UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

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

[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                         FOR QUARTER ENDED June 30, 2008

                        Commission file number: 000-30651
                                                ---------
                            INDUSTRIAL MINERALS, INC.
                      -----------------------------------
             (Exact name of Registrant as Specified in its Charter)


       Delaware                                          11-3763974
-----------------------                      ----------------------------------
(State of Incorporation)                    (I.R.S. Employer Identification No.)


     2904 South Sheridan Way, Suite #100, Oakville, Ontario, Canada L6J 7L7
                    -----------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (905)-829-0220
                   -----------------------------------------
               Registrant's telephone number, including area code

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 is a shell company (as
defined in Rule 12b-2 of the Exchange Act).

                                 Yes [_] No [X]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:

     As of August 5, 2008 the number of shares outstanding of the registrant's
only class of common stock was 140,318,416

     Transitional Small Business Disclosure Format (Check one):

                                 Yes [_] No [X]
<PAGE>


                                TABLE OF CONTENTS

                                                                            PAGE
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements..................................................1

         Consolidated Balance Sheets as of June 30, 2008 (unaudited)
         and December 31, 2007.................................................2

         Consolidated Statements of Operations (unaudited) for the
         three and six month periods ended June 30, 2008 and 2007 and
         for the period November 6, 1996 (date of inception), to June
         30, 2008..............................................................3

         Consolidated Statements of Cash Flows (unaudited) for the
         six month periods ended June 30, 2008 and 2007 and for the
         period November 6, 1996 (date of inception) to June 30, 2008..........4

         Notes to Consolidated Financial Statements (unaudited)................5

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations ...............................................11

Item 3.  Controls and Procedures .............................................17


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings ...................................................17

Item 2.  Unregistered Sales of Equity Securities and Use of ..................18

Item 3.  Defaults upon Senior Securities......................................18

Item 4.  Submission of Matters to a Vote of Security Holders .................18

Item 5.  Other Information....................................................18

Item 6.  Exhibits and Reports on Form 8K .....................................18

Signatures....................................................................19

<PAGE>

PART I.    FINANCIAL INFORMATION

Item 1.   FINANCIAL STATEMENTS

For financial information, please see the financial statements and the notes
thereto, attached hereto and incorporated by this reference.

The financial statements have been adjusted with all adjustments which, in the
opinion of management, are necessary in order to make the financial statements
not misleading.

The financial statements have been prepared by Industrial Minerals, Inc. without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnotes disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted as allowed by such rules and
regulations, and management believes that the disclosures are adequate to make
the information presented not misleading. These financial statements include all
the adjustments which, in the opinion of management, are necessary for a fair
presentation of financial position and results of operations. All such
adjustments are of a normal and recurring nature. These financial statements
should be read in conjunction with the audited financial statements at December
31, 2007, included in the Company's Form 10-KSB.

                                       1

<PAGE>
<TABLE>
<CAPTION>

                            INDUSTRIAL MINERALS, INC.
                                 And Subsidiary
                         (An Exploration Stage Company)
                           CONSOLIDATED BALANCE SHEET
                       June 30, 2008 and December 31, 2007


                                                              June 30      December 31
                                                                2008          2007
                                                            (Unaudited)
                                                            -----------    -----------
CURRENT ASSETS
<S>                                                         <C>            <C>
     Cash                                                   $   152,592    $   104,236
     Receivables                                                  9,083         18,520
     Prepaid expenses                                                --             --
     Deposits                                                    12,525         12,510
                                                            -----------    -----------
          Total Current Assets                                  174,200        135,266

LONG-TERM DEPOSITS                                              230,000        230,000

FIXED ASSETS
     Building and Equipment                                   2,388,876      2,388,876
     Less accumulated depreciation                             (996,287)      (895,366)
                                                            -----------    -----------
                                                              1,392,588      1,493,510
                                                            -----------    -----------

TOTAL Assets                                                $ 1,796,788    $ 1,858,776
                                                            ===========    ===========

CURRENT LIABILITIES
     Accounts payable                                       $   345,114    $   114,986
     Accrued interest payable                                    58,490         52,089
     Loans payable - current                                    250,737        310,932
     Due to related party                                        52,682         25,300
     Customer Deposit                                            50,900             --
     Unissued Share Liability                                   175,000             --
                                                            -----------    -----------
          Total Current Liabilities                             932,923        503,307

OTHER LIABILITIES
     Asset retirement obligations                               230,000        230,000
     Accrued interest payable                                        --             --
     Loans payable                                              624,819        567,607
                                                            -----------    -----------
                                                              1,787,742      1,300,914
                                                            -----------    -----------

STOCKHOLDERS' EQUITY
     Common stock, 200,000,000 shares authorized, $0.0001
          par value; 140,318,416 and 137,644,476 shares
          issued and outstanding, respectively                   14,029         13,761
     Additional paid-in capital                               9,149,220      8,801,197
     Common stock subscriptions                                 175,000             --
     Accumulated other comprehensive income                    (105,985)      (105,985)
     Deficit accumulated during exploration stage            (9,048,218)    (8,151,111)
                                                            -----------    -----------

     TOTAL STOCKHOLDERS' EQUITY                                 184,046        557,862
                                                            -----------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $ 1,796,788    $ 1,858,776
                                                            ===========    ===========
</TABLE>
           See accompanying notes to consolidated financial statements

                                       2

<PAGE>
<TABLE>
<CAPTION>

                            INDUSTRIAL MINERALS, INC
                         (An Exploration Stage Company)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  (Unaudited) Three and Six Month periods ended
                 June 30, 2008 and 2007 and for the period from
             November 6, 1996 (date of inception) to June 30, 2008

