FORM 10-QSB
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                  For the fiscal quarter ended: June 30, 2004

                        Commission file number: 000-30651

                            INDUSTRIAL MINERALS, INC.
                         -----------------------------
             (Exact name of registrant as specified in its charter)

Delaware                                          06-1474412
--------                              -----------------------------------
(State of Incorporation)             (I.R.S. Employer Identification No.)


          2500 One Dundas Street West, Toronto, Ontario, Canada M5G 1Z3
             ------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (416) 979-4621
                        -------------------------------
               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 |_|

         There were 72,063,896  shares  outstanding of the  registrant's  Common
Stock as of June 30, 2004.

<PAGE>


                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----
PART I. - FINANCIAL INFORMATION

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS....................................3

         Balance Sheets as of June 30, 2004 (unaudited) and
         December 31, 2003.....................................................4

         Statements of Operations (unaudited) for the Three and Six Months ended
         June 30, 2004 and June 30, 2003.......................................5

         Statements of Cash Flows (unaudited) for the Six Months
         ended June 30, 2004 and 2003...,,.....................................6

         Statement of Stockholders' Equity for the period ended
         June 30, 2004 (unaudited).............................................8

         Notes to Condensed Consolidated Financial Statements (unaudited)......9

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS................................................10

ITEM 3.  CONTROLS AND PROCEDURES  ............................................14

PART II. - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS....................................................15

ITEM 2.  CHANGES IN SECURITIES................................................15

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES......................................15

ITEM 4.  SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS...................15

ITEM 5.  OTHER INFORMATION....................................................15

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.....................................15

         SIGNATURES ..........................................................16


                                      -2-

<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, 2003, included in the Company's Form 10-KSB.





















                                      -3-
<PAGE>
<TABLE>
<CAPTION>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)

                           Consolidated Balance Sheets
                       June 30, 2004 and December 31, 2003


<S>                                                                                  <C>               <C>
                                                                                     June 30,          December 31,
Assets                                                                                 2004               2003
------                                                                              (unaudited)         (audited)
                                                                                     ------------      ------------

Current assets:
     Cash                                                                            $    218,807      $    585,934
     Receivables                                                                           36,520            40,267
     Prepaid expenses                                                                      10,462            10,462
     Deposits                                                                             181,091            65,242
                                                                                     ------------      ------------
                           Total current assets                                           446,880           701,905

Building and equipment, at cost, less accumulated
     depreciation of $173,754 in 2004 and $124,493 in 2003                              1,353,322           911,652
                                                                                     ------------      ------------

                           Total assets                                              $  1,800,202      $  1,613,557
                                                                                     ============      ============

Liabilities and Stockholders' Equity
------------------------------------

Current liabilities:
     Accounts payable                                                                $     58,236      $    165,753
     Current installments of mortgages payable                                              1,075             2,144
                                                                                     ------------      ------------
                           Total current liabilities                                       59,311           167,897


     Accrued interest payable                                                             205,583            83,579
     Loans payable                                                                      3,937,687         3,058,707
     Mortgage payable, excluding current installments                                      12,579            14,332
                                                                                     ------------      ------------

                           Total liabilities                                            4,215,160         3,324,515
                                                                                     ------------      ------------

Stockholders' equity:
     Preferred Stock, par value $0.01 per share; 50,000,000
         shares authorized; no shares issued and outstanding                                -                 -
     Common Stock, par value $.0001; 100,000,000 shares authorized;
         72,063,896 shares issued and outstanding                                           3,600             3,600
     Additional paid-in capital                                                            14,142            14,142
     Deficit accumulated during exploration stage                                      (2,432,700)       (1,728,700)
                                                                                     ------------      ------------

                           Total stockholders' equity (deficit)                        (2,414,958)       (1,710,958)
                                                                                     ------------      ------------

                           Total liabilities and stockholders' equity                $  1,800,202      $  1,613,557
                                                                                     ============      ============
</TABLE>


See accompanying notes to consolidated financial statements.

