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 SEPTEMBER 30, 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  September  30,  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 September 30, 2005
         (unaudited) and December 31, 2004 (audited).....................     2

         Consolidated Statements of Operations (unaudited) for the
         Three and Nine Months ended September 30, 2005  and 2004
         and for the period November 6, 1996 (date of inception),
         to September 30, 2005...........................................     3

         Consolidated Statements of Cash Flows (unaudited) for the
         Nine Months ended September 30, 2005 and 2004 and for the
         period November 6, 1996 (date of inception)
         to September 30, 2005 ..........................................     4

         Consolidated Statement of Stockholders' Equity (unaudited)
         as of September 30, 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......     13

Item 4.  Controls and Procedures.........................................     13

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings ..............................................     14

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.....     15

Item 3.  Defaults upon Senior Securities.................................     15

Item 4.  Submission of Matters to a Vote of Security Holders.............     15

Item 5.  Other Information...............................................     15

Item 6.  Exhibits and Reports on Form 8-K................................     15

Signatures...............................................................     16

<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
                    September 30, 2005 and December 31, 2004

                                                                                       Sept. 30,        December 31,
                                                                                          2005              2004
                                                                                      (Unaudited)        (Audited)
                                                                                    -------------      ------------
ASSETS

Current assets:
<S>                                                                                 <C>                <C>
     Cash                                                                           $     129,816      $     27,726
     Receivables                                                                           28,306           105,925
     Prepaid expenses                                                                      23,933            15,540
     Deposits                                                                              32,674            11,789
                                                                                    -------------      ------------

                           Total current assets                                           214,729           160,980

Long-term deposits                                                                        230,000           230,000
Building and equipment, at cost, less accumulated
     depreciation of $421,920 in 2005 and $256,167 in 2004                              1,832,000         1,778,462
                                                                                    -------------      ------------

                           Total assets                                             $   2,276,729      $  2,169,442
                                                                                    =============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

     Accounts payable                                                               $      97,430      $    120,326
     Accrued interest payable                                                              53,689            12,711
     Loans payable                                                                      1,543,763            90,796
     Due to related parties                                                                 4,000            11,787
     Current installments of mortgage payables                                              2,763             2,763
                                                                                    -------------      ------------
                        Total current liabilities                                       1,701,645           238,383


     Mortgage payable, excluding current installments                                      10,100            12,632
                                                                                    -------------      ------------

                           Total liabilities                                            1,711,745           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                                      (3,643,296)       (2,289,853)
                                                                                    -------------      ------------

                           Total stockholders' equity                                     564,984         1,918,427
                                                                                    -------------      ------------

                           Total liabilities and stockholders' equity               $   2,276,729      $  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 and nine month  periods  ended  September 30, 2005 and 2004 and for
           the period from November 6, 1996 (Date of Inception) to
                               September 30, 2005



                                                       Three months ended                Nine months ended         November 6, 1996
                                                            Sept. 30,                        Sept. 30,             (inception) to
                                                            ---------                        ---------              Sept. 30, 2005
                                                    2005             2004              2005            2004
                                                    ----             ----              ----            ----        ----------------

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

Expenses:
     Cost of revenues                                    -                -                 -                -            76,201
     Professional fees                              24,814           26,473            68,836           76,921         1,267,430
     Royalty fees                                    5,292            1,665            15,930           11,665            68,915
     Depreciation and amortization                  55,328           32,164           165,753           81,425           430,629
     Impairment of long-lived assets                     -                -                 -                -           582,176
     Management fees and salaries                  123,704            5,948           338,614           66,568           519,141
     Other general and administrative              347,957           416,734          764,327          950,476         3,462,476
                                                ----------         ----------      -----------      -----------       ------------
                           Total expenses          557,095          482,984         1,353,460        1,187,055         6,406,968
                                                ----------         ----------      -----------      -----------       ------------

                           Loss from operations   (557,095)        (482,984)       (1,353,460)      (1,187,055)       (6,391,431)
                                                ----------         ----------      -----------      -----------       ------------


Other income:
     Interest income                                    10               15                17               86             2,925
     Gain from extinguishment of debt                    -                -                 -                -         1,047,634
     Other income                                        -                -                 -                -               594
                                                ----------         ----------      -----------      -----------       ------------

                           Total other income           10               15                17               86         1,051,153
                                                ----------         ----------      -----------      -----------       ------------

                           Net loss         $     (557,085)        (482,969)       (1,353,443)      (1,186,969)       (5,340,278)
                                                ==========         ==========      ===========      ===========       ============

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

Weighted average common shares outstanding     111,587,966       72,630,502       111,587,966       72,589,910
                                                ==========         ==========      ===========      ===========
</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)