                                                                                                                Period
                                                                                                                 from
                                                                                                              November 6,
                                                                                                                 1996
                                                                                                              (Inception
                                                                                                                  of
                                                          Three Months Ended             Six Months Ended     Exploration
                                                               June 30,                      June 30,          Stage) To
                                                      -------------------------- --------------------------     June 30,
                                                          2008         2007          2008          2007           2008
                                                      ------------  ------------ ------------  ------------   ------------
<S>                                                         <C>           <C>         <C>            <C>         <C>
REVENUE                                                         --            --           --            --   $     19,337
                                                      ------------  ------------ ------------  ------------   ------------
EXPENSES
       Cost of Revenue                                          --            --           --            --         86,901
       Professional fees                                    20,533        13,047      107,425        38,347      1,662,115
       Royalty fees                                            604           580       13,743        12,699        139,121
       Depreciation and amortization                        50,461        55,525      100,922       113,192      1,078,560
       Impairment of long-lived assets                          --            --           --            --        582,176
       Loss on disposal of assets                               --            --           --        11,920         66,171
       Stock compensation expense                           31,187       146,727      125,590       146,727        572,443
       Management fees and salaries                        172,091       633,537      377,123       649,696      2,472,907
       General exploration expense                           1,749            --       42,555            --        461,154
       Other general and administrative                     53,976       184,807      134,903       251,477      4,739,633
                                                      ------------  ------------ ------------  ------------   ------------
           TOTAL EXPENSES                                  330,601     1,034,223      902,261     1,224,058     11,861,181
                                                      ------------  ------------ ------------  ------------   ------------

LOSS FROM OPERATIONS                                       330,601     1,034,223      902,261     1,224,058     11,841,844

OTHER INCOME (EXPENSE)
       Interest income                                          --            --           --            --          3,172
       Gain from extinguishment of debt                         --            --           --            --      1,047,634
       Foreign currency gain (loss)                        (42,157)           --        5,156            --        (34,935)
       Other income                                             --            --           --            --            594
                                                      ------------  ------------ ------------  ------------   ------------
           TOTAL OTHER INCOME                              (42,157)           --        5,156            --      1,016,465
                                                      ------------  ------------ ------------  ------------   ------------

LOSS FROM OPERATIONS                                       372,758     1,034,223      897,105     1,224,058     10,745,198

INCOME TAXES                                                    --            --           --            --             --
                                                      ------------  ------------ ------------  ------------   ------------

NET LOSS                                                   372,758     1,034,223      897,105     1,224,058     10,745,198
                                                      ============  ============ ============  ============   ============


       NET LOSS PER SHARE, BASIC AND DILUTED                (0.01)        (0.00)       (0.01)        0.01
                                                      ============  ============ ============  ============

WEIGHTED AVERAGE NUMBER OF COMMON
       STOCK SHARES OUTSTANDING, BASIC AND DILUTED:    139,754,771   121,599,045  138,998,977   119,831,232
                                                      ============  ============ ============  ============
</TABLE>
           See accompanying notes to consolidated financial statements


                                       3

<PAGE>
<TABLE>
<CAPTION>

                            INDUSTRIAL MINERALS, INC.
                         (An Exploration Stage Company)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                  Period
                                                                                                   from
                                                                                                November 6,
                                                                                                   1996
                                                                                                (Inception
                                                                                                    of
                                                                                                Exploration
                                                                      Six Months Ended          Stage) To
                                                                          June 30                June 30,
                                                                   2008             2007           2008
                                                               ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                  $   (897,105)   $ (1,224,058)   $(10,745,198)
     Adjustments to reconcile net loss
         to net cash used by operating activities:
              Depreciation                                          100,922         113,192       1,070,268
              Provision for bad debts                                    --              --          49,676
              Stock issued for services                             138,090         584,867       1,642,166
              Impairment of long-lived assets                            --              --         297,882
              Loss on disposal of assets                                 --          11,920          66,170
              Gain on extinguishment of debt                             --              --      (1,047,634)
              Changes in:
                 Receivables                                          9,437          (6,154)        (13,252)
                 Inventory                                               --              --          (5,527)
                 Prepaid expenses                                        --              --            (540)
                 Deposits                                               (15)             --         (12,525)
                 Accounts payable and accrued expenses              238,289         (36,823)        194,847
                 Accrued interest payable                             6,401          (2,005)        326,771
                 Customer deposit                                    50,900              --          50,900
                 Due to related parties                              27,232           8,731         687,138
                                                               ------------    ------------    ------------
     Net cash used in operating activities                         (325,849)       (403,603)     (7,438,858)
                                                               ------------    ------------    ------------
     Cash flows from investing activities:
         Purchase of building and equipment                              --              --      (2,134,346)
         Investment inMultiplex                                          --              --         (75,000)
         Acquisition of goodwill                                         --              --        (149,057)
         Loan to related party                                           --              --         (50,000)
         Loan repayments                                                 --              --           4,493
         Long-term deposits                                              --              --        (159,600)
         Proceeds from sale of assets                                    --          18,080          18,080
                                                               ------------    ------------    ------------
     Net cash used in investing activites                                --          18,080      (2,545,430)
                                                               ------------    ------------    ------------

     CASH FLOWS FROM FINANCING ACTIVITIES:

         Net proceeds from sale of common stock                     385,200         374,333       4,647,267
         Net proceeds from loans payable                                 --          68,801       7,272,185
         Loan repayments                                             (5,839)             --      (1,777,556)
         Proceeds from mortgage                                          --              --          17,000
         Principal payments on mortgage                                  --            (894)        (17,000)
         Cash acquired in acquisition of Peanut Butter &
         Jelly, Inc.                                                     --              --             140
                                                               ------------    ------------    ------------
     Net cash provided by financing activities                      379,361         442,240      10,195,792
                                                               ------------    ------------    ------------

Effect of exchange rate changes on cash and cash equivalents         (5,156)             --          (5,156)

NET INCREASE (DECREASE) IN CASH                                      48,356          56,718         152,592


Cash, beginning of period                                           104,236           6,759              --
                                                               ------------    ------------    ------------


Cash, end of period                                            $    152,592    $     63,477    $    152,592
                                                               ============    ============    ============

SUPPLEMENTAL CASH FLOW DISCLOSURES:

     Interest paid                                             $         --    $         --    $      4,524
                                                               ============    ============    ============
     Income taxes paid                                         $         --    $         --    $         --
                                                               ============    ============    ============

     Non-cash investing and financing activities:
         Shares issued for debt                                          --              --      11,437,279
                                                               ============    ============    ============

         Shares issued for investment                                    --              --         200,030
                                                               ============    ============    ============

         Shares issued for accrued interest                              --              --         651,702
                                                               ============    ============    ============

         Long term deposits financed by accounts payable                 --              --          70,400
                                                               ============    ============    ============

     Property costs financed by issuance of common stock                 --              --          30,000
                                                               ============    ============    ============
     Equipment financed by:
         Accounts payable                                                --              --              --
         Issuance of common stock                                        --              --         200,000
                                                               ------------    ------------    ------------

                                                                         --              --           5,000
                                                               ============    ============    ============
</TABLE>
           See accompanying notes to consolidated financial statements


                                       4


<PAGE>
                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
          Notes to Consolidated Financial Statements Six month period
                       ended June 30, 2008 and 2007

NOTE 1 - BASIS OF PRESENTATION

The financial statements have been prepared in accordance with generally
accepted accounting principles for the interim financial information with the
instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of the Company's management, all adjustments (consisting of only normal
accruals) considered necessary for a fair presentation have been included.

We translate all assets and liabilities using period-end exchange rates. We
translate statements of operations items using average exchange rates for the
period. We record the resulting translation adjustment within accumulated other
comprehensive loss, a separate component of stockholders' equity. We recognize
foreign currency transaction gains and losses in our consolidated statements of
operations, including unrealized gains and losses on short-term inter-company
obligations using period-end exchange rates. We recognize unrealized gains and
losses on long-term inter-company obligations within accumulate other
comprehensive loss, a separate component of stockholders' equity.

We recognize exchange gains and losses primarily as a result of fluctuations in
currency rates between the U.S. dollar (the functional reporting currency) and
the Canadian dollar (currencies of our subsidiaries), as well as their effect on
the dollar denominated inter-company obligations between us and our foreign
subsidiaries. All inter-company balances are revolving in nature and we do not
deem them to be long-term balances. For the six months ended June 30, 2008 and
2007, we recognized foreign currency gain of $5,156 and nil, respectively.

For further information, refer to the financial statements and notes thereto
included in the Company's Annual Report on Form 10KSB for the year ended
December 31, 2007.

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

NOTE 2 - ACCOUNTING POLICIES

This summary of significant accounting policies of Industrial Minerals, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
financial statements.


                                       5
<PAGE>
Recently Issued Accounting Standards
------------------------------------
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS) NO.157, "Fair Value
Measurements". SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.

SFAS 157 is effective as of the beginning of the first fiscal year that begins
after November 15, 2007. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended December 31, 2008. Adoption
of SFAS 157 did not have a material effect on the Company's financial
statements.


In February 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities, including an amendment of
FASB Statement NO. 115. SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value at specified
election dates. This Statement applies to all entities, including not-for-profit
organizations. SFAS 159 is effective as of the beginning of an entity's first
fiscal year that begins after November 14, 2007. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
December 31, 2008. Adoption of SFAS 157 did not have a material effect on the
Company's financial statements.

Basic and Diluted Loss Per Share
--------------------------------
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding. Basic and diluted loss
per share are the same, as inclusion of common stock equivalents would be
anti-dilutive.

Going Concern
-------------
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has suffered material
recurring losses from operations since inception. At June 30, 2008, the Company
had a negative working capital of $758,723, recurring losses, and an
accumulated deficit of $9,048,218 and negative cash flow from operations. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.

Continuation of the Company is dependent on achieving sufficiently profitable
operations and possibly obtaining additional financing. Management has and is
continuing to raise additional capital from various sources. The Company's
website contains all news releases in the past year as well as detailed
descriptions and analysis of the Company's mineral property. There can be no
assurance that the Company will be successful in raising additional capital as
and when it is required.

The financial statements do not include any adjustment relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern.

                                       6
<PAGE>
NOTE 3 - ORGANIZATION

The Company 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.

NOTE 4 - PRESENTATION OF INTERIM INFORMATION

The accompanying interim financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and, in the opinion of management, include all normal adjustments considered
necessary to present fairly the financial position as of June 30, 2008 and the
results of operations and cash flows for the six month period ended June 30,
2008 and 2007. Interim results are not necessarily indicative for results for a
full year.

The financial statements and notes are presented as permitted by Form 10-QSB,
and do not include information included in the Company's audited financial
statements and notes for the year ended December 31, 2007.

FINANCING

During the six-month period ending June 30, 2008 the Company has been able to
secure equity financing in the amount of $385,200, from non-affiliated
shareholders. This includes $175,000 in subscriptions at June 30, 2008 where the
stock is being issued subsequent to June 30, 2008.

NOTE 5 - RECLASSIFICATION

Certain amounts in prior year financial statements have been reclassified to
conform to the current year information.

NOTE 6 - COMMON STOCK OPTIONS AND WARRANTS

The Board of Directors have authorized creation of a stock option plan and the
issuance of options in the amount of 19,300,000 shares at various prices and for
periods of one to four years. The purpose of the Plan is to advance the business
and development of the Company and its shareholders by enabling employees,
officers, directors, and independent contractors or consultants of the Company
the opportunity to acquire a proprietary interest in the Company from the grant
of options to such persons under the Plans' terms. The Plans provide that the
Company's board of directors may exercise its discretion in awarding options
under the Plan and to determine the per share option price for the stock subject
to each option.

The Company adopted SFAS 123, "Accounting for Stock-Based Compensation",
effective April 1, 2007. Compensation cost for the Company's stock option plans
had been determined in accordance with the fair value based method prescribed is
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 grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for option granted during the six months ended June 30, 2008:
expected volatility of 88%; risk-free interest rate ranging from 4.93% to 5.18%;
and an expected term of up to 6 years.