                                      -4-
<PAGE>
<TABLE>
<CAPTION>
                           INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)

                Consolidated Statements of Operations (Unaudited)
                  Three and six months ended June 30, 2004 and
               2003 and for the period from November 6, 1996 (Date
                         of Inception) to June 30, 2004



                                                        Three months ended                 Six months ended         November 6, 1996
                                                            June 30,                           June 30,             (inception) to
                                                      2004             2003              2004            2003        June 30, 2004
                                                      ----             ----              ----            ----        -------------

<S>                                               <C>               <C>             <C>               <C>             <C>
Revenue                                           $     -                -                 -                -                15,537
                                                  -----------       ----------      ------------      -----------     -------------
Expenses:
     Cost of revenues                                   -                -                 -                -                76,201
     Professional fees                                 13,475           41,520            50,448           57,196         1,162,110
     Royalty fees                                       -                -                10,000            8,775            46,325
     Depreciation and amortization                     26,307           14,873            49,261           28,903           182,463
     Impairment of long-lived assets                    -                -                 -                -               582,176
     Other general and administrative                 282,924          216,398           533,742          322,121         1,982,673
     Management Fees and Salaries                      29,794            4,000            60,620            4,000           116,747
                                                  -----------       ----------      ------------      -----------     -------------


                           Total expenses             352,500          276,791           704,071          420,995         4,148,695
                                                  -----------       ----------      ------------      -----------     -------------

                           Loss from operations      (352,500)        (276,791)         (704,071)        (420,995)       (4,133,158)
                                                  -----------       ----------      ------------      -----------     -------------


Other income:
     Interest income                                       31            -                    71                -             2,882
     Other income                                       -                -                 -                    -               594
                                                  -----------       ----------      ------------      -----------     -------------

                           Total other income              31            -                    71                -             3,476
                                                  -----------       ----------      ------------      -----------     -------------

                           Net loss               $  (352,469)        (276,791)         (704,000)        (420,995)       (4,129,682)
                                                  ===========       ==========      ============      ===========     =============

Net loss per common share                         $     -                -                 (.01)             (.01)
                                                  ===========       ==========      ============      ===========

Weighted average common shares outstanding         72,063,896       42,036,890        72,063,896       39,034,255
                                                  ===========       ==========      ============      ===========
</TABLE>



See accompanying notes to consolidated financial statements.

                                      -5-

<PAGE>
<TABLE>
<CAPTION>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)

                Consolidated Statements of Cash Flows (Unaudited)
               Six months ended June 30, 2004 and 2003 and for the
               period from November 6, 1996 (Date of Inception) to
                                  June 30, 2004



                                                                           Six months ended          November 6, 1996
                                                                                June 30,             (inception) to
                                                                          2004  -------    2003      June 30, 2004
                                                                          ----             ----      -------------
<S>                                                                   <C>                <C>             <C>
Cash flows from operating activities:
     Net loss                                                         $ (704,000)        (420,995)       (4,129,682)
     Adjustments to reconcile net loss to
            net cash used in operating activities:
         Depreciation and amortization                                    49,261           28,903           174,171
         Provision for bad debts                                           -                -                49,676
         Stock issued for services                                         -                -               414,606
         Impairment of long-lived assets                                   -                -               297,882
         Changes in:
              Receivables                                                  3,747          (14,275)          (40,689)
              Inventory                                                    -                -                (5,527)
              Prepaid expenses                                             -                -               (11,001)
              Deposits                                                  (115,849)          (3,629)         (181,091)
              Accounts payable and accrued expenses                     (107,517)          42,148           (29,792)
              Accrued interest payable                                     -               15,775              -
              Due to related parties                                       -             (174,977)          395,000
                                                                       ---------         ---------        ----------

                           Net cash used in operating
                             activities                                 (874,358)        (527,050)       (3,066,447)
                                                                       ---------         ---------        ----------

Cash flows from investing activities:
     Purchase of building and equipment                                 (490,931)         (64,911)       (1,326,653)
     Investment in Multiplex                                               -                -               (75,000)
     Acquisition of goodwill                                               -                -              (149,057)
     Loan to related party                                                 -                -               (50,000)
     Loan repayments                                                       -                -                 4,493
                                                                       ---------         ---------        ----------

                           Net cash used in
                             investing activities                       (490,931)         (64,911)       (1,596,217)
                                                                       ---------         ---------        ----------

                                                                                                                        (Continued)

</TABLE>

See accompanying notes to consolidated financial statements.

