold all remaining shares of Northern and reclassified all unrealized gains and losses related to its investment in Northern from other comprehensive income to gain on sale of marketable securities, recognizing a net gain on sale of marketable securities of $24,318 (December 31, 2012 - $197,872).

NOTE 4 – STOCKHOLDER’S EQUITY

A. CAPITAL STOCK

The number of common shares issued and outstanding at December 31, 2013 and December 31, 2012 was as follows:

          Par Value  
    Number   $  
Outstanding at December 31, 2013 and December 31, 2012   9,413,581     18,817  

There were no common shares issued in 2013. During 2012, 112,500 common shares were issued as a result of the exercise of options, for total consideration of $33,750.

B. DIVIDENDS

On December 12, 2011, the Board of Directors declared a pro rata dividend-in-kind on the basis of one share of Northern common stock for each share of Company common stock held, payable January 25, 2012 to shareholders of record as at January 5, 2012. The Company recorded $3,274,072 of dividends and dividends payable in the year ending December 31, 2011 related to the declared dividend-in-kind.

F25


MINDESTA INC.
(formerly Industrial Minerals Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2013 and 2012

C. COMMON STOCK OPTIONS

On September 20, 2010, the Company granted stock options to purchase 450,000 common shares at a price of $0.30 per share until September 20, 2015. All options vested immediately. The fair value of the option grant was estimated using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 220%; risk-free interest rate of 2.24%; and an expected term of 5 years.

On April 19, 2011, the Company granted stock options to purchase 112,500 common shares at a price of $1.40 per share until April 19, 2016. All options vested immediately. The fair value of the option grant was estimated using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 220%; risk-free interest rate of 2.09%; and an expected term of 5 years.

On March 15, 2012, the Company granted stock options to purchase 650,000 common shares at a price of $0.10 per share until March 15, 2017. All options vested immediately. The fair value of the option grant was estimated using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 122%; risk-free interest rate of 1.11%; and an expected term of 5 years.

There was no stock option activity for the year ended December 31, 2013.

There were 650,000 options outstanding and exercisable at December 31, 2013 (2012 – 762,500).

The intrinsic value of outstanding and exercisable options at December 31, 2013 was $Nil (December 31, 2012 - $Nil).

The weighted average remaining contractual term of options outstanding at December 31, 2013 was 3.07 years (2012 – 4.02 years)

No stock options were exercised during 2013 and 112,500 options were forfeited. During 2012, 112,500 stock options were exercised for proceeds of $33,750. These options had an intrinsic value of $60,750.

The Company recognized $nil stock compensation expense for the year ending December 31, 2013 (2012 - $42,268).

D. EARNINGS PER SHARE

The basic and fully diluted weighted average number of common shares outstanding was as follows:

For the year ended:      
December 31, 2013   9,413,581  
December 31, 2012   9,412,659  

For the years ended December 31, 2013 and 2012, the inclusion of common stock equivalents in the calculation of the weighted average number of shares is anti-dilutive.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

The Company has been named in a lawsuit filed by Windale Properties in the amount of CAD $19,781. The claim is the result of termination of leased premises in Oakville, Ontario prior to expiry of the lease. No amount related to this contingency has been accrued as the outcome at this time is indeterminable.

NOTE 6 – RELATED PARTY TRANSACTIONS

a)

During the year ended December 31, 2013, the Company did not grant any options to officers and directors. During the year ended December 31, 2012, the Company granted 650,000 options to directors and officers of the Company. Each option entitles the holder to purchase one common share at an exercise price of $0.10 until March 15, 2017. Stock-compensation expense of $42,268 was recognized during the year ended December 31, 2012 in connection with this option grant.

F26


MINDESTA INC.
(formerly Industrial Minerals Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2013 and 2012
   
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 Nubian’s 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 could 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 could increase its interest to 80 percent by completing a bankable feasibility study. The mineral properties were written off during the year ended December 31, 2012 (Note 8). As at January 2, 2014, the two year anniversary of the option agreement, the Company had not incurred the required total exploration expenditures of $2 million and thereby, relinquished all rights under the option agreement.