                                       7
<PAGE>

In April 2007, the Company granted 4,000,000 stock options to a Director,
vesting over 4 years at 1,000,000 per annum, starting April 3, 2008. The
exercise price of these stock options is to be determined at market price on the
date the stock options vest. The price at April 3, 2008 was $0.07 per share.
This vested stock option of 1,000,000 will expire on April 2, 2010. The balance
of the stock options will be cancelled as this director resigned June 20, 2008.

The Company also granted 1,000,000 stock options to a second Director, vesting
over 4 years at 250,000 per annum, starting April 3, 2008. The exercise price of
those stock options is to be determined at market price on the date the stock
options vest. The price at April 3, 2008 was $0.07 per share. This vested stock
option of 250,000 will expire on April 2, 2010. The balance of the stock options
will be cancelled as this director resigned July 9, 2008.

An Officer/Director was granted 2,000,000 stock options, vesting over 4 years at
500,000 stock options per year starting April 3, 2008 exercisable at a price of
$0.10 per share. These stock options expire 2 years from the vesting date of
each 500,000 amount, thus 500,000 stock options will expire on April 2, 2010
through to April 2, 2013.

In April 2007, the Company also granted a total of 12,000,000 stock options to
two Officers and an advisor. The 12,000,000 stock options that were granted to
two Officers and an advisor (4,000,000 each) vest over 3 years, in an amount of
1,333,333 per annum for each of the three officers, exercisable at a price of
$0.10 per share. These stock options expire 2 years from the vesting date of
each 1,333,000 amount, thus 1,333,333 stock options will expire on April 2, 2010
through to April 2, 2012.

Subsequent to the grant date, the Company and the advisor mutually agreed to
reduce his stock option entitlement from 4,000,000 stock options to 2,000,000
stock options; those stock options are to vest over 3 years in an amount of
666,667 per annum. The final 666,667 stock options for that officer expire April
2, 2012.

On January 31, 2008, a second officer who had been granted 4,000,000 of the
above 12,000,000 stock options terminated his employment with the Company. The
Company agreed to vest 1,100,000 of those stock options on April 3, 2008; the
remaining 2,900,000 stock options were cancelled.

On June 12, 2008, a third officer who had been granted 4,000,000 of the above
12, 000,000 stock options terminated his employment with the Company. Under
terms of his agreement, the Company will vest 1,333,333 of the stock options and
the remaining 2,666,667 stock options will be cancelled.

In April 2007, an Officer of the Company was granted 1,200,000 stock options
exercisable at a price of $0.20 per share. 200,000 of these options fully vested
on July 1, 2007, and expire on July 1 2009. An additional 1,000,000 stock
options vest on July 1, 2008 and expire on June 30, 2010.

In June 2007, the Chief Financial Officer was granted 250,000 stock options that
vested on June 30, 2007 exercisable at a price of $0.10 per share. These stock
options were granted as settlement for a debt owed by the Company to the CFO in
the amount of $25,000. These stock options expire June 29, 2009.

In July 2007, an advisor to the Company was granted 1,250,000 stock options
exercisable at $0.20 per stock. 250,000 of these options vested fully on July 1,
2007 and expire in 2 years on June 30, 2009. The vesting of the remaining
1,000,000 stock options are conditional on the achievement of performance
milestones, and expire 2 years from the date on which the vesting milestones are
achieved.


                                       8
<PAGE>
In July 2007, a second advisor to the Company was granted 750,000 stock options
exercisable at $0.20 per share. These stock options vest over 3 years commencing
July 1, 2008 in an amount 250,000 per annum, and expire 2 years after their
vesting date; thus 250,000 stock options expire on June 30, 2010 through to June
30, 2013. On February 18, 2008, this advisor terminated his employment with the
Company. All of these stock options were cancelled on that date.

On January 29, 2008, an officer was granted 2,000,000 stock options exercisable
at $0.15 per share. These stock options vest over 3 years commencing April 3,
2008 in an amount 666,667 per annum, and expire 2 years after their vesting
date; thus 666,667 stock options will expire on April 2, 2010 through to April
2, 2013.

On January 29, 2008, an advisor to the Company was granted 500,000 stock options
exercisable at $0.15 per share. These stock options vest over 3 years commencing
April 3, 2008 in an amount 166,667 per annum, and expire 2 years after their
vesting date; thus 166,667 stock options will expire on April 2, 2010 through to
April 2, 2013.

As at June 30, 2008, the total stock options granted and outstanding were
12,633,333, of which 6,299,999 are vested and exercisable.

The following table summarizes stock option activity for the six months ended
June 30, 2008:

<TABLE>
<CAPTION>


                               Number of securities to be    Weighted-average     Weighted
Equity compensation plans                issued               exercise price       Average
 not approved by security           upon exercise of          of outstanding        Fair
         holders                   outstanding options           options            Value
---------------------------    ----------------------------  -----------------    --------
<S>                             <C>                                  <C>           <C>
Outstanding Dec 31, 2007                20,450,000              $  0.106           $0.09
Granted                                  2,500,000              $  0.15            $0.05
Exercised                                        0              $  0.00            $0.00
Cancelled or expired                   (10,316,667)             $  0.12            $0.07
                               ----------------------------     --------
Total                                   12,633,333
                               ============================
Exercisable                              6,299,999

</TABLE>

Using the Black-Scholes option pricing model, the Company had stock compensation
expense for the six months ending June 30, 2008 of 125,590. There remains a
balance of $356,731 to be expensed over the vesting period of the options.

                                       9
<PAGE>
As at June 30, 2008, there are 3,690,000 warrants to acquire common shares of
the Company outstanding.

910,000 warrants, entitling the owner to acquire a share of common stock at
$0.10 per share on or before April 3, 2009, were issued in June 2007 as part of
a private placement with a single investor.

5,000,000 warrants, entitling the owner to acquire an additional share of common
stock at $0.05 per share on or before April 3, 2008, were issued in June 2007 as
part of a private placement with a single investor. These were never exercised
and expired April 3, 2008.