                                      -6-
<PAGE>
<TABLE>
<CAPTION>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)

          Consolidated Statements of Cash Flows (Unaudited), Continued





                                                                           Six months ended          November 6, 1996
                                                                                June 30,             (inception) to
                                                                          2004  -------    2003      June 30, 2004
                                                                          ----             ----      -------------
<S>                                                                   <C>                <C>             <C>
Cash flows from financing activities:
     Net proceeds form sale of common stock                           $    -                -               744,859
     Net proceeds from loans payable                                     878,980          802,428         3,917,235
     Proceeds from mortgage                                                -                -                17,000
     Principal payments on mortgage                                       (2,822)          (1,070)           (3,346)
     Accrued interest payable                                            122,004            -               205,583
     Cash acquired in acquisition of Peanut
         Butter & Jelly, Inc.                                              -                -                   140

                                                                       ---------         ---------        ----------

                           Net cash provided by
                               financing activities                      998,162          801,358         4,881,471

                                                                       ---------         ---------        ----------

Net increase (decrease) in cash                                         (367,127)         209,397           218,807

Cash, beginning of period                                                585,934            5,537             -
                                                                       ---------         ---------        ----------

Cash, end of period                                                   $  218,807          214,934           218,807
                                                                       =========         =========        ==========

Supplemental cash flow disclosures:
     Cash paid for interest                                           $    -                -                   113
                                                                       =========         =========        ==========

     Cash paid for income taxes                                       $    -                -                 -
                                                                       =========         =========        ==========

Non cash investing and financing activities:
     Shares issued for debt                                           $    -                -               595,000
                                                                       =========         =========        ==========
     Shares issued for services                                       $    -                -               414,606
                                                                       =========         =========        ==========
     Shares issued for investment                                     $    -                -                    30
                                                                       =========         =========        ==========

     Property costs financed by insurance
         of common stock                                              $    -                -                30,000
                                                                       =========         =========        ==========

     Equipment financed by:
         Accounts payable                                                  -                -               200,000
         Insurance of common stock                                         -                -                 5,000
                                                                       ---------         ---------        ----------

                                                                      $    -                -               205,000
                                                                       =========         =========        ==========
</TABLE>


See accompanying notes to consolidated financial statements.

                                      -7-
<PAGE>
<TABLE>
<CAPTION>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)

           Consolidated Statement of Stockholders' Equity (Unaudited)
                                  June 30, 2004
                                                                                          Deficit
                                                                                        Accumulated
                                                   Common Stock           Additional    During the
                                          ---------------------------      Paid-In      Exploration
                                           # of Shares        Amount        Capital         Stage           Totals
                                        -------------      -----------    -----------     ----------     -----------
<S>                                     <C>                <C>            <C>            <C>             <C>
Inception - November 6, 1996                        -      $        -              -              -               -

Balance at December 31, 1998                  252,500              25        505,143       (750,830)       (245,662)
Issuance of stock for cash                     30,000               3        146,618              -         146,621
Issuance of stock for services                 55,000               6        274,994              -         275,000
Net loss                                            -               -              -       (259,404)       (259,404)
                                        -------------      -----------    -----------     ----------     -----------
Balance at December 31, 1999                  337,500              34        926,755     (1,010,234)        (83,445)

Issuance of stock for cash                     84,900               8        413,062              -         413,070
Issuance of stock for services                 70,000               7        349,993              -         350,000
Issuance of stock for Multiplex
     stock                                      3,000               1             29              -              30
Issuance of stock for acquisition             475,463              47          4,699              -           4,746
Net loss                                            -               -              -       (694,758)       (694,758)
                                        -------------      -----------    -----------     ----------     -----------
Balance at December 31, 2000                  970,863              97      1,694,538     (1,704,992)       (10,357)

Issuance of stock for
     compensation                              30,000               3         59,997              -         60,000
Net loss                                            -               -              -        (67,251)       (67,251)
                                        -------------      -----------    -----------     ----------     -----------
Balance at December 31, 2001                1,000,863             100      1,754,535     (1,772,243)       (17,608)

Issuance of stock in connection
     with acquisition of Industrial
     Minerals Incorporated                 35,000,000           3,500     (1,740,393)     1,696,982        (39,911)
Minimum 50 shares
     post-split allocation                     30,758               -              -              -              -
Net loss                                            -               -              -       (520,242)      (520,242)
                                        -------------      -----------    -----------     ----------     -----------
Balance at December 31, 2002               36,031,621           3,600         14,142       (595,503)      (577,761)

Minimum 50 shares
     post-split allocation                        327               -              -              -              -
2-for-1 split                              36,031,948               -              -              -              -

Net loss                                            -               -              -     (1,133,197)    (1,133,197)
                                        -------------      -----------    -----------     ----------     -----------
Balance at December 31, 2003               72,063,896      $    3,600         14,142     (1,728,700)    (1,710,958)

Net loss                                            -               -              -       (704,000)       (704,000)
                                        -------------      -----------    -----------     ----------     -----------

Balance at June 30,  2004                  72,063,896       $  3,600          14,142     (2,432,700)     (2,414,958)
                                        =============      ===========    ===========     ==========     ===========
</TABLE>



See accompanying notes to consolidated financial statements.

