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

                                    FORM 10-Q

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

                        FOR QUARTER ENDED MARCH 31, 2005

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

         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined in Rule 12b-2 of the Exchange Act).

                                    Yes      X                No
                                        --------------          ----------

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

         As  of  March  31,  2005  the  number  of  shares  outstanding  of  the
registrant's only class of common stock was 111,587,966.


<PAGE>

                                Table of Contents

                                                                            Page
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements                                                 1

         Consolidated Balance Sheets as of March 31, 2005
         (unaudited) and December 31, 2004 (audited).....................     2

         Consolidated Statements of Operations (unaudited) for the
         Three Months ended March 31, 2005  and 2004 and for the period
         November 6, 1996 (Date of Inception) to March 31, 2005..........     3

         Consolidated Statements of Cash Flows (unaudited) for the
         Three Months ended March 31, 2005 and 2004 and for the period
         November 6, 1996 (Date of Inception) to March 31, 2005..........     4

         Consolidated Statement of Stockholders' Equity (unaudited)
         for the period ended March 31, 2005.............................     6

         Notes to Consolidated Financial Statements (unaudited)..........     7

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations...........................................     8

Item 3. Quantitative and Qualitative Disclosures About Market Risk.......    11

Item 4.  Controls and Procedures.........................................    11

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings ..............................................    12

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.....    13

Item 3.  Defaults upon Senior Securities.................................    13

Item 4.  Submission of Matters to a Vote of Security Holders.............    13

Item 5.  Other Information...............................................    13

Item 6.  Exhibits and Reports on Form 8-K.................................   13

Signatures..............................................................     13



<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, 2004, included in the Company's Form 10-K.









                                       1

<PAGE>
<TABLE>
<CAPTION>


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

                           Consolidated Balance Sheets

                      March 31, 2005 and December 31, 2004

                                                                                       March 31,      December 31,
                                                                                        2005              2004
                                                                                     (Unaudited)        (Audited)
                                                                                    -------------      ------------
Assets

Current assets:
<S>                                                                                 <C>                <C>
     Cash                                                                           $      28,100      $     27,726
     Receivables                                                                           11,793           105,925
     Prepaid expenses                                                                      20,940            15,540
     Deposits                                                                              53,421            11,789
                                                                                    -------------      ------------
                           Total current assets                                           114,254           160,980

Long-term deposits                                                                        230,000           230,000
Building and equipment, at cost, less accumulated
     depreciation of $311,262 in 2005 and $256,167 in 2004                              1,800,322         1,778,462
                                                                                    -------------      ------------
                           Total assets                                             $   2,144,576      $  2,169,442
                                                                                    =============      ============

Liabilities and Stockholders' Equity

Current liabilities:

     Accounts payable                                                               $     160,728      $    120,326
     Accrued interest payable                                                              16,382            12,711
     Loans payable                                                                        370,796            90,796
     Due to related parties                                                                     -            11,787
     Current installments of mortgage payable                                               2,763             2,763
                                                                                    -------------      ------------
                        Total current liabilities                                         550,669           238,383


     Mortgage payable, excluding current installments                                      11,934            12,632
                                                                                    -------------      ------------
                           Total liabilities                                              562,603           251,015
                                                                                    -------------      ------------

Stockholders' equity:
     Common Stock, par value $.0001; 200,000,000 shares authorized;
     111,587,966 shares issued and outstanding                                              3,949             3,949
     Additional paid-in capital                                                         4,204,331         4,204,331
     Deficit accumulated during exploration stage                                      (2,626,307)       (2,289,853)
                                                                                    -------------      ------------
                           Total stockholders' equity                                   1,581,973         1,918,427
                                                                                    -------------      ------------
                           Total liabilities and stockholders' equity               $   2,144,576      $  2,169,442
                                                                                    =============      ============

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       2
<PAGE>
<TABLE>
<CAPTION>


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

                Consolidated Statements of Operations (Unaudited)

                 Three months ended March 31, 2005 and 2004 and
           for the period from November 6, 1996 (Date of Inception) to
                                 March 31, 2005