500,000 broker warrants, entitling the owner to acquire a share of common stock
at $0.16 per share on or before April 27, 2009, were issued in July 2007 as part
of a private placement arranged by Wellington West Capital Inc.

500,000 broker warrants, entitling the owner to acquire a share of common stock
at $0.17 per share on or before October 17, 2009, were issued in October 2007 as
part of a private placement arranged by Wellington West Capital Inc.

1,780,000 warrants, entitling the owner to acquire a share of common stock at
$0.15 per share on or before March 10, 2010 were issued in March 2008 as part of
a private placement with five investors.

Note 7 - ASSET RETIREMENT OBLIGATION

SFAS No. 143 "Accounting for Asset Retirement Obligations" (ARO) addresses
financial accounting and reporting obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No
143 requires that the fair value of a liability for an ARO be recognized in the
period in which it is incurred and the corresponding cost capitalized by
increasing the carrying amount of the long-lived asset.

In March 2005, the FASB issued interpretation 47, "Accounting for Conditional
Assets Retirement Obligations (FIN 47). This interpretation clarifies the term
conditional asset retirement obligation as used in SFAS No 143. Conditional
asset retirement obligation refers to a legal obligation to perform as asset
retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of the
entity. Accordingly, an entity is required to recognize a liability for the fair
value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. In conjunction with FIN 47, an ARO
liability of $230,000 has been recorded and the capitalized costs are included
in "Property and Equipment".

NOTE 8 - SUBSEQUENT EVENT

On July 9, 2008, William Booth resigned as a director of the Company. This
followed the resignation of William Thomson on June 20, 2008 as Chairman and
Director and David Wodar, on June 12, 2008 as President. New directors were
appointed - Chris Crupi,C.A. and Gregory Bowes, who were appointed to the Board
of Directors on June 23, 2008. They joined Robert Dinning C.A. who was
reappointed CFO and interim CEO of the Company.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Operating Lease
---------------

Effective August 1, 2007, the Company leased office facilities in Oakville
Ontario for a three year period expiring July 31, 2010 that provides for monthly
payments of approximately $2,350 in U.S. dollars.



                                       10
<PAGE>

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

     Industrial Minerals, Inc. ("the Company"), a Delaware Corporation, was
incorporated on November 6, 1996 under the name Winchester Mining Corp. The name
of the Company was subsequently changed to PNW Capital, Inc. on May 16, 2000.

     The Company is a successor registrant pursuant to Section 12(g)3 of the
Securities Exchange Act of 1934, by virtue of a statutory merger of the Parent,
Winchester Mining Corp., a Delaware corporation, and its wholly owned
subsidiary, Hi-Plains Energy Corp., a Wyoming corporation, with Winchester
Mining Corporation being the survivor. There was no change to the issued and
outstanding shares of Winchester Mining Corporation, and all shares of Hi-Plains
Energy Corp. were retired by virtue of the merger.

     On May 15, 2000, Winchester Mining Corp. completed a Share Purchase
Agreement with shareholders of Hi-Plains Energy Corp. in which Winchester Mining
Corp., a Delaware Corporation, acquired all 780,000 shares outstanding of the
Registrant for the purposes of accomplishing a Merger of Hi-Plains Energy Corp.
and Winchester Mining Corp. The Merger was completed on May 15, 2000.

     In fall of 2000 the Company acquired 100% of the issued and outstanding
stock of PB&J Inc., a newly formed Colorado Corporation upon issuance of
47,460,000 shares of common stock to the principals of PB&J, who became the
management and Directors of PNWC.

     On December 14, 2001, the shareholders adopted a reverse split of the then
issued and outstanding shares on a 100 for one basis, except that no shareholder
shall be reduced to less than 50 shares. The effective date of the reverse split
was January 7, 2002.


                                       11
<PAGE>
     On January 31, 2002, PNW Capital, Inc. ("PNW" or the "Company"), entered
into a definitive acquisition agreement to acquire Industrial Minerals
Incorporated ("IMI"), a private Nevada Corporation, owner of certain mineral
leases located in the Townships of Head, Clara and Maria in the County of
Renfrew and the Province of Ontario, Canada. The Agreement for Share Exchange
was executed January 31, 2002 and approved by the Board of Directors on January
31, 2002. Under the
terms of the acquisition agreement, PNW exchanged a total of 31,511,700 shares
of its common stock for 91% of the issued and outstanding shares of IMI. As a
result of the transaction, IMI became a wholly owned subsidiary of PNW and
changed its company name to Industrial Minerals, Inc.

     On June 13, 2003, the directors approved a resolution to forward split the
common shares of the Company on a two shares for one basis, and a majority of
the shareholders consented in writing to the forward split. This resulted in the
issuance of an additional 36,031,948 shares of common stock.

     The Ministry of Environment of the Province of Ontario has requested a
storm water management plan from the Company. The Company has retained Knight
Piesold to author this plan and that this plan will be submitted to the Ministry
of Environment when completed.

     In August 2004, the Company through its wholly owned subsidiary, Industrial
Minerals Canada, Inc. received notice from the Ministry of Northern Development
and Mines for the Province of Ontario that the Bissett Creek Graphite Project
Certified Closure Plan as per Subsection 141(3)(a) of the Mining Act for the
Province of Ontario is now considered filed.

     In March, 2007, a significant management change occurred when three of the
existing board members, Mr. Cam Birge, Mr. Stephen Weathers, and Mr. Pat Rogers
resigned and two new directors were appointed. Mr. William Thomson was appointed
a director and Chairman of the Board, and Mr. William Booth was appointed a
director. They joined Mr. Robert Dinning C.A. who continued as CFO, secretary,
and a director of the Company.

     On April 3, 2007, Mr. Dick van Wyck was appointed interim President and
CEO. Mr. van Wyck is a practicing lawyer with over 20 years of business and
commercial law, mergers and acquisitions, and intellectual property matters, and
was formerly in-house counsel with the Department of Justice, as well as with
two large Corporations. Mr. van Wyck resigned July 9, 2007 but remains in-house
counsel and an advisor to the Board of Directors.

