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

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

                For the fiscal quarter ended: September 30, 2004

                        Commission file number: 000-30651

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

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


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

                                 (416) 979-4621
                        -------------------------------
               Registrant's telephone number, including area code


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

     There were 108,095,847 shares outstanding of the registrant's  Common Stock
as of September 30, 2004.

<PAGE>


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

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

         Balance Sheet  as of September 30, 2004 (unaudited) and
         December 31, 2003.....................................................4

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

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

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

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

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

ITEM 3.  CONTROLS AND PROCEDURES  ............................................16

PART II. - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS....................................................17

ITEM 2.  CHANGES IN SECURITIES................................................17

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES......................................17

ITEM 4.  SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS...................17

ITEM 5.  OTHER INFORMATION....................................................17

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.....................................17

         SIGNATURES ..........................................................18


                                      -2-

<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

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

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

         The financial  statements  have been  prepared by Industrial  Minerals,
Inc.  without audit pursuant to the rules and  regulations of the Securities and
Exchange  Commission.  Certain  information and footnotes  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles  have been  condensed or omitted as allowed by such rules
and  regulations,  and management  believes that the disclosures are adequate to
make the  information  presented  not  misleading.  These  financial  statements
include all the adjustments  which, in the opinion of management,  are necessary
for a fair  presentation  of financial  position and results of operations.  All
such  adjustments  are  of  a  normal  and  recurring  nature.  These  financial
statements should be read in conjunction with the audited  financial  statements
at December 31, 2003, included in the Company's Form 10-KSB.





















                                      -3-
<PAGE>
<TABLE>
<CAPTION>
                           INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)

                           Consolidated Balance Sheet
                    September 30, 2004 and December 31, 2003


<S>                                                                               <C>                 <C>
                                                                                     September 30,       December 31,
Assets                                                                                   2004               2003
------                                                                                (unaudited)         (audited)
                                                                                    -------------      -------------
Current assets:
     Cash                                                                         $        94,573      $    585,934
     Receivables                                                                           78,310            40,267
     Prepaid expenses                                                                      20,535            10,462
     Deposits                                                                             230,184            65,242
                                                                                    -------------      -------------

                           Total current assets                                           423,602           701,905

Building and equipment, at cost, less accumulated
     depreciation of $205,918 in 2004 and $124,493 in 2003                              1,714,392           911,652
                                                                                    -------------      -------------

                           Total assets                                           $     2,137,994      $  1,613,557
                                                                                    =============      ============

Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
     Accounts payable                                                             $       184,030      $    165,753
     Accrued interest payable                                                             280,258             -
     Loans payable                                                                      4,557,687             -
     Current installments of mortgages payables                                             1,688             2,144
                                                                                    -------------      ------------
                           Total current liabilities                                    5,023,663           167,897


     Accrued interest payable                                                               -                83,579
     Loans payable                                                                          -             3,058,707
     Mortgage payable, excluding current installments                                      12,258            14,332
                                                                                    -------------      ------------

                           Total liabilities                                            5,035,921         3,324,515
                                                                                    -------------      ------------

Stockholders' equity:
     Preferred Stock, par value $0.01 per share; 50,000,000
         shares authorized; no shares issued and outstanding                                -                 -
     Common Stock, par value $.0001; 200,000,000 shares authorized;
         108,095,847 shares issued and outstanding for 2004
         and 72,003,896 shares issued and outstanding for 2003                              3,600             3,600
     Additional paid-in capital                                                            14,142            14,142
     Deficit accumulated during exploration stage                                      (2,915,669)       (1,728,700)
                                                                                     ------------         ---------

                           Total stockholders' equity (deficit)                        (2,897,927)       (1,710,958)
                                                                                     ------------         ---------

                           Total liabilities and stockholders' equity             $     2,137,994      $  1,613,557
                                                                                     ============         =========

</TABLE>


See accompanying notes to consolidated financial statements.

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

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




                                                        Three months ended                Nine months ended         November 6, 1996
                                                            Sept. 30,                         Sept. 30,             (inception) to
                                                      2004             2003              2004            2003        Sept.30, 2004
                                                      ----             ----              ----            ----        -------------

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

Expenses:
     Cost of revenues                                   -                -                 -                -               76,201
     Professional fees                                26,473           18,894            76,921           76,090         1,188,582
     Royalty fees                                      1,665           10,000            11,665           18,775            47,990
     Depreciation and amortization                    32,164           18,230            81,425           47,133           214,627
     Impairment of long-lived assets                    -                -                 -                -              582,176
     Management fees and salaries                      5,948           28,923            66,568           32,923           122,695
     Other general and administrative                416,734          224,111           950,476          546,232         2,399,408
                                                  -----------       ----------     -------------      -----------        ----------