                Nine months ended September 30, 2005 and 2004 and for the period
           from November 6, 1996 (Date of Inception) to
                               September 30, 2005


                                                                                Nine months
                                                                                  ended                 November 6, 1996
                                                                                 Sept. 30,             (inception) to
                                                                          2005              2004        Sept. 30, 2005
                                                                      -----------       -----------    ------------------

Cash flows from operating activities:
<S>                                                                 <C>                <C>               <C>
     Net loss                                                       $ (1,353,443)      (1,186,969)       (5,340,278)
     Adjustments to reconcile net loss to
            net cash used in operating activities:
         Depreciation and amortization                                   165,753           81,425           422,337
         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                                                 77,619          (38,043)          (32,475)
              Inventory                                                        -                -            (5,527)
              Prepaid expenses                                            (8,393)         (10,073)          (24,473)
              Deposits                                                   (20,885)        (164,942)          (32,674)
              Accounts payable and accrued expenses                      (22,896)          18,277           (60,998)
              Due to related parties                                      (7,787)               -           399,000
                                                                      -----------       -----------    ------------------


                           Net cash used in operating
                             activities                               (1,170,032)      (1,300,325)       (4,960,558)
                                                                      -----------       -----------    ------------------

Cash flows from investing activities:
     Purchase of building and equipment                                 (219,291)        (884,165)       (2,053,497)
     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                       (219,291)        (884,165)       (2,482,661)
                                                                      -----------       -----------    ------------------

                                                                                                                         (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

                                                                              Nine month
                                                                              period ended           November 6, 1996
                                                                               Sept. 30,              (inception) to
                                                                         2005             2004        Sept. 30, 2005
                                                                         ----             ----        --------------
Cash flows from financing activities:
<S>                                                               <C>                  <C>            <C>
     Net proceeds form sale of common stock                       $            -                -           744,859
     Net proceeds from loans payable                                   1,452,967        1,498,980         6,493,202
     Proceeds from mortgage                                                    -                -            17,000
     Principal payments on mortgage                                       (2,532)          (2,530)           (4,137)
     Accrued interest payable                                             40,978          196,679           321,971
     Cash acquired in acquisition of Peanut
         Butter & Jelly, Inc.                                                  -                -               140
                                                                    ------------    -------------     -------------

                           Net cash provided by
                               financing activities                    1,491,413        1,693,129         7,573,035
                                                                    ------------    -------------     -------------

Net increase (decrease) in cash                                          102,090         (491,361)          129,816

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

Cash, end of period                                               $      129,816           94,573           129,816
                                                                    ============    =============     =============

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)
                               September 30, 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                                            -             -               -        (1,353,443)   (1,353,443)
                                        -------------   -----------    ------------      ------------     ----------
Balance at September 30,  2005            111,587,966   $     3,949       4,204,331        (3,643,296)      564,984
                                        =============   ===========    ============      ============     ==========
</TABLE>


See accompanying notes to consolidated financial statements.

                                        6

<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

          Notes to Consolidated Financial Statements Nine months period
                        ended September 30, 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 September 30, 2005 and
the results of operations and cash flows for the nine months ended September 30,
2005 and 2004. Interim results are not necessarily  indicative for 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 SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004

         During the three-month period ending September 30, 2005 the Company had
no  revenues.  The Company  had no revenue  during the same  three-month  period
ending September 30, 2004.

         The Company incurred  expenses for  professional  fees in the amount of
$24,814  during the  three-month  period  ending  September 30, 2005 compared to
$26,473  during the  three-month  period ending  September  30, 2004.  This is a
decrease of $1,659.

         Depreciation and amortization expense for the three-month period ending
September  30, 2005  totaled  $55,328,  compared to $32,164 for the  three-month
period ending  September 30, 2004. This represents an increase of $23,164.  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
September 30, 2005 totaled $123,704  compared to $5,948 for the same three-month
period ending  September 30, 2004.  The Company  incurred  $30,000 in management
fees to the CEO and President of the Company and $12,000 in management  fees and
salary to the Chief Financial Officer.  Of these monies the Company paid $30,000
to the CEO and President and $8,000 to the CFO. The Company still owes $4,000 to
the CFO.  These  monies due to the CFO in the amount of $4,000 are  reflected on
the balance  sheet as a liability  due to related  parties,  which is  discussed
elsewhere in this report. The balance of $81,704 in management fees and salaries
was  paid to  employees  at the  Bissett  Creek  Graphite  Property  during  the
three-month  period  ending  September  30, 2005.  The increase in the amount of
$117,756 in management fees and salaries during the period ending  September 30,
2005 compared to the period ending September 30, 2004 is because the Company had
employees  on site  during the  quarter  ending  September  30,  2005 and had no
employees on site during the three-month period ending September 30, 2004 as the
Company used a sub-contractor during the three-month period ending September 30,
2004.