                                                                            Three months
                                                                               ended
                                                                              March 31,            November 6, 1996
                                                                             ---------               (inception) to
                                                                          2005              2004     March 31, 2005
                                                                   -------------     ------------      ------------

<S>                                                                <C>               <C>               <C>
Revenue                                                            $           -                -            15,537
                                                                   -------------     ------------      ------------

Expenses
     Cost of revenues                                                          -                -            76,201
     Professional fees                                                    15,335           36,973         1,213,929
     Royalty fees                                                          5,400           10,000            58,385
     Depreciation and amortization                                        55,095           22,954           319,971
     Impairment of long-lived assets                                           -                -           582,176
     Management fees and salaries                                         90,125           30,826           270,652
     Other general and administrative                                    170,503          250,818         2,868,652
                                                                   -------------     ------------      ------------

                           Total expenses                                336,458          351,571         5,389,966

                           Loss from operations                         (336,458)        (351,571)       (5,374,429)
                                                                   -------------     ------------      ------------


Other income:
     Interest income                                                           4               40             2,912
     Gain from extinguishment of debt                                          -                -         1,047,634
     Other income                                                              -                -               594
                                                                   -------------     ------------      ------------

                           Total other income                                  4               40         1,051,140
                                                                   -------------     ------------      ------------

                           Net loss                                $    (336,454)        (351,531)       (4,323,289)
                                                                   =============     ============      ============


Net loss per common share                                          $        (.00)            (.00)
                                                                   =============     ============

Weighted average common shares outstanding                           111,587,966       72,063,896
                                                                   =============     ============

</TABLE>



          See accompanying notes to consolidated financial statements.

                                       3


<PAGE>
<TABLE>
<CAPTION>


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

                Consolidated Statements of Cash Flows (Unaudited)

                 Three months ended March 31, 2005 and 2004 and
           for the period from November 6, 1996 (Date of Inception) to
                                 March 31, 2005


                                                                             Three months
                                                                                 ended
                                                                               March 31,             November 6, 1996
                                                                              ---------               (inception) to
                                                                        2005             2004         March 31, 2005
                                                                   -------------     ------------      ------------
Cash flows from operating activities:
<S>                                                                <C>               <C>               <C>
     Net loss                                                      $    (336,454)        (351,531)       (4,323,289)
     Adjustments to reconcile net loss to
            net cash used in operating activities:
         Depreciation and amortization                                    55,095           22,954           311,679
         Provision for bad debts                                               -                -            49,676
         Stock issued for services                                             -                -           414,606
         Impairment of long-lived assets                                       -                -           297,882
         Gain on extinguishment of debt                                        -                -        (1,047,634)
         Changes in:
              Receivables                                                 94,132          (12,767)          (15,962)
              Inventory                                                        -                -            (5,527)
              Prepaid expenses                                            (5,400)               -           (21,480)
              Deposits                                                   (41,632)           2,778           (53,421)
              Accounts payable and accrued expenses                       40,402          (95,536)            2,300
              Due to related parties                                     (11,787)               -           395,000
                                                                   -------------     ------------      ------------

                           Net cash used in operating
                             activities                                 (205,644)        (434,102)       (3,996,170)
                                                                   -------------     ------------      ------------

Cash flows from investing activities:
     Purchase of building and equipment                                  (76,955)        (151,819)       (1,911,161)
     Investment in Multiplex                                                   -                -           (75,000)
     Acquisition of goodwill                                                   -                -          (149,057)
     Loan to related party                                                     -                -           (50,000)
     Loan repayments                                                           -                -             4,493
     Long-term deposits                                                        -                -          (159,600)
                                                                   -------------     ------------      ------------

                           Net cash used in
                             investing activities                        (76,955)        (151,819)       (2,340,325)
                                                                   -------------     ------------      ------------

                                                                                                                        (Continued)
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
<TABLE>
<CAPTION>