 

 

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 was required to sell its remaining shares of Northern as they were released from escrow and remit all proceeds to Bowes & Company, until all obligations to Bowes & Company are satisfied, and then 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 any time 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 year ending December 31, 2013, payments of $106,694 (2012 - $nil) were made on amounts owing under this credit facility. As at December 31, 2013, $214,173 (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 December 31, 2013, $21,483 (December 31, 2012 - $7,428) of interest was accrued in respect of this obligation. Additional interest of $25,228 (December 31, 2012 - $13,020) was imputed on this loan to approximate a market interest rate.

F27


MINDESTA INC.
(formerly Industrial Minerals Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2013 and 2012

This interest has been recognized in general and administration expense and additional paid-in capital, as the imputed interest is not payable.

    As at     As at  
Due to related parties   December 31, 2013     December 31, 2012  
             
Due to Nubian   108,742     119,251  
Due to Bowes & Company   105,431     153,628  
Total due to related parties   214,173     272,879  

In 2013, 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 December 31, 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 – 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 Company’s title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements.

Mining Option Agreement – Nubian

Effective January 2, 2012, Mindesta entered into an option agreement with Nubian, a privately owned Ontario company, which initially held title to two mineral exploration permits, in the Republic of Somaliland (note 6). During 2012, Nubian obtained a third exploration permit in Somaliland. Under the option agreement, Mindesta could earn a 50% interest in the permits by incurring total exploration expenditures of $2 million within two years and could 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 had the option to acquire all of Nubian’s 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. . As of the two year anniversary of the option agreement with Nubian on January 2, 2014, the Company had not incurred the required total exploration expenditures of $2 million and thereby, relinquished all rights under the option agreement (Note 9).

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 Company’s ability to expend the required $2 million dollars within two years to earn its interest. During the year ended December 31, 2013, the Company incurred an additional $14,954 of exploration expenses related to the option agreement (2012 - $758,742).

F28


MINDESTA INC.
(formerly Industrial Minerals Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2013 and 2012

NOTE 8 – INCOME TAXES

As at December 31, 2013, the Company's deferred tax asset attributable to its net operating loss carry forward is approximately $589,761 (2012 - $400,007). This benefit has been fully offset by a valuation allowance based on management's determination that it is not more likely than not that some or all of this benefit will be realized. These losses expire as follows:

  $  
       
2028   34,341  
2029   365,666  
2033   189,753  
Total   589,761  

As at December 31, 2013, the Company's deferred tax asset attributable to capital loss carry forward is approximately $582,561 (2012 - $596,705). This benefit has been fully offset by a valuation allowance based on management's determination that it is not more likely than not that some or all of this benefit will be realized. These losses expire as follows:

  $  
       
2016   582,561  
Total   582,561  

For the years ended December 31, 2013 and 2012, a reconciliation of income tax benefit at the U.S. federal statutory rate to income tax benefit at the Company's effective tax rates is as follows.

    2013     2012  
             
Income (Loss) for the year   110,464     (1,003,188 )
             
Expected income tax expense (recovery)   37,337     (339,528 )
Non-deductible items   (72,584 )   8,214  
Change in estimates   17,753     176,767  
Distribution of Northern shares   -     2,291,318  
Change in valuation allowance   17,495     (2,136,771 )
Total income tax payable   -     -  

Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets (liabilities) at December 31, 2013 and 2012 are comprised of the following:

    2013     2012  
             
Net operating loss carryforward   200,519     136,002  
Capital loss carryforward   198,071     202,880  
Mineral Property Interest   234,761     276,974  
    633,351     615,856  
Valuation allowance   (633,351 )   (615,856 )
Deferred income tax asset   -     -  