         Other general and  administrative  expenses for the three-month  period
ending  September  30, 2005 totaled  $347,957  compared to $416,734 for the same
three-month  period ending September 30, 2004. This represents a decrease in the
three-month  period  ending  September  30, 2005 of $68,777 over the same period
ending September 30, 2004.

         The  Company  had a net loss of  $557,085  for the  three-month  period
ending  September  30,  2005  as  compared  to a net  loss of  $482,969  for the
three-month  period ending  September 30, 2004.  This  represents an increase of
$74,116 in losses for the three-month  period ending September 30, 2005 compared
to the same  three-month  period ending September 30, 2004. This increase is due
to an increase in activity  surrounding the operations of the Company during the
three-month  period ending  September 30, 2005 compared to the same  three-month
period ending September 30, 2004.

         The Company began producing graphite during the quarter endingSeptember
30, 2005 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 has
received two orders  totaling  twenty-five  tons of graphite from two customers.
The Company considers these orders as pre contract orders based on

                                        8


<PAGE>

customer quality evaluations. These orders will generate an insignificant amount
of revenue  for the  Company.  These two  Companies  previously  received  small
samples of graphite  from the  Company;  they  performed an analysis and ordered
larger samples so that they could conduct further tests.  The Company is pleased
with this response but cautions  investors that there are no firm orders for the
Company's graphite at this time, other then the two orders totaling  twenty-five
tons. As production  continued  during the quarter ending  September 30, 2005 it
became  apparent  to  management  that a number of changes to the mill had to be
made.  The large flake  graphite (mesh size -12 to +35) is the most valuable and
it was discovered  during initial  production  that a portion of the large flake
size graphite was being  destroyed at certain stages of production.  An analysis
was and is being  performed at every stage of production.  The analysis that has
been  conducted  resulted in  management  deciding  to make some  changes to the
process  which  involves  the  relocating  of some  equipment  that is currently
installed  to a  different  position  in the  line  and to  purchase  additional
equipment.  At this writing these steps are at a work in progress  stage and the
management estimates that an additional $500,000 in capital expenditures will be
required.  This is discussed in the section of this report under  liquidity  and
capital resources contained in the management discussion and analysis section of
this Form 10-Q.


NINE-MONTHS ENDING SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004

         During the nine-month  period ending September 30, 2005 the Company had
no revenues. The Company had no revenue during the same nine-month period ending
September 30, 2004.

         The Company incurred  expenses for  professional  fees in the amount of
$68,836  during the  nine-month  period  ending  September  30, 2005 compared to
$76,921  during the  nine-month  period  ending  September  30, 2004.  This is a
decrease of $8,085.

         The Company  incurred  royalty expenses in the amount of $15,930 during
the  nine-month  period  ending  September  30, 2005 compared to $11,665 for the
nine-month period ending September 30, 2004. This is an increase of $4,265.  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. 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 $21,600 US dollars.

         Depreciation and amortization  expense for the nine-month period ending
September  30, 2005  totaled  $165,753,  compared to $81,425 for the  nine-month
period ending  September 30, 2004. This represents an increase of $84,328.  This
increase is the result of  additional  asset  purchases  involving the Company's
Bissett Creek Graphite  Property and more of the Company's assets being put into
service.

         Management  fees and  salaries  during  the  nine-month  period  ending
September 30, 2005 totaled $338,614  compared to $66,568 for the same nine-month
period ending  September 30, 2004.  The Company  incurred  $90,000 in management
fees to the CEO and President of the Company and $36,000 in management  fees and
salary to the Chief Financial Officer.  Of these monies the Company paid $90,000
to the CEO and  President  and $32,000 to the CFO. The Company still owes $4,000
to the CFO.  These  monies in the amount of $4,000 are  reflected on the balance
sheet as a liability  due to related  parties,  which is discussed  elsewhere in
this report. The balance of $212,614 in management fees and salaries was paid to

                                        9
<PAGE>

employees at the Bissett Creek Graphite  property  during the nine-month  period
ending September 30, 2005. This represents an increase in the amount of $272,046
in  management  fees and salaries  during the period  ending  September 30, 2005
compared to the period ending  September 30, 2004.  The Company had employees on
site during the nine-month period ending September 30, 2005 and had no employees
on site during the  nine-month  period ending  September 30, 2004 as the Company
used a sub-contractor during the nine-month period ending September 30, 2004.