     On July 9, 2007, Mr. David Wodar was appointed President and CEO. Mr. Wodar
is a private business consultant and an Economics graduate from University of
Western Ontario. Mr. Wodar has operated his own Consulting business, Vantage
Point Capital for the past 11 years, specializing in Marketing and
Communications for private and public entities. He brings a background of
strategic planning and organizational skills to the Company management team.

     The Company also appointed Mr. Paul Cooper as Chief Operating Officer and
Mr. Scott Old and Vice President Marketing. Mr. Cooper is a graduate in Chemical
Engineering with 30 years experience in industry, including 8 years in plant
engineering at Algoma Steel, Canada's third largest steel company. Mr. Cooper
will co-ordinate the development of the Bissett Creek graphite property,
including current engineering reports, equipment assessment and acquisition, and
the development of an operating plan for extraction of the graphite.


                                       12
<PAGE>
     Mr. Old is a graduate in Business and Marketing from Sheridan College and
has spent his career in sales and marketing, primarily in packaged goods. Mr.
Old was responsible for development of marketing and sales strategies that
reflect the needs of customers and leverage the Company's production and
refining capabilities. Mr. Old resigned his employment with the Company on
January 31, 2008.

     Mr. Paul Hynek assumed the role of Chairman of the Advisory Board. Mr.
Hynek has an extensive background in large scale mining projects and was
formerly with Inco. Mr. Hynek was joined on the advisory board by David Michaud,
as Senior Metallurgical Advisor. Mr. Michaud, who holds a degree in Mining
Engineering, has more than 15 years of experience in mine and mill design,
including operations in Canada and South America. Mr. Michaud resigned from the
advisory board on February 18,2008.

     During the quarter ending June 30, 2008, Mr. William Thomson resigned as
Chairman and Director of the Company, effective June 20, 2008. In addition to
this, Mr. David Wodar, President and CEO, resigned on June 12, 2008.

     On June 23, 2008, Mr. Chris Crupi C.A. and Mr. Gregory Bowes joined the
Board of Directors. Mr. Robert Dinning C.A. continued as a director and was
reappointed CFO of the Company and Interim CEO.

     On July 9, 2008, Mr. William Booth resigned as a director of the Company.

     The Company signed a contract with Geostat International Inc on May 22,
2007 regarding the preparation of a technical report NI-43101 on the Bissett
Creek Project. The Geostat work program included a site visit and independent
certification of resources, estimation of resources and classification of
resources, certification and validation of the database, verification and
validation of the interpretation of ore zones, and an assessment of the mill and
processing procedures, the market, the Capex, and related operating costs. The
process included the drilling of an additional 6 holes for just under 300 meters
in order to assist in verification of previously obtained data. The specific
drill targets have been determined by Geostat following their review of the
original drill target data prepared by Kilborn Engineering. These samples have
been analyzed for verification and validation of the graphite ore zones. The
report was finalized and filed with the regulatory authorities on December 27,
2007.

     As previously outlined, the Company has a 100% undivided interest in the
mineral lease. The property consists of 28 claims covering 1,400 acres (566
hectares) plus 900 acres (364 hectares) which are contiguous to its mine
property. In July, 2007, the Company completed the staking of an additional 950
acres (384 hectares), for a total area available for development of
approximately 3,250 acres (1,315 hectares). The Bissett Creek mine site is
located in Maria Township, about 180 miles (300 km) north-northeast of Toronto
Ontario and about 8 miles (14 km) south of Highway 17 in Northern Ontario
Canada.

     During the quarter ending June 30, 2008, the management team significantly
increased its presence at the mine site, including various meetings with
Knight-Piesold (environmental consulting firm) to review and update
environmental monitoring requirements under the Mine Closure Plan (MCP), initial
meetings with the area First Nations communities (Algonquin)including an
inter-ministerial meeting to work towards a Memorandum of understanding between
the Company, Government agencies, and First Nations leaders, general site
cleaning, building repairs, and commencement of construction of a lab facility
in anticipation of installation of a pilot plant.

     The Company is completing plans to install a one (1) metric ton per hour
pilot plant which is expected to be on site and available by spring of 2009. The
pilot plant will assist in establishing protocols for sampling, sizing, flows,
reagent consumption as well as areas of possible bottlenecks. By using a
flexible flow sheet initially in a pilot plant, the Company hopes to develop a
fixed flow sheet for the full size plant. The Company will also have product
samples available in the summer of 2009 to provide prospective customers with a
reproducible product for testing purposes.

     The flow sheet design is currently being reviewed by consultants, and was
finalized in December 2007.


                                       13
<PAGE>
     The Company has also completed a comprehensive program of metallurgical
testing to identify the key liberation and classification characteristics of the
ore body. This review included a general review of existing dry process at
Bissett Creek and existing processes used elsewhere for the liberation and
extraction of graphite. The dry process has many shortcomings which would
require a complete reengineering and rebuild at great risk to stakeholders
whereas the froth flotation system is used extensively elsewhere in the world
and is proven. The Company selected Process Research Ortech (Mississauga
Ontario) and Actlabs (of Ancaster Ontario) as its processing and assaying
entities. Both were approved by Geostat and they provided the necessary data for
the completion of the NI 43101 that was been prepared by Geostat. The positive
preliminary assessment was completed and filed with Sedar on December 27, 2007.

     Effective August 1, 2007, the Company executed a three year lease and moved
into new corporate headquarters, located at 2904 South Sheridan Way, Suite 100,
Oakville Ontario, Canada, L6J 7L7. It previously occupied premises in Toronto,
Ontario, on a month-to-month basis.