Accounting for uncertainty for Income Tax

Effective January 1, 2009, we adopted the interpretation for accounting for uncertainty in income taxes which was an interpretation of the accounting standard accounting for income taxes. This interpretation created a single model to address accounting for uncertainty in tax positions. This interpretation clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

F29


MINDESTA INC.
(formerly Industrial Minerals Inc.)
(An Exploration Stage Company)
Notes to Financial Statements
For the years ended December 31, 2013 and 2012

The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. During 2011, the Company filed all statutory income tax returns outstanding. The Company had previously accrued and included in general and administrative expenses a total of $250,605 for penalties related to statutory income tax returns that have now been filed through the voluntary disclosure program with the Internal Revenue Service. The Internal Revenue Service has provided the Company with closing agreements, which have been signed, along with the Internal Revenue Service Officer's report showing no penalties would be levied or no further taxes would be owed; accordingly the Company has reversed the penalty accrual at December 31, 2013.

We do not have any unrecognized tax benefits or loss contingencies. Unrecognized tax benefits are not expected to increase or decrease within the next twelve months. Interest and penalties are included in general and administrative costs.

NOTE 9 – SUBSEQUENT EVENTS

As of the two year anniversary of the option agreement with Nubian on January 2, 2014, the Company had not incurred the required total exploration expenditures of $2 million and thereby, relinquished all rights under the option agreement (Note 7).

F30


MINDESTA INC.
(formerly Industrial Minerals Inc.)

ITEM 9- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Effective October 1, 2009 Rotenberg and Company LLP merged with another CPA firm, EFP Group, to form a new firm. Rotenberg and Company, LLP resigned as the Company’s auditors in connection with such merger. All of the partners and employees of Rotenberg and Company LLP and EFP Group have joined the new firm, EFP Rotenberg LLP. EFP Rotenberg LLP succeeded Rotenberg and Company LLP as the Registrant’s independent registered public accounting firm.

On October 30, 2009, with the approval of the Audit Committee of the Company’s Board of Directors, EFP Rotenberg, LLP was engaged as the Company’s independent registered public accountant effective concurrent with the merger. Prior to such engagement, during the two most recent years, the Company has not consulted with EFP Rotenberg, LLP on any matter.

The audit reports of Rotenberg and Company LLP for the years ended December 31, 2008 and December 31, 2007, expressed an unqualified opinion and included an explanatory paragraph relating to the Registrant’s ability to continue as a going concern due to significant recurring losses and other matters. Such audit reports did not contain any other adverse opinion or disclaimer of opinion or qualification.

The Registrant and Rotenberg and Company LLP have not, during the Registrant’s two most recent fiscal years or any subsequent period through to the date of dismissal, had any disagreement on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to Rotenberg and Company LLP’s satisfaction, would have caused Rotenberg and Company, LLP to make reference to the subject matter of the disagreement in connection with its reports.

The Registrant provided Rotenberg and Company LLP with a copy of the disclosures made in the Current Report on Form 8-K prior to filing. A copy of Rotenberg and Company LLP’s letter, dated November 4, 2009 was attached as Exhibit 16.1.

On March 1, 2010 the Registrant dismissed EFP Rotenberg LLP as the Registrant’s independent registered public accounting firm. Also on March 1, 2010, with the approval of the Audit Committee of the Registrant’s Board of Directors, Meyers Norris Penny LLP (“MNP”) was engaged as the Company’s independent registered public accountant.

The audit reports of MNP for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, expressed an unqualified opinion and included an explanatory paragraph relating to the Registrant’s ability to continue as a going concern due to significant recurring losses and other matters. Such audit reports did not contain any other adverse opinion or disclaimer of opinion or qualification. The Registrant and MNP have not, during the Registrant’s two most recent fiscal years had any disagreement on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to MNP’s satisfaction, would have caused MNP to make reference to the subject matter of the disagreement in connection with its reports. MNP has not advised the Company of any reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

MNP was not required or engaged to audit the Company’s internal control over financial reporting.