                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

          Consolidated Statements of Cash Flows (Unaudited), Continued


                                                                             Three months
                                                                                 ended
                                                                               March 31,             November 6, 1996
                                                                              ---------               (inception) to
                                                                        2005             2004         March 31, 2005
                                                                   -------------     ------------      ------------
Cash flows from financing activities:
<S>                                                                <C>               <C>               <C>
     Net proceeds from sale of common stock                        $           -                -           744,859
     Net proceeds from loans payable                                     280,000          250,000         5,320,235
     Proceeds from mortgage                                                    -                -            17,000
     Principal payments on mortgage                                         (698)            (534)           (2,303)
     Accrued interest payable                                              3,671           56,088           284,664
     Cash acquired in acquisition of Peanut
         Butter & Jelly, Inc.                                                  -                -               140
                                                                   -------------     ------------      ------------

                           Net cash provided by
                               financing activities                      282,973          305,554         6,364,595
                                                                   -------------     ------------      ------------

Net increase (decrease) in cash                                              374         (280,367)           28,100

Cash, beginning of period                                                 27,726          585,934                 -
                                                                   -------------     ------------      ------------

Cash, end of period                                                $      28,100          305,567            28,100
                                                                   =============     ============      ============

Supplemental cash flow disclosures:

     Cash paid for interest                                        $           -                -               113
                                                                   =============     ============      ============

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

Non-cash investing and financing activities:
     Shares issued for debt                                        $           -                -         5,564,891
                                                                   =============     ============      ============
     Shares issued for services                                    $           -                -           414,606
                                                                   =============     ============      ============
     Shares issued for investment                                  $           -                -                30
                                                                   =============     ============      ============
     Shares issued for accrued interest                            $           -                -           268,281
                                                                   =============     ============      ============
     Long term deposits financed by accounts payable               $           -                -            70,400
                                                                   =============     ============      ============

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

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

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


          See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
<TABLE>
<CAPTION>


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

           Consolidated Statement of Stockholders' Equity (Unaudited)
                       for the period ended March 31, 2005
<S>                                      <C>            <C>            <C>               <C>              <C>
                                                                                           Deficit
                                                                                         Accumulated
                                                   Common Stock         Additional       During the
                                          ---------------------------     Paid-In        Exploration
                                         # of Shares        Amount        Capital          Stage            Totals
                                        -------------   -----------    ------------      ------------     ----------
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)

3-for-2 split                              36,031,948             -               -                 -             -

Allocation on round-up
              of shares                             7             -               -                 -             -
Issuance of stock in settlement of debt     3,492,115           349       4,190,189                 -     4,190,538
Net loss                                            -             -               -          (561,153)     (561,153)
                                        -------------   -----------    ------------      ------------     ----------
Balance at December 31, 2004              111,587,966         3,949       4,204,331        (2,289,853)    1,918,427
                                        =============   ===========    ============      ============     ==========

Net loss                                            -             -               -          (336,454)     (336,454)
                                        -------------   -----------    ------------      ------------     ----------
Balance at March 31, 2005                 111,587,966   $     3,949       4,204,331        (2,626,307)    1,581,973
                                        =============   ===========    ============      ============     ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       6
<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

                   Notes to Consolidated Financial Statements

                Three month period ended March 31, 2005 and 2004



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 March 31, 2005 and the  results of  operations  and cash
         flows for the three  months  ended  March  31,  2005 and 2004.  Interim
         results are not necessarily indicative of results for a full year.


The financial statements and notes are presented as permitted by Form 10-Q,
         and  do not  contain  certain  information  included  in the  Company's
         audited financial  statements and notes for the year ended December 31,
         2004.







                                       7
<PAGE>


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


Three-months ending March 31, 2005 and March 31, 2004

         During the three-month  period ending March 31, 2005 the Company had no
revenues.  The Company had no revenue during the same three-month  period ending
March 31, 2004.

         The Company incurred  expenses for  professional  fees in the amount of
$15,335 during the three-month  period ending March 31, 2005 compared to $36,973
during the  three-month  period  ending  March 31,  2004.  This is a decrease of
$21,638.