         Other general and  administrative  expenses for the  nine-month  period
ending  September  30, 2005 totaled  $764,327  compared to $950,476 for the same
nine-month  period ending  September 30, 2004. This represents a decrease in the
nine-month  period  ending  September  30, 2005 of $186,149 over the same period
ending September 30, 2004.

         The  Company had a net loss of  $1,353,443  for the  nine-month  period
ending  September  30,  2005 as  compared  to a net loss of  $1,186,969  for the
nine-month  period  ending  September 30, 2004.  This  represents an increase of
$166,474 in losses for the nine-month  period ending September 30, 2005 compared
to the same nine-month period ending September 30, 2004. This increase is due to
an increase in activity  surrounding  the  operations of the Company  during the
nine-month  period ending  September  30, 2005  compared to the same  nine-month
period ending September 30, 2004.

         The  Company  began  producing   graphite  during  the  quarter  ending
September 30, 2005 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 has received two orders totaling  twenty-five  tons of graphite from two
customers.  The Company  considers  these orders as pre contract orders based on
customer quality evaluations. These orders will generate an insignificant amount
of revenue  for the  Company.  These two  Companies  previously  received  small
samples of graphite  from the  Company;  they  performed an analysis and ordered
larger samples so that they could conduct further tests.  The Company is pleased
with this response but cautions  investors that there are no firm orders for the
Company's graphite at this time, other then the two orders totaling  twenty-five
tons. As production  continued  during the quarter ending  September 30, 2005 it
became  apparent  to  management  that a number of changes to the mill had to be
made.  The large flake  graphite (mesh size -12 to +35) is the most valuable and
it was discovered  during initial  production  that a portion of the large flake
size graphite was being  destroyed at certain stages of production.  An analysis
was and is being performed at every stage of production.  This analysis that has
been  conducted has resulted in management  deciding to make some changes to the
process  which  involves  the  relocating  of some  equipment  that is currently
installed  to a  different  position  in the  line  and to  purchase  additional
equipment.  At this writing these steps are at a work in progress  stage and the
management estimates that an additional $500,000 in capital expenditures will be
required.  This is discussed in the section of this report under  liquidity  and
capital resources contained in the management discussion and analysis section of
this Form 10-Q.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has cash on hand at  September  30, 2005 of $129,816  and a
receivable  of $28,306 as a result of tax input  credits  owed to the Company by
the Government of Canada.

         The Company has prepaid expenses of $23,933. This represents the unused
portion of an  insurance  policy that the Company  carries for its  building and

                                       10


<PAGE>
equipment in the amount of $14,933.  This policy expires  September 6, 2006. The
balance in the amount of $9,000 represents a prepaid royalty expense.

         The Company has total deposits in the amount of $32,674 as of September
30, 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  expired on April 30,  2005 at which time the
Company  continues to rent office space on a  month-to-month  basis. The Company
also has an advance  against  expenses to two  employees in the amount of $4,700
and $26,453 for the purchase of equipment.

         The Company has total current liabilities due and payable in the amount
of $1,701,645 due and payable over the next twelve months. The Company has total
accounts  payable of  $97,430.  The Company has the cash on hand in order to pay
these accounts payable in an orderly  fashion.  The Company also owes $53,689 in
accrued  interest  payable.  Interest payable in the amount of $243 is currently
due, $2,420 is payable on or before November 15, 2005,  $33,495 is payable on or
before  December  31, 2005 and  $17,531 is payable on or before  July 31,  2006.
Total loans in the amount of $1,543,763 are due and payable as follows;  $96,000
on or before  November 15, 2005,  $1,356,967 on or before  December 31, 2005 and
$90,796 on or before July 31, 2006.  The Company owes $4,000 to the CFO and this
amount carries no interest.  There are currently no payment terms  regarding the
amount owed to the CFO.  Investors  should be aware that management is currently
in  discussions  with a  creditor  concerning  the  loan  due in the  amount  of
$1,356,967  on December 31, 2005.  While  management  believes the creditor will
extend the payment terms of this debt  investors  should be cautioned that there
are no agreements in place at this time either verbally or in writing.

         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.  The Company
does not have 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 they are $320 as of the
date of this report.  The Company  currently owes for the months of July through
September  2005 in the amount of $960;  this amount is included in the Company's
accounts  payable as presented in the  accompanying  financial  statements filed
with  this  report  on Form  10-Q for the  period  ending  September  30,  2005.
Subsequent  to September  30, 2005 this  mortgage  payment has been made and the
payments are now current.