During the years ended December 31, 2008 and 2007, and through March 1, 2010, the Company did not consult with Meyer Norris Penny LLP regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

ITEM 9A - 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 Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of the Company’s 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 Management’s 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 Company’s 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.

F31


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 Company’s internal control over financial reporting was not effective during the year ended December 31, 2013. Management has determined that (i) inadequate staffing and supervision, and the resulting 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 Company’s internal control over financial reporting.

This annual 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 Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal period covered by this annual report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

On May 10, 2010 Robert Dinning resigned as CEO and CFO of the Company and Gregory Bowes was appointed CEO/CFO. On April 1, 2010 Miles Nagamatsu was appointed CFO of Northern and Tracy Albert was appointed Controller. On February 1, 2011 Stephen Thompson replaced Miles Nagamatsu as CFO of Northern

ITEM 9B - OTHER INFORMATION

Not applicable

PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The current Chief Executive Officer and Chief Financial Officer of Registrant at February 7, 2014 is Gregory Bowes.

The sole director of the Registrant as at February 7, 2014 is Gregory Bowes, age 59.

Mr. Bowes was granted stock awards of 100,000 common shares in 2008 and 25,000 common shares in 2009 for his services as a director, in lieu of fees.

Business Experience

The following is a brief account of the business experience during at least the past five years of the directors and officers of the Registrant, indicating the principal occupation and employment during that period by each, and the name and principal business of the organizations by which they were employed.

Gregory B. Bowes - Director - Appointed a director on June 23, 2008 and CEO/CFO on May 10, 2010, Mr. Bowes holds an MBA in Finance and Accounting from Queens University (1979) and an Honours BA in Earth Sciences (Geology) from the University of Waterloo (1977). Mr. Bowes has been CFO and Senior VP of Orezone Gold Corporation, a publicly traded mining company with projects in West Africa. From February of 2006 to March of 2008, Mr. Bowes was the President and CEO of San Anton Resource Corporation, an exploration company listed on the Toronto Stock Exchange. From January of 2004 to March of 2007, Mr. Bowes was the Vice President and then Chief Financial Officer of Orezone Resources Inc. which was listed on the Toronto Stock Exchange. Mr. Bowes is 59 years old. In May 2009, Mr. Bowes was appointed President and CEO of the Company’s wholly owned subsidiary, Northern Graphite.

F32


MINDESTA INC.
(formerly Industrial Minerals Inc.)

No appointee for a director position has been found guilty of any civil regulatory or criminal offense or is currently the subject of any civil regulatory proceeding or any criminal proceeding.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires that the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten percent stockholders are required by regulation to furnish to the Company copies of all Section 16(s) forms they file.

During the past two fiscal years as required under Section 16(a) Greg Bowes did not timely file a Form 3, Initial Statement of Beneficial Ownership and Form 4, Statement of Changes in Beneficial Ownership and Albert Zapanta, a past Director, did not timely file a Form 3, Initial Statement of Beneficial Ownership.

Conflicts of Interest

Members of the Company's management are associated with other firms involved in a range of business activities, particularly in the mineral exploration industry. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of the Company. Insofar as the officers and directors are engaged in other business activities, it may affect the amount of time they can devote to the Company's affairs.

The Company's Board of Directors reviews all transactions whereby the Company seeks a merger with, or acquisition of, any entity in which any officer or director serves as an officer or director or in which they or their family members own or hold a controlling ownership interest. Gregory Bowes, CEO and a director of Mindesta, is a major shareholder of Nubian Gold Corporation and therefore the option agreement with Nubian represented a related party transaction. The transaction was approved by all of the independent directors of the Company with Mr. Bowes abstaining from voting. The independent committee approved the transaction following a review of, among other things:

1. A geological report by Mr. Tucker Barrie who visited the permits and who is a Qualified Person under NI 43-101.

2. A budget and work program proposed by Mr. Remi Bosc who visited the permits and is a Qualified Person under NI 43-101.