         The Company  incurred  royalty  expenses in the amount of $5,400 during
the  three-month  period ending March 31, 2005. The Company is required to pay a
minimum yearly royalty of $21,600  ($27,000 CDN dollars)  whether the Company is
producing  graphite  or not.  This is a decrease  of $4,600 in  royalty  expense
during the three-month  period ending March 31, 2005 compared to the three-month
period  ending March 31, 2004.  During the quarter  ending  September 30, 2004 a
Mine  Development  and Closure  Plan has been 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  has  allowed for a
prepaid expense in the amount of $8,730 for the three-month  period ending March
31, 2005 which the Company now  recognizes as an asset because of the acceptance
of the Mine Closure and Development Plan by the Ministry of Northern Development
and Mines.  This  prepaid  asset is further  discussed  in this report under the
title of Liquidity and Capital Resources.

         Depreciation and amortization expense for the three-month period ending
March 31, 2005 totaled $55,095,  compared to $22,954 for the three-month  period
ending March 31, 2004. This represents an increase of $32,141.  This increase is
the result of additional asset purchases  involving the Company's  Bissett Creek
Graphite property.

         Management fees and salaries during the three-month period ending March
31, 2005 totaled  $90,125  compared to $30,826 for the same  three-month  period
ending March 31, 2004. This represents an increase of $59,299.  The Company paid
$12,000 in wages to the Chief Financial Officer. The compensation for the CEO is
$10,000  monthly and the Company  paid $30,000 in  management  fees to a Company
controlled  by the CEO.  The  balance of $48,125  was paid to  employees  of the
Company working at the Bissett Creek property.

         Other general and  administrative  expenses for the three-month  period
ending  March 31,  2005  totaled  $170,503  compared  to  $250,818  for the same
three-month  period  ending  March 31, 2004.  This  represents a decrease in the
three-month  period ending March 31, 2005 of $80,315 over the same period ending
March 31, 2004.

         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.

         The Company has had a net loss of $336,454 for the  three-month  period
ending March 31, 2005 as compared to a net loss of $351,531 for the  three-month
period  ending  March 31,  2004.  This  represents a decrease of $15,077 for the
three-month period ending March 31, 2005 compared to the same three-month period
ending March 31, 2004.

                                       8
<PAGE>

Liquidity and Capital Resources

         The  Company  has  cash on hand at  March  31,  2005 of  $28,100  and a
receivable  of $11,793 as a result of tax input  credits  owed to the Company by
the Government of Canada.

         The Company has prepaid expenses of $20,940. This represents the unused
portion of an  insurance  policy that the Company  carries for its  building and
equipment in the amount of $12,210.  This policy expires  September 6, 2005. The
balance in the amount of $8,730 represents a prepaid royalty expense.

         The Company has total deposits in the amount of $53,421 as of March 31,
2005.  The Company has on deposit  with its  landlord  $1,521  which  represents
one-month rent and common costs associated with its premises located at 2500 One
Dundas Street West, Suite 2500,  Toronto,  Ontario,  Canada M5G 1Z3. The Company
has  entered  into a lease,  which  expires on April 30,  2005 at which time the
Company  will  continue to rent office  space on a month-  to-month  basis.  The
Company  also has a deposit on equipment in the amount of $50,000 and an advance
against expenses to two employees in the amount of $1,900.

         The Company had no revenue during  three-month  period ending March 31,
2005 and expects to have  insignificant  revenue in each of the next two-quarter
ending June 30, 2005 and  September 30, 2005.  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 $160,728.  The Company does
not have the cash on hand in order to pay these  accounts  payable in an orderly
fashion. The Company also owes $16,382 in accrued interest payable. A portion of
this accrued  interest is due on July 31, 2005 and that portion is $14,279.  The
balance in the amount of $2,103 is due and  payable  on or before  December  31,
2005.

         The  Company  has  secured a first  mortgage  in the  amount of $17,000
during fiscal year 2002 which requires a payment of $320 (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.  These
payments were  originally $260 monthly however due to the weakness of the United
States  dollar in relation to the Canadian  dollar a $60 USD per month  increase
has  occurred.  The  Company  currently  does not have the funds on hand to meet
these mortgage obligations.