RESULTS OF OPERATIONS

For the six month period ending June 30, 2008, the Company incurred a loss of
$897,104 compared to a loss of $1,224,058 for the six months ending June 30,
2007. The Company had no revenues for the six months ending June 30, 2008. The
Company continues as an Exploration Stage Company and will not have revenues
until a proposed feasibility study is completed, a determination is made as to
the method of production, and the Company acquires the necessary equipment to
commence production. The Company expects to have a pilot plant installed by the
spring of 2009 which will allow them to test its proposed flow sheet and provide
necessary samples for prospective customers.

During the six month period ending June 30, 2008, the Company completed three
private Placements for resulting in net proceeds to the Company of $210,200.

The first private placement was completed on February 26, 2008 with one
accredited investor at a price of $0.11 per share for net proceeds of $25,000.
This financing resulted in the issuance of 227,273 common shares. The second
private placement was completed on March 10, 2008 with five accredited
investors, at a price of $0.09 per share for net proceeds of $160,200. This
financing resulted in the issuance of 1,780,000 common shares plus 1,780,000
warrants exercisable at $0.15 per share up to March 10, 2010.

During the quarter ending June 30, 2008, the Company completed an additional
private placement of $25,000 and received $175,000 in subscription agreements
for restricted common shares to be issued in August 2008. The private placement
for $25,000 was completed at a price of $0.06 per share and resulted in the
issuance of 416,667 restricted common shares. The first subscription agreement
was for $125,000 at $0.04 per share resulting 3,125,000 restricted common shares
to be issued. This agreement includes a half warrant exercisable for a period of
one year at $0.08 per share. The Company also completed a second subscription
agreement for $50,000 at a price of $0.04 per share resulting in the issuance of
1,250,000 restricted common shares to be issued. This agreement includes a half
warrant exercisable for a period of one year at $0.08 per share.

The Company relied on Section 4(2) of The Securities Act of 1933, as amended and
Regulation S regarding the issuance of unregistered shares.

For the six months ending June 30, 2008, expenses amounted to $902,260 compared
to $1,224,058 for the six months ending June 30, 2007. Professional fees have
increased to $107,425 compared to $38,347 for the six months ended June 30, 2007
primarily as a result in increased legal fees related to proposed financings,
and statutory filings related to financings.

Management fees and salaries were $377,123 for the six months ended June 30,
2008 compared to $649,696 for the six months ending June 30, 3007. This is the
result of a reduction in management services required and in fees paid in the
current year. Fees for the current period include payment to a marketing
consultant involved in identifying potential market opportunities in North
America.

General exploration expenses in the six months ending June 30, 2008 of $42,555
vs. nil for the six month period ending June 30, 2007 reflects that work was not
commenced at the mine site in 2007 until July.

                                       14
<PAGE>
For the six months ending June 30, 2008 stock compensation expense amounted to
$125,590 compared to $146,727 in the six month period ending June 30, 2007.
Stock options were approved by the Board of Directors for directors, officers
and consultants but the options have not been registered nor have they been
submitted to shareholders for approval. Stock compensation expense in total
amounts to $482,321 and this is being amortized over the life period of the
stock options. This life period varies between 24 and 60 months.

General and administrative expenses have been reduced to $134,902 in the six
months ended June 30, 2008 as compared to $251,477 because of general reduction
in expenses and

The Company closed its office in Mankato Minnesota in late 2006, and moved to a
new head office facility at 2904 South Sheridan Way, Suite #100, in Oakville
Ontario. A fee of $5,000 was paid to the landlord in Mankato in order to
terminate the outstanding lease. The Company previously leased premises in
Toronto Ontario on a monthly basis and no termination costs were incurred on the
move to facilities in Oakville Ontario.

The Company currently has 2 full time employees and it contracts with 4
Consultants for Engineering,technical support and financial services.

The Company will continue the use of outside professional consultants as it
continues its mineralogical assessment and its development of a detailed
mineralogy study. This study is nearing completion and the Company expects to
complete its pilot plant setup by early spring 2009 wherein it can carry out
detailed tests to confirm its flow sheet proposal. Experienced international
consultants from the mining industry will be used where necessary.

As it is uncertain when revenue will be generated, expenses will need to be
financed by continued outside financial support. The Company has completed
several private placements to date this year and intends to seek additional
equity financing and/or loans from shareholders and other interested parties in
order to finance its operations. While the Company feels it can obtain the
necessary financing there is no assurance that such investments, loans, or other
financial assistance will be forthcoming.

For the six months ended June 30, 2008, the Company incurred a loss of
$897,104 vs. a loss of $1,224,058 for the six months ended June 30, 2007. While
the Company has been successful in arranging necessary private placement
financing over the past 24 months, the Company cautions that until it has
completed its feasibility study and Baseline Mineralogical Assessment, there is
no assurance that a commercially viable mineral deposit exists on the property,
and that further exploration may be required before a final evaluation as to any
economic and legal feasibility is determined. The Company received its NI 43101
report December 27, 2007 and it was filed with regulatory authorities at that
time.


                                       15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2008, the Company had cash on hand in the amount of $152,592
compared to $104,236 at December 31, 2007. The Company has completed private
placement resulting in $210,200 being raised in the six months ending June 30,
2008. The Company has also received subscription agreement funds of $175,000
during the quarter ended June 30, 2008.

The Company also has a $10,000 deposit on a fuel tank located at the mine site
in Bissett Creek, and a deposit of $2,414 representing the last month's rent on
its facilities in Oakville, Ontario. The Company has entered into a new lease of
premises located at 2904 South Sheridan Way, Suite #100, Oakville Ontario,
Canada, L6J 7L7. The lease is for a period of 3 years at a monthly rate of
$2,480 in Canadian dollars.

The Company has a long-term deposit of $230,000 with the Ministry of Finance for
the Province of Ontario. During the year ending December 31, 2004 a Mine
Development and Closure Plan was filed with, and accepted by, the Ministry of
Northern Development and Mines, in accordance with the MINING ACT, R.S.O. 1990,
Ontario Regulation 240/00, including the standards, procedures and requirements
of the Mining Code of Ontario. The Company's deposit in the amount of $230,000
is a financial guarantee to the Province of Ontario ensuring that there are
enough funds on hand to affect a proper closure of the Bissett Creek Graphite
property. The Company has accounts payable of $345,114 at June 30, 2008 vs.
$114,986 at December 31, 2007. Accrued interest payable of $58,490 is
outstanding at June 30, 2008. This pertains to accruals on loans payable of
$209,720 currently due. Negotiations are continuing regarding settlement of this
debt.