3. Similar joint venture agreements relating to early stage exploration projects in Africa.

The potential acquisition of the balance of Nubian’s interest in the permits would be subject to a fairness opinion and to a shareholder vote.

There can be no assurance that management will resolve all actual or potential conflicts of interest in favor of the Company.

F33


MINDESTA INC.
(formerly Industrial Minerals Inc.)

ITEM 11- EXECUTIVE COMPENSATION

The following table discloses all compensation received by the Company's Chief Executive Officer and Chief Financial Officer during the fiscal years ending December 31, 2013; 2012; and 2011. During this period no executive officer received annual salary and bonus payments from the Company in excess of $100,000. During the year ending December 31, 2012, 200,000 stock options were granted to the President and Chief Executive Officer of the Company.

                            Non-  
                            Equity  
                            Incentive  
                      Stock     Plan  
Name and Principal               Bonus     Awards     Compensation  
position   Year     Salary($)     ($)     ($)     ($)  
Greg Bowes   2013     0     0     0     0  
Greg Bowes   2012     0     0     13,005     0  
Greg Bowes   2011     7,634     0     0     0  

Northern Graphite had a management contract with Gregory Bowes, its CEO, whereby Mr. Bowes was paid a monthly retainer of CDN$12,500 from November 2009 to January 2011. Effective February 1, 2011, Mr. Bowes was paid an annual salary of CDN$200,000 by Northern, and ten percent of his annual salary was expensed through Mindesta for the first quarter of 2011. During the year ended December 31, 2012, no portion of Mr. Bowes’ salary was allocated to Mindesta.

GRANTS OF PLAN-BASED AWARDS

The Company did not grant any Plan Based Awards during the fiscal year ended December 31, 2013.

On March 15, 2012, the Company granted 650,000 options to directors, officers, and consultants. Each option entitles the holder to purchase one common share at an exercise price of $0.10 until March 15, 2017. 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 with the following weighted average assumptions: expected volatility of 122%, risk-free interest rate 1.11%; and an expected life of up to 5 years.

The Company did not grant any Plan Based Awards during the fiscal year ended December 31, 2011.

The Company adopted SFAS 123 "Accounting for Stock-Based Compensation", effective April 1, 2007. Compensation cost for the Company's stock options had been determined in accordance with the fair value based method prescribed as SFAS 123. 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 with the following weighted average assumptions: Expected volatility of 86.74%, risk-free interest rate 4%; and an expected life of up to 4 years.

In 2012, using the Black-Scholes option pricing model, the Company had stock compensation expense for the year of $155,396.

Other than as disclosed above, no director or officer has been or was previously paid separate annual fees, meeting fees or any other form of compensation. Fees as outlined above to the officer listed above are the sum total of compensation paid during the year.

COMMITTEES OF THE BOARD OF DIRECTORS (as of December 31, 2013)

  1)

Audit Committee – Greg Bowes is the sole member. Mr. Bowes is a director and CEO/CFO of the Company and is not independent.

     
  2)

Compensation and Nominating Committee - Greg Bowes is the sole member. Mr. Bowes is a director and CEO/CFO of the Company and is not independent.

F34


MINDESTA INC.
(formerly Industrial Minerals Inc.)

Compensation Discussion and Analysis

The following Compensation Discussion and Analysis (CD&A) provides information on the compensation programs established for our "Named Executive Officers" during our fiscal year ended December 31, 2013. All information provided herein should be read in conjunction with the tables provided below.

The Compensation and Nomination Committee is comprised of Mr. Bowes. Mr. Bowes is the sole director and CEO/CFO of the Company and is not independent. The Company intends to add additional Board members in the future to ensure that the majority of the members of the Compensation and Nomination Committee are independent but this can only take place once the Company’s financial position has been stabilized and its future direction clarified.