  Total expenses                                     482,984          300,158         1,187,055          721,153         4,631,679
                                                  -----------       ----------     -------------      -----------        ----------

  Loss from operations                              (482,984)        (300,158)       (1,187,055)        (721,153)       (4,616,142)
                                                  -----------       ----------     -------------      -----------        ----------


Other income:
     Interest income                                      15             -                   86             -                2,897
     Other income                                       -                -                 -                -                  594
                                                  -----------       ----------     -------------      -----------        ----------

  Total other income                                      15             -                   86             -                3,491
                                                  -----------       ----------     -------------      -----------        ----------

  Net loss                                      $   (482,969)        (300,158)       (1,186,969)        (721,153)     $ (4,612,651)
                                                  ===========      ===========     =============      ===========        ==========

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

Weighted average common shares outstanding        73,630,502       72,063,896        72,589,910       50,132,935
                                                  ===========      ===========     =============      ===========

</TABLE>



See accompanying notes to consolidated financial statements.

                                      -5-

<PAGE>
<TABLE>
<CAPTION>

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

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

                                                                               Nine months
                                                                                 ended                 November 6, 1996
                                                                                Sept. 30,              (inception) to
                                                                                ---------
                                                                          2004              2003       Sept. 30, 2004
                                                                  --------------        ----------      -----------
<S>                                                               <C>                <C>             <C>
Cash flows from operating activities:
     Net loss                                                     $   (1,186,969)        (721,153)       (4,612,651)
     Adjustments to reconcile net loss to cash
                        used in operating activities:
         Depreciation and amortization                                    81,425           47,133           206,335
         Provision for bad debts                                            -                -               49,676
         Stock issued for services                                          -                -              414,606
         Impairment of long-lived assets                                    -                -              297,882
         Changes in:
              Receivables                                                (38,043)         (11,412)          (82,479)
              Inventory                                                     -                -               (5,527)
              Prepaid expenses                                           (10,073)          (8,131)          (21,074)
              Deposits                                                  (164,942)        (209,424)         (230,184)
              Accounts payable and accrued expenses                       18,277             (217)           96,002
              Accrued interest payable                                      -              35,915              -
              Due to related parties                                        -            (180,000)          395,000
                                                                  --------------        ----------      -----------

  Net cash used in operating activities                              ( 1,300,325)      (1,047,289)       (3,492,414)
                                                                  --------------        ----------      -----------

Cash flows from investing activities:
     Purchase of building and equipment                                 (884,165)        (233,559)       (1,719,887)
     Investment in Multiplex                                                -                -              (75,000)
     Acquisition of goodwill                                                -                -             (149,057)
     Loan to related party                                                  -                -              (50,000)
     Loan repayments                                                        -                -                4,493
                                                                  --------------    -------------      ------------

  Net cash used in investing activities                                 (884,165)        (233,559)       (1,989,451)
                                                                  --------------        ----------      -----------

Cash flows from financing activities:
     Net proceeds from sale of common stock                                 -                -              744,859
     Net proceeds from loans payable                                   1,498,980        2,006,294         4,537,235
     Proceeds from mortgage                                                 -                -               17,000
     Principal payments on mortgage                                       (2,530)          (1,654)           (3,054)
     Accrued interest payable                                            196,679             -              280,258
     Cash acquired in acquisition of Peanut
         Butter & Jelly, Inc.                                               -                -                  140
                                                                  --------------        ----------      -----------

  Net cash provided by financing activities                            1,693,129        2,004,640         5,576,438
                                                                  --------------        ----------      -----------


See accompanying notes to consolidated financial statements.                                       (continued)
</TABLE>



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


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

          Consolidated Statements of Cash Flows (Unaudited), Continued


                                                                               Nine months
                                                                                 ended                 November 6, 1996
                                                                                Sept. 30,              (inception) to
                                                                                ---------
                                                                          2004              2003       Sept. 30, 2004
                                                                  --------------        ----------      -----------
<S>                                                               <C>                <C>             <C>

Net increase (decrease) in cash                                   $     (491,361)         723,792            94,573

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

Cash, end of period                                               $       94,573          729,329            94,573
                                                                  ==============        ==========      ===========

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

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

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


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

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

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


See accompanying notes to consolidated financial statements.

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

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

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

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

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

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

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

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

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

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

Allocation on round-up
        of shares                                   3            -              -              -               -

Net loss                                         -               -              -        (1,186,969)     (1,186,969)
                                        -------------      -----------    -----------     ----------     -----------

Balance at September 30, 2004             108,095,847      $    3,600         14,142     (2,915,669)     (2,897,927)
                                        =============      ===========    ===========     ==========     ===========
</TABLE>


See accompanying notes to consolidated financial statements.