         During the nine-month  period ending September 30, 2005 the Company has
been  able to  secure  debt  financing  in the  amount  of  $1,452,967  from two
non-affiliated shareholders.  Total loans payable now amount to $1,543,763 as of
the period ending  September 30, 2005.  Interest has accrued on this debt in the
amount of $53,689. Debt in the amount of $90,796 is due payable on July 31, 2006
and the interest rate  accruing on this portion of the debt is 7% annually.  The
balance of the debt in the amount of  $1,452,967  is due and payable on November
15,  2005 in the  amount of  $96,000  and  December  31,  2005 in the  amount of
$1,356,967. Any interest accrued is also due and payable on these dates.

         The Company owes $4,000 to an officer in  management  fees and salaries
that were due and payable in the quarter ending September 30, 2005. There are no
provisions to repay these monies at this time.


                                       11

<PAGE>

         Cash  requirements  for the balance of fiscal year ending  December 31,
2005 are as follows:

         1.       Professional fees                               $  30,000
         2.       Management fees and salaries                      150,000
         3.       General & Administrative Expenses                 350,000
                                                                    -------
         Total Operating Budget                                    $530,000

         Investors  should be aware  that the above are  estimates  only and may
change.  The above is the Company's  total  operating  budget only.  The Company
began  producing  graphite  during the quarter ending  September 30, 2005 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 has received two
orders  totaling  twenty-five  tons of graphite from two customers.  The Company
considers  these  orders  as pre  contract  orders  based  on  customer  quality
evaluations.  These orders will generate an insignificant  amount of revenue for
the Company.  These two Companies  previously received small samples of graphite
from the Company; they performed an analysis and ordered larger samples so that
they could  conduct  further  tests.  The Company is pleased with this  response
butcautions  investors that there are no firm orders for the Company's  graphite
at this time, other then the two orders totaling twenty-five tons. As production
continued  during the quarter  ending  September 30, 2005 it became  apparent to
management  that a number of changes to the mill had to be made. The large flake
graphite  (mesh  size -12 to +35) is the  most  valuable  and it was  discovered
during  initial  production  that a portion of the large flake size graphite was
being  destroyed at certain stages of  production.  An analysis was and is being
performed at every stage of  production.  This analysis that has been  conducted
has resulted in  management  deciding to make some changes to the process  which
involves the  relocating  of some  equipment  that is  currently  installed to a
different  position in the line and to purchase  additional  equipment.  At this
writing these steps are at a work in progress stage and the management estimates
that an additional $500,000 in capital expenditures will be required.

         The Company requires $2,640,849 in order to continue operations through
December 31, 2005. The Company's  operational  budget for the three-month period
beginning  October 1, 2005 in the amount of  $530,000  or a monthly  operational
cost of $176,666 for each of the months of October 1, 2005 through  December 31,
2005. Estimated capital expenditures in the amount of $500,000 will be required.
Total  funds  in the  amount  of  $1,610,849  are  required  to pay the  current
liabilities due. These liabilities include loans and accrued interest payable in
the amount of  $1,506,656,  accounts  payable of  $97,430,  mortgage  payable of
$2,763 and $4,000 due to related  parties.  Subsequent to September 30, 2005 the
Company  obtained  financing  in the  amount of  $75,000  from a  non-affiliated
shareholder.  This  financing in the amount of $75,000  accrues  interest at the
rate of 10% per annum and the  principal  in the  amount of  $75,000  along with
accrued interest is due on July 31, 2006. Since the Company has cash of $129,816
and has a receivable of $28,306 on hand as of September 30, 2005 and  subsequent
to September 30, 2005 has received an additional  $75,000,  the Company requires
additional financing in the amount of $2,407,727.  While management believes the
Company  will  be  successful  in  obtaining  satisfactory  financing  to  begin
operations  and  continue  operating  throughout  the balance of the fiscal year
ending  December  31,  2005,  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  the  current  fiscal year
ending December 31, 2005 without sales of its graphite or additional financing.

                                       12

<PAGE>

         Investors and potential investors should be aware that 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  December 31, 2005 unless the
Company  obtains  additional  financing or begins  production  and  successfully
obtains a contract for 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.

         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.

                                       13

<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  nine  months of the  Company's  fiscal  year  ending
December  31, 2005  management  has begun  revising the  Company's  internal and
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 has begun re-writing its
internal  controls and  procedures  manual  based upon the  Treadway  Commission
report as is  appropriate  to our  operations  during the first  nine  months of
fiscal year ending  December 31, 2005 and hopes to complete this by 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 third  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.


                                       14


<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 August 15, 2005


                                       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: November 9, 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: November 9, 2005                    INDUSTRIAL MINERALS, INC.

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



















                                       16