                                      -8-

<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)

                   Notes to Consolidated Financial Statements
                     Six months ended June 30, 2004 and 2003



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.

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, 2004 and the  results of  operations  and cash
         flows for the six months ended June 30, 2004 and 2003.  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  contain  certain  information  included  in  the
         Company's  audited  financial  statements  and notes for the year ended
         December 31, 2003.















                                      -9-

<PAGE>


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

              THREE-MONTHS ENDING JUNE 30, 2004 AND JUNE 30, 2003
             -----------------------------------------------------

During the three-month  period ending June 30, 2004 the Company had no revenues.
The Company had no revenue  during the same  three-month  period ending June 30,
2003.

The Company  incurred  expenses for  professional  fees in the amount of $13,475
during the  three-month  period ending June 30, 2004 compared to $41,520  during
the three-month period ending June 30, 2003. This is a decrease of $28,045.

Depreciation and amortization expense for the three-month period ending June 30,
2004 totaled $26,307, compared to $14,873 for the three-month period ending June
30, 2003. This represents an increase of $11,434. This increase is the result of
additional  asset  purchases  involving  the Company's  Bissett  Creek  Graphite
property.

Other general and administrative expenses for the three-month period ending June
30, 2004 totaled $282,924  compared to $216,398 for the same three-month  period
ending June 30, 2003.  This  represents  an increase in the  three-month  period
ending June 30, 2004 of $66,526 over the same period ending June 30, 2003.  This
increase is due to an increase in activity  surrounding  the  operations  of the
Company during the three-month  period ending June 30, 2004 compared to the same
three-month period ending June 30, 2003.

The  Company  has  begun  and is  continuing  to  market  graphite  that will be
available  from the Bissett Creek  Graphite  Property.  Several  Companies  have
expressed  interest in the graphite  from the Company's  Bissett Creek  Graphite
Property.  The Company is pleased with this response but cautions investors that
there are no firm orders for the  Company's  graphite  at this time.  Investor's
should be further  cautioned  that the Company  might not be  successful  in its
marketing efforts.

Management fees and salaries during the three-month  period ending June 30, 2004
totaled $29,794 compared to $4,000 for the same  three-month  period ending June
30, 2003.  The Company paid $23,125 in wages to the President of the Company and
$5,550 to the Chief Financial Officer.  Included in management fees and salaries
is  amount  of  $1,119  in  benefits  paid to  Revenue  Canada  on behalf of the
President and Chief Financial Officer.  Benefits in the amount of $1,119 paid to
Revenue  Canada  represent  the  Company's  portion of Canada  Pension  Plan and
Employment Insurance Premiums payable.

The Company has had a net loss of ($352,469) for the  three-month  period ending
June 30, 2004 as compared to a net loss of ($276,791) for the three-month period
ending June 30,  2003.  This  represents  an increase of $75,678 in loss for the
three-month  period ending June 30, 2004 compared to the same three-month period
ending  June  30,  2003.  This  increase  is  due  to an  increase  in  activity
surrounding the operations of the Company during the  three-month  period ending
June 30, 2004 compared to the same three-month period ending June 30, 2003.

                                      -10-
<PAGE>

               SIX-MONTHS ENDING JUNE 30, 2004 AND JUNE 30, 2003
              ---------------------------------------------------

During the  six-month  period  ending June 30, 2004 the Company had no revenues.
The  Company had no revenue  during the same  six-month  period  ending June 30,
2003.

The Company  incurred  expenses for  professional  fees in the amount of $50,448
during the six-month  period ending June 30, 2004 compared to $57,196 during the
six-month period ending June 30, 2003. This is a decrease of $6,748.