                                      -8-

<PAGE>

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

                   Notes to Consolidated Financial Statements
                  Nine months ended September 30, 2004 and 2003



Organization
------------

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

Presentation of Interim Information
-----------------------------------

The accompanying interim  financial statements  have been prepared in accordance
     with  accounting  principles  generally  accepted  in the United  States of
     America and, in the opinion of management,  include all normal  adjustments
     considered  necessary  to  present  fairly  the  financial  position  as of
     September  30,  2004 and the results of  operations  and cash flows for the
     nine months  ended  September  30, 2004 and 2003.  Interim  results are not
     necessarily indicative for results for a full year.

The financial  statements and  notes are presented as  permitted by Form 10-QSB,
     and do not contain certain  information  included in the Company's  audited
     financial statements and notes for the year ended December 31, 2003.








                                      -9-

<PAGE>


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

         Three-months ending September 30, 2004 and September 30, 2003
         -------------------------------------------------------------

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

The Company  incurred  expenses for  professional  fees in the amount of $26,473
during the  three-month  period  ending  September  30, 2004 compared to $18,894
during the three-month  period ending  September 30, 2003. This is a increase of
$7,579.

The  Company  incurred  royalty  expenses  in the  amount of $1,665  during  the
three-month  period ending  September 30, 2004. The Company is required to pay a
minimum yearly royalty of $20,000  ($27,000 CDN dollars)  whether the Company is
producing  graphite or not.  There was a royalty  payment  made in the amount of
$10,000  during the  three-month  period ending  September  30, 2003.  This is a
decrease  of $8,335 in royalty  expense  during the  three-month  period  ending
September 30, 2004 compared to the three-month period ending September 30, 2003.
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
$8,325 for the  three-month  period ending  September 30, 2004 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
September  30, 2004  totaled  $32,164,  compared to $18,230 for the  three-month
period ending  September 30, 2003. This represents an increase of $13,934.  This
increase is the result of  additional  asset  purchases  involving the Company's
Bissett Creek Graphite property.

Other  general and  administrative  expenses for the  three-month  period ending
September  30,  2004  totaled  $416,734   compared  to  $234,111  for  the  same
three-month period ending September 30, 2003. This represents an increase in the
three-month  period  ending  September 30, 2004 of $182,623 over the same period
ending  September  30, 2003.  This  increase in expense is due to an increase in
activity surrounding the operations of the Company during the three-month period
ending  September  30,  2004  compared  to the same  three-month  period  ending
September 30, 2003.

The  Company  has  begun  and is  continuing  to  market  graphite  that will be
available  from the Bissett Creek  Graphite  Property.  Several  Companies  have
expressed  interest in the graphite and have requested  production  samples from
the  Company's  Bissett  Creek  Graphite  Property.  The  Company  is  currently
commissioning  the equipment at the Bissett Creek Graphite  Property and expects
to provide  production  quality  samples  in the next  quarter.  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.

                                      -10-
<PAGE>
Management fees and salaries during the three-month  period ending September 30,
2004 totaled $5,948 compared to $28,923 for the same  three-month  period ending
September  30, 2003.  This  represents  a decrease of $22,975.  The Company paid
$5,550 in wages to the Chief  Financial  Officer.  No other officer is currently
paid a salary or fees.  Included in  management  fees and  salaries is amount of
$398 in  benefits  paid to  Revenue  Canada on  behalf  of the  Chief  Financial
Officer.  Benefits in the amount of $398 paid to Revenue  Canada  represent  the
Company's  portion of Canada  Pension  Plan and  Employment  Insurance  Premiums
payable.

The Company has had a net loss of ($482,969) for the  three-month  period ending
September 30, 2004 as compared to a net loss of ($300,158)  for the  three-month
period  ending  September 30, 2003.  This  represents an increase of $182,811 in
loss for the three-month  period ending  September 30, 2004 compared to the same
three-month period ending September 30, 2003. This increase in loss is due to an
increase in  activity  surrounding  the  operations  of the  Company  during the
three-month  period ending  September 30, 2004 compared to the same  three-month
period  ending  September  30,  2003.  The net loss per share was nominal in the
quarter in 2004 and in 2003.

          Nine-Months ending September 30, 2004 and September 30, 2003
          ------------------------------------------------------------

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

The Company  incurred  expenses for  professional  fees in the amount of $76,921
during the  nine-month  period  ending  September  30, 2004  compared to $76,090
during the nine-month  period ending  September 30, 2003. This is an increase of
$831.