The Compensation and Nomination Committee oversees the remuneration, nomination and appointment policies and practices of the Company. The principal responsibilities of the Compensation and Nomination Committee include: (i) considering the Company’s overall remuneration strategy and, where information is available, verifying the appropriateness of existing remuneration levels using external sources for comparison; (ii) comparing the nature and amount of the Company’s directors’ and executive officers’ compensation to performance against goals set for the year while considering relevant comparative information, independent expert advice and the financial position of the Company; (iii) making recommendations to the Board of Directors in respect of director and executive officer remuneration matters with the overall objective of ensuring maximum shareholder benefit from the retention of high quality board and executive team members; (iv) considering nominees for independent directors of the Company; and (v) planning for the succession of directors and executive officers of the Company, including appointing, training and monitoring senior management to ensure that the Board of Directors and management have appropriate skill and experience.

The Board of Directors and the Compensation and Nomination Committee are responsible for establishing, implementing and monitoring the policies governing compensation for executives. Officers may be members of the Board of Directors and are able to vote on matters of compensation. During the year ended December 31, 2013 neither the Board nor the Compensation and Nomination Committee employed any outside consultants to assist in carrying out their responsibilities with respect to executive compensation, although they have access to general executive compensation information regarding both local and national industry compensation practices. In future periods the Company may participate in regional and national surveys that benchmark executive compensation by peer group factors such as company size, annual revenues, market capitalization and geographical location.

The executive employment market in general is very competitive due to the number of companies with whom we compete to attract and retain executive and other staff with the requisite skills and experience to carry out our strategy and to maintain compliance with multiple Federal and State regulatory agencies. Many of these companies have significantly greater economic resources than our own. The Board has recognized that compensation packages must be able to attract and retain highly talented individuals that are committed to the Company’s goals and objectives, without at this time paying cash salaries that are competitive with some peers that have greater economic resources. The Company’s compensation structure is weighted towards equity compensation in the form of stock awards and options to acquire common stock, which the Board believes motivates and encourages executives to pursue strategic opportunities while managing the risks involved in our current business stage, and aligns compensation incentives with value creation for our shareholders.

Components of Our Executive Compensation Program

The Company’s executive compensation program incorporates components we believe are necessary in order for the Company to provide a competitive compensation package relative to its peers and to provide an appropriate mix between short-term and long-term cash and non-cash compensation. Elements of the Company’s executive compensation are listed below:

Base Salary
Stock Awards
Stock Options
Other benefits available to all employees
Items specific to our President and Chief Executive Officer per an employment agreement

Base Salary: At present we do not have a salary structure for employees and Executives, and amounts are based on skill set, knowledge and responsibilities. Base salaries are established as necessary. During the year ended December 31, 2013 none of our Named Executive Officers received a salary increase.

F35


MINDESTA INC.
(formerly Industrial Minerals Inc.)

Stock Awards: A portion of compensation paid to our executives is equity based. We believe equity compensation helps align the interests of our executives with the interests of our shareholders. In that regard, our executives' compensation is subject to downside risk in the event that our common stock price decreases. In addition, we believe stock awards provide incentives to aid in the retention of key executives.

Other Benefits: Executive Officers and employees receive no other benefits.

Audit Committee

The Audit Committee is comprised of Mr. Bowes. The Audit Committee is not compliant with Canada’s Multilateral Instrument 52-110 - Audit Committees (“MI 52-110”) because the majority of the members are not independent. The Company intends to add additional Board members in the future to comply with MI 52-110 once the Company’s financial position has been stabilized and its future direction clarified. Each member of the Audit Committee is financially literate within the meaning of MI 52-110.