The  Company  incurred  royalty  expenses  in the amount of  $10,000  during the
six-month  period  ending  June 30, 2004  compared  to $8,775 for the  six-month
period  ending June 30,  2003.  The Company is required to pay a minimum  yearly
royalty of $20,000  ($27,000  CDN  dollars)  whether  the  Company is  producing
graphite  or not.  This is an  increase  of $1,225.  The  weakness of the United
States dollar in relation to the Canadian dollar over the past year has resulted
in an increased  cost in US dollars to the Company.  If the United States dollar
remains at the  current  level in relation  to the  Canadian  dollar the royalty
payment in subsequent years will remain at $20,000 US dollars.

Depreciation and  amortization  expense for the six-month period ending June 30,
2004 totaled  $49,261,  compared to $28,903 for the six-month period ending June
30, 2003. This represents an increase of $20,358. This increase is the result of
additional  asset  purchases  involving  the Company's  Bissett  Creek  Graphite
property.

Other general and  administrative  expenses for the six-month period ending June
30, 2004 totaled  $533,742  compared to $322,121 for the same  six-month  period
ending June 30, 2003. This represents an increase in the six-month period ending
June 30,  2004 of  $211,621  over the same period  ending  June 30,  2003.  This
increase is due to an increase in activity  surrounding  the  operations  of the
Company  during the  six-month  period ending June 30, 2004 compared to the same
six-month period ending June 30, 2003.

The  Company  has  begun  and is  continuing  to  market  graphite  that will be
available  from the Bissett Creek  Graphite  Property.  Several  Companies  have
expressed  interest in the graphite  from the Company's  Bissett Creek  Graphite
Property.  The Company is pleased with this response but cautions investors that
there are no firm orders for the  Company's  graphite  at this time.  Investor's
should be further  cautioned  that the Company  might not be  successful  in its
marketing efforts.

Management  fees and salaries  during the six-month  period ending June 30, 2004
totaled $60,620 compared to $4,000 for the same six-month period ending June 30,
2003.  The Company  paid  $46,250 in wages to the  President  of the Company and
$11,100 to the Chief  Financial  Officer for the period  ending  June 30,  2004.
Included in management fees and salaries is amount of $3,270 in benefits paid to
Revenue Canada on behalf of the President and Chief Financial Officer.  Benefits
in the amount of $3,270 paid to Revenue Canada  represent the Company's  portion
of Canada Pension Plan and Employment Insurance Premiums payable.

The Company has had a net loss of  ($704,000)  for the  six-month  period ending
June 30, 2004 as compared to a net loss of ($420,995)  for the six-month  period
ending June 30, 2003.  This  represents  an increase of $283,005 in loss for the
six-month  period  ending June 30, 2004  compared to the same  six-month  period
ending  June  30,  2003.  This  increase  is  due  to an  increase  in  activity
surrounding  the  operations of the Company  during the six-month  period ending
June 30, 2004 compared to the same six-month period ending June 30, 2003.

                                      -11-
<PAGE>

Liquidity and Capital Resources
-------------------------------

The Company has cash on hand at June 30, 2004 of $218,807  and a  receivable  of
$36,520 as a result of tax input  credits owed to the Company by the  Government
of Canada.

The Company has prepaid expenses of $10,462.  This represents the unused portion
of an insurance  policy that the Company carries for its building and equipment.
This policy expires September 6, 2004.

The Company has a total of $181,091 in deposits.  The Company's  landlord  holds
$1,521 which  represents a deposit on rent and common costs  associated with its
premises located at Suite 2500 One Dundas Street West, Toronto, Ontario M5G 1Z3.
The Minister of Finance for the Province of Ontario  holds  $148,000  which is a
security  deposit  regarding  the mine  closure plan that has been filed for the
Bissett  Creek  Property.  Further  deposits in the amounts of $9,000 for future
marketing expenses,  $22,200 for future environmental  studies that are to begin
in September of 2004 and $370 for mobile phone deposits.

The Company had no revenue  during  three-month  period ending June 30, 2004 and
expects to have no revenue  during the quarter  ending  September 30, 2004.  The
Company expects to begin  commissioning  its Bissett Creek graphite plant during
the quarter ending September 30, 2004. Management believes production will begin
sometime  during the quarter  ending  September  30, 2004.  Investors  should be
cautioned  that the  commissioning  of the  graphite  plant  may  extend  beyond
September 30, 2004 thus delaying planned production of graphite.  As of the date
of this  filing  the  Bissett  Creek  Graphite  Project  Closure  Plan  has been
considered  filed as per subsection 141 (3)(a) of the Mining Act in the Province
of Ontario.  Investors should be further cautioned that the Company is currently
seeking  customers for its  graphite.  Discussions  are on going with  potential
customers for graphite but there are no contracts  concluded at this time. There
can be no guarantee  that the Company will be successful in obtaining a contract
for its graphite.