         During the  three-month  period  ending  March 31, 2005 the Company has
been  able  to  secure  debt   financing  in  the  amount  of  $280,000  from  a
non-affiliated shareholder. Total loans payable now amount to $370,796 as of the
period ending March 31, 2005. The interest rate  associated with the $280,000 of
borrowing  during the  quarter  ending  March 31, 2005 is 10%  annually  and the
principal  along with accrued  interest is due and payable on or before December
31, 2005. The interest rate  associated  with $90,796 of the total loans payable
is 7% annually and the principal in the amount of $90,796 along with any accrued
interest is payable on or before July 31,  2005.  As of March 31, 2005  interest
has accrued on this debt in the amount of $16,382. The Company does not have the
funds on hand to pay this debt as it comes due.

                                       9
<PAGE>
         Industrial  Minerals has completed the construction of the crushing and
processing  facility  located at Bissett Creek.  During the first quarter ending
March 31, 2005 work has continued at the Bissett Creek  Graphite Mine. As of the
date of this filing commissioning of the mill is at various stages of completion
and an insignificant  amount of graphite has been produced.  Investors should be
aware that during the  commissioning  process  management has decided to upgrade
certain  screens  and  crushing  of the  ore as  this  will  enhance  production
capabilities as the Company expands graphite production.

         In order to  complete  these  upgrades at the mill site the Company has
budgeted for the following cash requirements:

1        Completion of Equipment Installation                 $   30,000
2        Upgrading of Screens                                    110,000
                                                              -----------
Total Upgrade Requirement                                     $  140,000


1        Professional fees                                    $   52,000
2        Royalty Payments                                         16,200
3        Management fees and salaries                            446,000
4        General & Administrative Expenses                       511,509
5        Environmental monitoring and testing                    105,500
                                                              -----------
Total Operating Budget                                        $1,131,209

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

         The Company requires $140,000 to complete the upgrades  discussed above
on its  Bissett  Creek  Property.  The  Company's  operational  budget  for  the
nine-month  period  beginning  April 1, 2005 in the  amount of  $1,131,209  or a
monthly  operational  cost of  $125,689  for each of the months of April 1, 2005
through  December 31,  2005.  Thus total funds in the amount of  $1,271,209  are
required to fund the  anticipated  operations  at the  Company's  Bissett  Creek
Graphite  Mine in the  amount of  $140,000  to  complete  the  upgrades  and pay
operational  costs of $125,689 monthly for the nine-month period beginning April
1, 2005 and ending  December 31, 2005.  Subsequent to March 31, 2005 the Company
obtained  financing in the amount of $40,000 from a non-affiliated  shareholder.
The  financing in the amount of $40,000 is accruing  interest at the rate of 10%
per annum and the principal in the amount of $40,000 along with accrued interest
is due on  December  31,  2005.  Since the Company has cash of $28,100 and has a
receivable  of $11,793 on hand as of March 31, 2005 and  subsequent to March 31,
2005 has  received  an  additional  $40,000,  the  Company  requires  additional
financing in the amount of  $1,191,316.  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, 2005 without sales of its graphite or additional financing.

                                       10
<PAGE>
         Investors and potential investors should be aware that the Company does
not have the funds to  complete  construction  of the  mine.  In  addition,  the
Company does not have the necessary funds to operate  throughout its fiscal year
ending  December 31, 2005.  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 2005 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 May 31, 2005 unless the
Company  obtains  additional  financing or begins  production  and  successfully
obtains a contract for it's 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We do not have any market risk sensitive instruments.  Since operations
in Canada are in Canadian  dollar  denominated  accounts,  we do believe that we
have foreign  currency  risk in that as the Canadian  dollar  increases in value
against the United States dollar our operating  costs  increase when reported in
United States dollars.

         Our product is quoted for sale in United States dollars.