The Company has adopted a Charter for its Audit Committee. The Audit Committee is a committee of the Board of Directors which assists the Board in overseeing the Corporation’s financial controls and reporting and in fulfilling its legal and fiduciary obligations with respect to matters involving the accounting, auditing, financial reporting, internal control and legal compliance functions of the Corporation. The Audit Committee’s primary duties and responsibilities are to:

• Oversee: (i) the integrity of the Corporation’s financial statements; (ii) the Corporation’s compliance with legal and regulatory requirements with respect to financial controls and reporting; and (iii) the auditors’ qualifications and independence.
• Serve as an independent and objective party to monitor the Corporation’s financial reporting processes and internal control systems.
• Review and appraise the audit activities of the Corporation’s independent auditors.
• Provide open lines of communication among the independent auditors, financial and senior management and the Board of Directors for financial reporting and control matters.

Each member of the Company’s Audit Committee has adequate education and experience that is relevant to their performance as an Audit Committee member and, in particular, education and experience that have provided the member with: (a) an understanding of the accounting principles used by the Company to prepare its financial statements and the ability to assess the general application of those principles in connection with estimates, accruals and reserves; (b) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements or experience actively supervising individuals engaged in such activities; and (c) an understanding of internal controls and procedures for financial reporting. Mr. Bowes holds a Master’s Degree in Business Administration, has held President, CEO and CFO positions with other publicly listed companies, and is familiar and experienced with financial statements and the reporting requirements of public companies.

Directors’ and Officers’ Liability Insurance

The Company does not carry any directors’ and officers’ liability insurance and does not maintain any key man insurance.

Reliance on Certain Exemptions

The Company is not relying upon any exemptions under MI 52-110.

Pre-approval Policy

The Company has not yet adopted any specific policies or procedures for the engagement of non-audit services. Such matters are the subject of review and pre-approval by the Audit Committee.

CORPORATE GOVERNANCE

The Company does not currently have a Corporate Governance Committee and therefore is not in compliance with Canada’s NP 58-201. It is the Company’s intention to form a Corporate Governance Committee and to pass a written mandate of the Board of Directors in compliance with NP 58-201.

The Corporate Governance Committee will oversee the Company’s approach to corporate governance matters. The principal responsibilities of the Corporate Governance Committee will include: (i) monitoring and overseeing the quality and effectiveness of the corporate governance practices and policies of the Company; (ii) adopting and implementing corporate communications policies and ensuring the effectiveness and integrity of communication and reporting to the Company’s shareholders and the public generally; and (iii) administering the Board of Directors’ relationship with the management of the Company.

The Board of Directors of the Company is comprised of one member. Mr. Bowes is a director and CEO/CFO of the Company and is not independent. Mr. Bowes is not a director of another public Company.

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MINDESTA INC.
(formerly Industrial Minerals Inc.)

The Board of Directors held a number of formal meetings in 2013, and all directors were in attendance, and a number of resolutions of the Board of Directors were passed through the use of unanimous written consent resolutions.

Position Descriptions

The Board of Directors has not developed written position descriptions for the chair of each committee of the Board of Directors, and the Board of Directors and its Chief Executive Officer have not developed a written position description for the Chief Executive Officer. The Board of Directors and the Chief Executive Officer will consider the development of written position descriptions in the future, taking into consideration the size of the Company and its Board of Directors, the stage of the Company’s development and enabling the Board of Directors and its committees to operate in an efficient and flexible manner. In the meantime, the Board of Directors expects the members of the Board of Directors to provide leadership and to manage the Board of Directors and ensure that it carries out its duties and responsibilities, and the Chief Executive Officer reports to the Board of Directors. Similarly, the Board of Directors expects the members of each committee to provide leadership and to manage the committee and ensure that the committee carries out its duties and responsibilities.

Orientation and Continuing Education

The Company does not have a formal orientation and education program for new directors. The Company has not held a formal orientation for the members of its Board of Directors, but the members of the Board of Directors are aware of the Company and its operations, activities and plans throughout the course of their meetings and discussions. The Company will make directors aware of current disclosure, governance and reporting guidelines and regulations and directors are also encouraged to keep informed of new developments individually. Board members are also encouraged to communicate with management, auditors and technical consultants as required.