The Company has total accounts  payable of $58,236.  The Company has the cash on
hand in order to pay these accounts payable in an orderly  fashion.  The Company
also owes $205,583 in accrued  interest  payable.  The interest is not due until
July 31, 2005.

The Company has secured a first  mortgage in the amount of $17,000 during fiscal
year 2002 which requires a payment of $296  (Canadian $400 monthly)  monthly for
five  years and the  balance is then due and  payable at the end of five  years.
This mortgage carries an interest rate of 7% annually.  The Company has the cash
on hand to pay  these  payments  in an  orderly  fashion.  These  payments  were
originally  $260 monthly however due to the weakness of the United States dollar
in relation to the  Canadian  dollar a $36 USD per month  increase  has occurred
during the fiscal year ending December 31, 2004.

During the three-month  period ending June 30, 2004 the Company has been able to
secure  debt  financing  in  the  amount  of  $628,980  from  a   non-affiliated
shareholder.  Total  loans  payable  now amount to  $3,937,687  as of the period
ending  June 30,  2004.  Interest  has  accrued  on this  debt in the  amount of
$205,583.  The interest rate associated  with this debt will be 7% yearly.  This
debt is due and payable together with principal and any accrued interest on July
31, 2005.

                                      -12-
<PAGE>

Industrial  Minerals has the  following  future  commitments.  During the second
quarter ending June 30, 2004 the following work has continued and as of the date
of this filing is at various stages of completion. Investors should be cautioned
that a substantial amount of the following work still requires completion.

1        Blasting equipment (dynamite)                           46,000
2        Equipment, dryer                                        60,000
3        Equipment for quality control procedures                 6,000
4        Commissioning of plant & equipment                      40,000
                                                                -------
Total funds required to complete construction                  $152,000


In addition to the above cash requirements to complete  construction of the mill
site the  Company has  budgeted  for the  following  cash  requirements  for the
balance of the current fiscal year ending December 31, 2004:

1        Professional fees                                    $  30,000
2        Royalty Payments                                        10,000
3        Management fees and salaries                            11,500
4        General & Administrative Expenses                      375,000
5        Mining Costs for fiscal year 2004                      200,000
6        Environmental testing (ongoing)                         52,000
7        Mine closure plan (ongoing)                            100,000
                                                                -------
Total Operating Budget                                         $778,500

Investors  should be aware that the above are estimates only and could change as
the project develops.

Regarding  point  number 4 above  concerning  general  and  administrative  cash
requirements, this figure does not include interest that is accruing at the rate
of 7% per annum.  Management estimates that additional interest in the amount of
approximately $145,000 will accrue during the remaining of the 2 quarters of the
Company's  fiscal year ending  December 31, 2004.  Since these funds are not due
until July 31, 2005  management  has not included them in the cash  requirements
for the balance of fiscal year ending December 31, 2004.

Regarding  point  number 7 above  concerning  the mine closure  plan,  investors
should be aware that this is an estimate.  The final figure maybe  substantially
higher.  Management  does not believe the figure will be lower.  The Province of
Ontario requires financial assurances to be in place before mining commences and
the financial assurances are now in place in the amount of $148,000. The Company
has filed a mine  closure  plan with the  Province  and is now in the process of
responding to the comments  received from the Ministry of Mines.  It is expected
this process will be complete by August 14, 2004.

The Company  requires  $152,000 to complete the  construction of the mine on its
Bissett  Creek  Property.  The  Company's  operational  budget for the six-month
period beginning July 1, 2004 in the amount of $778,500 or a monthly operational
cost of $129,750  for each of the months of July 1, 2004  through  December  31,
2004.   Total  funds  in  the  amount  of  $988,736  are  required  to  complete
construction  at the Bissett Creek Graphite mine in the amount of $152,000,  pay
the accounts  payable due in the amount of $58,236 and pay operational  costs of
$129,750  monthly for the  six-month  period  beginning  July 1, 2004 and ending
December 31, 2004. Subsequent to June 30, 2004 the Company obtained financing in
the amount of $100,000 from a non-affiliated  shareholder.  The financing in the
amount  of  $100,000  accrues  interest  at the  rate  of 7% per  annum  and the
principal in the amount of $100,000  along with accrued  interest is due on July