Item 4.    CONTROLS AND PROCEDURES

         The Company maintains  controls and procedures  designed to ensure that
it is able to collect the  information it is required to disclose in the reports
it files with the SEC, and process,  summarize,  and disclose  this  information
within the time periods  specified in the rules of the SEC. The Company's  Chief
Executive and Chief  Financial  Officers are responsible  for  establishing  and
maintaining  these procedures and, as required by the rules of the SEC, evaluate
their effectiveness.

         Our Chief Executive Officer and Chief Financial Officer, have evaluated
the  effectiveness  of our  disclosure  controls and procedures (as such term is
defined in Rules  13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of
1934, as amended (the  "Exchange  Act")) as of the end of the period  covered by
this report.  The evaluation  included control areas in which we intend to make,
changes to improve and enhance  controls.  Based on such  evaluation,  our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end
of such period,  our  disclosure  controls  and  procedures  were not  effective
because of a material weakness as discussed below.

                                       11
<PAGE>
Internal Control Over Financial Reporting

         The Company maintains a system of internal controls designed to provide
reasonable  assurance  that:   transactions  are  executed  in  accordance  with
management's  general or specific  authorization;  transactions  are recorded as
necessary (1) to permit  preparation of financial  statements in conformity with
generally accepted accounting principles, and (2) to maintain accountability for
assets;  access to assets is  permitted  only in  accordance  with  management's
general or specific authorization; and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

Material Weakness in Disclosure Controls

         A material  weakness is a condition in which the design or operation of
one or more of the internal  control  components does not reduce to a relatively
low level the risk that  misstatements  caused by error or fraud in amounts that
would be  material in relation to the  financial  statements  being  audited may
occur and not be  detected  within a timely  period by  employees  in the normal
course of performing their assigned functions.

         The   Securities   and   Exchange   Commission   rule  making  for  the
Sarbanes-Oxley  Act of 2002  Section  404  requires  that a  company's  internal
controls over financial  reporting be based upon a recognized  internal  control
framework.  While the Company has an internal  control and procedures  manual in
place and management  believes the controls and  procedures  are effective,  the
manual is not based upon a recognized  internal  control  framework,  because we
have not  found  one that  fits the  limited  scope of  operations  of our small
Company. Accordingly, we conclude that we have a material weakness.

         During the first half of the Company's  fiscal year ending December 31,
2005 management will be revising the Company's  internal controls and procedures
document basing this revision upon a model framework created by the Committee of
Sponsoring   Organizations  of  the  Treadway   Commission  (or  "COSO")  as  is
appropriate   to  our   operations.   This   framework   is  entitled   Internal
Control-Integrated  Framework. The COSO Framework, which is the common shortened
title,  was published in 1992 and we believe,  will satisfy the  Securities  and
Exchange  Commission  requirements of Section 404 of the  Sarbanes-Oxley  Act of
2002.

         To address this material weakness management is committed to re-writing
its internal controls and procedures  manual based upon the Treadway  Commission
report as is appropriate to our operations  during the first half of fiscal year
ending December 31, 2005.

         Except as noted above,  there have not been any changes in our internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f)  under the  Exchange  Act) during our first  fiscal  quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

PART II.  - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

         The  Company  is  not a  party  to  any  legal  proceedings,  nor  does
management believe that any such proceedings are contemplated.


                                       12
<PAGE>
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


Item 3. DEFAULTS UPON SENIOR SECURITIES

None.


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

None.


Item 5. OTHER INFORMATION

None.


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 and subsequent to the quarter for which this report is filed.

         Form 8-K Report filed on January 7, 2005
         Form 8-K Report filed on April 28, 2005

                                   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: May 10, 2005         INDUSTRIAL MINERALS, INC.

                            By: /s/Larry Van Tol
                            ________________________________________________
                            Larry Van Tol, Chief Executive Officer,
                            President and Director

         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: May 10, 2005         INDUSTRIAL MINERALS, INC.

                            By: /s/ John Melnyk
                            ________________________________________________
                            John Melnyk, Chief Financial Officer,
                            Secretary/Treasurer and Director

                                       13