Ethical Business Conduct

The Company is committed to conducting its business in accordance with applicable laws, rules and regulations, and in accordance with industry standards of business ethics, and to full and accurate disclosure in compliance with applicable securities laws. In furtherance of the foregoing, the Company has adopted a written Code of Business Conduct and Ethics (the “Code”) which applies to all directors, officers and employees of the Company and sets forth specific policies to guide such individuals in the performance of their duties. The Company has also instituted a whistle blower policy and an insider trading policy.

Under applicable corporate laws, any director or executive officer that has a material interest in a transaction or agreement that is being considered by the Company is required to declare a conflict of interest and is excluded from voting and from the decision making process with respect to that issue.

Other Board Committees

The Company has no current or proposed standing committees other than the Audit Committee and Nominating and Compensation Committee.

Assessments

The Board of Directors has not conducted any assessment of the Board of Directors, its committees or individual directors. The Company will consider conducting such assessments as and when appropriate. The Company has a relatively small Board of Directors which provides the opportunity for all directors to actively interact and to become familiar with one another. It is expected that any issues with respect to effectiveness and contribution would readily become apparent in this environment.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table shows the share ownership of officers, directors and 5% or greater shareholders as of March 7, 2013. There were 9,413,581 shares outstanding as at March •, 2014 as well as the date hereof.

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MINDESTA INC. (formerly Industrial Minerals Inc.)

Name and Address* of Beneficial Owner   Amount of Beneficial Ownership     Percent of Ownership of Class  
Gregory Bowes, Director   575,000     6.1%  
Directors and officers as a Group   575,000     6.1%  

*Suite 201, 290 Picton Avenue, Ottawa, Ontario, Canada K1Z 8P8

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not Applicable.

(1) Audit Fees 2013: $39,201 2012: $55,232
(2) Audit-Related Fees:   $26,379   $37,875
(3) Tax Fees:   $12,822   $17,357
(4) All Other Fees:   None   None

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MINDESTA INC.
(formerly Industrial Minerals Inc.)

PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES

  (1)

See attached Financial Statements.

     
  (2)

Not applicable.

     
  (3)

Exhibits filed or incorporated by reference with this annual report.


EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation (1)
3.2 Bylaws (2)
14.1 Code of Ethics (3)
16.1 Rotenberg and Company, LLP letter dated November 4, 2009 (4)
16.2 EFP Rotenberg, LLP letter dated March 4, 2010 (5)
31.1 Section 302 Certification (CEO)
31.2 Section 302 Certification (CFO)
32.1 Section 906 Certification (CEO)
32.2 Section 906 Certification (CFO)

(1)

Incorporated by reference from the exhibits included with the Company's prior Report on Form 8K filed with the Securities and Exchange Commission, dated March 16, 2004.

   
(2)

Incorporated by reference from the exhibits included with the Company's prior Report on Form 8K filed with the Securities and Exchange Commission, dated January 6, 2004.

   
(3)

Incorporated by reference from the exhibits included with the Company's 8-K filed with the Securities and Exchange Commission, January 6, 2004

   
(4)

Incorporated by reference from the exhibits included with the Company's 8-K filed with the Securities and Exchange Commission, November 9, 2009.

   
(5)

Incorporated by reference from the exhibits included with the Company's 8-K filed with the Securities and Exchange Commission, March 5, 2010.

ITEM 16 - EXHIBITS

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: February 7, 2014

MINDESTA INC.

By: /s/ Gregory Bowes           
       President and CEO

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MINDESTA INC.
(formerly Industrial Minerals Inc.)

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: February 7, 2014

MINDESTA INC.

By: /s/ Gregory Bowes                  
       Gregory Bowes, Chief Financial Officer

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