In September, 2002, the Company purchased a house at the entrance to the road
leading into the Bissett Creek property at a cost of $24,050. Subsequent
additions increased the house cost to $45,191. At the time of purchase, the
Company negotiated a first mortgage in the amount of $17,000 with the vendor
which required a payment of $359 (Canadian $400) monthly for five years. The
mortgage matured August 29, 2007 and $11,837 was paid in October 2007 in full
settlement.

The Company has current loans payable of $250,737 at June 30, 2008. These loans
have promissory notes and consist of a loan of $90,796 with interest at 7% and a
loan of $111,980 with interest at 10%. These notes are currently due and
discussions are in process regarding settlement. The balance of current loans
payable are being settled by issuance of restricted common shares and an orderly
retirement schedule.

The Company has non-current loans of $624,819 as at June 30, 2008. This
includes loans from non affiliated parties in the amount of $408,819 which have
no specific terms of repayment and no promissory notes. The balance of $216,000
also has no specific terms or repayment and the amount is due to two former
officers of the Company who have assisted the Company in financing its current
deficit and in retiring current liabilities outstanding. Discussions are
proceeding with these former officers regarding an orderly settlement of this
debt.

The Company intends to obtain additional financing either by way of private
placements, loans, or a combination of both from shareholders and other
interested parties to retire outstanding debt, and finance its operations over
the next twelve months. While the Company intends to procure these private
placements and/or loans, there is no assurance that the Company will be
successful in its attempt to obtain said funding.

It is the Company's opinion that the intrinsic value of the Bissett Creek
property deposit lies in the large 1 to 6 mm (18 mesh to 1/4") Graphite and Mica
flakes. There is not presently any data available as to the specific
size-by-size weight distribution of graphite and mica in the ore. Graphite flake
values vary widely based on its size, but due to the fundamental lack of size
and chemical data, it is not possible at this stage to assign a clear specific
value to the rock.


                                       16
<PAGE>
Item 3.  CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer / Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

On or about June 30, 2008, the end of the period of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's President / Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on the foregoing, the Company's
President and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective.

There have been no material changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.

PART II.  - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Company had been named in a lawsuit filed by an individual pertaining to a
dispute with an alleged shareholder of the Company.

The lawsuit was filed in the State of Washington in the Superior Court of the
State of Washington For King County. The Company was served on February 6, 2007
in Delaware.

The Plaintiffs are Mohamad S. Bakizada and Henriette Bakizada.

The Defendants are the Company, Robert D Poirier and Jane Doe Poirier, John
Melnyk and Jane Doe Melnyk, and Larry Van Tol and Jane Doe Van Tol.

Mr. Bakizada was claiming that shares allegedly purchased by him from the
Defendants is in violation of Washington State Securities Act.

Mr. Bakizada was requesting relief for the amount of his investment plus
interest at 8% from date of purchase plus reimbursement of losses plus interest
at 8%.

Mr. Melnyk and Mr. Van Tol are previous officers and directors of the Company
while Mr. Poirier is allegedly a shareholder or former share holder of the
Company. The lawsuit was unspecified as to amount and the Company felt it was
without merit.

On April 23, 2008, the State of Washington dismissed the case for lack of
jurisdiction.


                                       17
<PAGE>
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the six months ending June 30, 2008, the Company completed three private
placements for net proceeds of $210,200. The first private placement was
completed on February 26, 2008 with one accredited investor at a price of $0.11
per share for net proceeds of $25,000. This financing resulted in the issuance
of 227,273 common shares. The second private placement was completed on March
10, 2008 with five accredited investors, at a price of $0.09 per

share for net proceeds of $160,200. This financing resulted in the issuance
of 1,780,000 common shares plus 1,780,000 Warrants, exercisable at $0.15 per
share up to March 10, 2010.

During the quarter ending June 30, 2008, the Company completed a private
placement with an accredited investor for net proceeds of $25,000, at a price of
$0.06 per share. This resulted in the issuance of 416,667 restricted common
shares.

The Company also issued 250,000 restricted shares during the quarter ending June
30, 2008 at $0.05 per share for consulting services rendered.

With respect to the unregistered sales made, the Company relied on Section 4(2)
of the Securities Act of 1933, as amended and Regulation S. No advertising or
general solicitation was employed in offering the securities. The securities
were offered to sophisticated investors who were provided all of the current
public information available on the Company.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K


(a)  Exhibits

EXHIBIT NO.         DESCRIPTION
-----------         -----------

   31.1             CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION
                    302 OF THE SARBANES-OXLEY ACT
   31.2             CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION
                    302 OF THE SARBANES-OXLEY ACT
   32.1             CERTIFICATION OF DISCLOSURE BY CHIEF EXECUTIVE PURSUANT TO
                    18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
                    OF THE SARBANES-OXLEY ACT OF 2002
   32.2             CERTIFICATION OF DISCLOSURE BY CHIEF FINANCIAL OFFICER
                    PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                    SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


(b) The following is a list of Current Reports on Form 8-K filed by the Company
during and subsequent to the quarter for which this report is filed.

     Form 8-K Report filed on February 19, 2008 Form 8-K Report filed on April
     17, 2008



                                       18
<PAGE>

                                                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: August 14, 2008                 INDUSTRIAL MINERALS, INC.

                                    By: /s/ Robert G. Dinning
                                        ---------------------------------
                                       President and CEO


     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.


Dated: August 14, 2008               INDUSTRIAL MINERALS, INC.

                                  By: /s/ Robert Dinning
                                      -----------------------------------------
                                      Robert Dinning Chief Financial Officer




                                       19
<PAGE>