                                      -13-
<PAGE>

31, 2005. Since the Company has cash of $218,807 and has a receivable of $36,520
on hand as of June 30,  2004 and  subsequent  to June 30,  2004 has  received an
additional $100,000,  the Company requires additional financing in the amount of
$633,409.  While management believes the Company will be successful in obtaining
satisfactory   financing  to  complete   construction  of  the  mine  and  begin
operations,  investors  should be cautioned  that the Company  currently  has no
commitments  of any type made by any  person or  entity  to  provide  financing.
Investors and potential  investors should be aware that the Company might not be
able to continue to operate  throughout it's current fiscal year ending December
31, 2004 without sales of its graphite or additional financing.

Investors and potential investors should be aware that Company does not have the
necessary funds to operate  throughout its fiscal year ending December 31, 2004.
Even if the Company is successful in obtaining the necessary  financing there is
no guarantee  that the Company will be  successful  in marketing  graphite.  The
Company  intends to  continue  to seek debt  financing  to ensure its ability to
operate throughout 2004 from  non-affiliates,  and possibly officers,  directors
and  shareholders.  No  commitments  of any type have been made by any person or
entity  to  provide   financing.   Management   has  no  plan  to  overcome  the
uncertainties  surrounding the Company's  ability to continue as a going concern
for a reasonable  period of time  extending  beyond  October 31, 2004 unless the
Company  obtains  additional  financing or begins  production  and  successfully
obtains a contract for its  graphite.  Management  will deal with issues as they
arise but as a "start up" company in a graphite mining attempt,  the Company can
neither predict nor solve, in anticipation, the uncertainties of mining, capital
raising,  marketing or operations.  All risks and uncertainties  inherent in any
start up company  exist in the chosen area of the Company.  The Company does not
have any other plan in place to provide capital or financing for its operations.

Should the Company  complete the mine and begin  production  investors should be
further  cautioned that there might not be a market for the Company's  graphite.
The Company is currently seeking customers for its graphite.  Discussions are on
going with potential customers for graphite but there are no contracts concluded
at this time.  There can be no guarantee  that the Company will be successful in
obtaining a contract for its graphite.

Investors and potential  investors should be further cautioned that the ultimate
success of the Company relies on the Company's  ability to successfully mine and
market its graphitic resource at a profit.


ITEM 3.  CONTROLS AND PROCEDURES

Evaluation of Internal and Disclosure Controls

The  management of the Company has evaluated the  effectiveness  of the issuer's
disclosure  controls  and  procedures  as of a date  within 90 days prior to the
filing  date  of the  report  (evaluation  date)  and  has  concluded  that  the
disclosure  controls and procedures are adequate and effective  based upon their
evaluation  as of the  evaluation  date.  There were no  significant  changes in
internal controls or in other factors that could  significantly  affect internal
controls subsequent to the date of the most recent evaluation of such, including
any  corrective  actions with regard to  significant  deficiencies  and material
weaknesses.



                                      -14-
<PAGE>



                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None.

ITEM 2.  CHANGES IN SECURITIES

         None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 4.  SUBMISSION OF MATTER 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     Section 302 Certification - CEO
                31.2     Section 302 Certification - CFO
                32.1     Section 906 Certification - CEO
                32.2     Section 906 Certification - CFO

         (b) The following is a list of Current Reports on Form 8-K filed by the
Company during the fiscal quarter for the period ended June 30, 2004.

         Report on Form 8-K dated April 5, 2004,  relating to the termination of
Robert A. Stoutley as President and a letter of resignation as Director.

         Report on Form 8-K dated  April 21,  2004,  relating  to the  Company's
address change.






                                      -15-
<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 6, 2004            INDUSTRIAL MINERALS, INC.

                                 By:/s/John Melnyk
                                 -----------------------------------------------
                                 John Melnyk, Acting CEO and President
                                 Chief Financial Officer and Secretary/Treasurer


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.


By:/s/John Melnyk                                         Dated: August 6, 2004
   -------------------------------------------------------------
    John Melnyk, Acting CEO and President
    Chief Financial Officer and Secretary/Treasurer







                                      -16-