The  Company  incurred  royalty  expenses  in the amount of  $11,665  during the
nine-month  period ending  September 30, 2004.  The Company is required to pay a
minimum yearly royalty of $20,000  ($27,000 CDN dollars)  whether the Company is
producing  graphite or not.  There was a royalty  payment  made in the amount of
$18,775  during the  nine-month  period  ending  September  30, 2003.  This is a
decrease  of $7,110 in royalty  expense  during  the  nine-month  period  ending
September 30, 2004 compared to the nine-month  period ending September 30, 2003.
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
$8,325 for the nine-month period ending September 30, 2004 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.


                                     -11-
<PAGE>
Depreciation and amortization expense for the nine-month period ending September
30, 2004 totaled $81,425,  compared to $47,133 for the nine-month  period ending
September 30, 2003. This represents an increase of $34,292. This increase is the
result of additional  asset  purchases  involving  the  Company's  Bissett Creek
Graphite property.

Other  general and  administrative  expenses for the  nine-month  period  ending
September 30, 2004 totaled $950,476 compared to $546,232 for the same nine-month
period ending  September 30, 2003. This represents an increase in expense during
the nine-month period ending September 30, 2004 of $404,244 over the same period
ending  September  30, 2003.  This  increase in expense is due to an increase in
activity  surrounding the operations of the Company during the nine-month period
ending  September  30,  2004  compared  to the  same  nine-month  period  ending
September 30, 2003.

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

Management fees and salaries during the nine-month  period ending  September 30,
2004 totaled $66,568  compared to $32,923 for the same nine-month  period ending
September  30, 2003.  The Company had paid $46,251 in wages to the  President of
the  Company and $16,650 to the Chief  Financial  Officer for the period  ending
September 30, 2004. Included in management fees and salaries is amount of $3,667
in  benefits  paid to  Revenue  Canada  on  behalf  of the  President  and Chief
Financial  Officer.  Benefits  in the amount of $3,667  paid to  Revenue  Canada
represent the Company's portion of Canada Pension Plan and Employment  Insurance
Premiums payable.

The Company has had a net loss of ($1,186,969) for the nine-month  period ending
September  30, 2004 as compared to a net loss of ($721,153)  for the  nine-month
period  ending  September 30, 2003.  This  represents an increase of $465,816 in
loses for the nine-month  period ending  September 30, 2004 compared to the same
nine-month  period ending September 30, 2003. This increase in loss is due to an
increase in  activity  surrounding  the  operations  of the  Company  during the
nine-month  period ending  September  30, 2004  compared to the same  nine-month
period ending  September 30, 2003. The net loss per share was ($.01) in the nine
month period in 2004 and 2003.

Liquidity and Capital Resources

The Company has cash on hand at  September  30, 2004 of $94,573 and a receivable
of  $78,310  as a  result  of tax  input  credits  owed  to the  Company  by the
Government of Canada.

The Company has prepaid expenses of $20,535.  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 Company
also  has a  prepaid  expense  in the  amount  of  $8,325  representing  prepaid
royalties that are due between October 1, 2004 and March 10, 2005.

                                      -12-
<PAGE>

The Company has a total of $230,184 in deposits.  The Company's  landlord  holds
$1,521 which  represents a deposit on rent and common costs  associated with its
premises located at Suite 2500 One Dundas Street West, Toronto, Ontario M5G 1Z3.
Deposits in the  amounts of $1,500 for future  marketing  expenses,  $13,673 for
future  environmental  studies  that are to begin in  September of 2004 and will
continue  through the balance of fiscal year end  December 31, 2004 and $370 for
mobile phone  deposits.  There is a deposit in the amount of $213,120,  which is
held by the Minister of Finance for the Province of Ontario. The deposit held by
the Minister of Finance represents the financial assurances that were undertaken
by the Company when the Company filed its Mine Development and Closure Plan.

The Minister of Finance for the Province of Ontario  requires a $213,120 deposit
for the Company's  Mine  Development  and Closure Plan.  The Minister of Finance
currently  holds $148,000 of this $213,120 and the balance of $65,120 is due and
payable by the Company on or before May 31, 2005.

The Company had no revenue during  nine-month  period ending September 30, 2004
and expects to have little or no revenue during the quarter ending  December 31,
2004.  The Company has begun  commissioning  its Bissett  Creek  graphite  plant
during the quarter  ended  September  30,  2004.  Management  believes  limited
production  will begin  sometime  during the quarter  ending  December 31, 2004.
Investors  should be cautioned that the  commissioning of the graphite plant may
extend beyond  December 31, 2004 thus delaying  planned  production of graphite.
Investors  should be cautioned that the Company is currently  seeking  customers
for its graphite.

The Company has begun and is  continuing  to market  graphite that it intends to
produce at the Bissett Creek Graphite Property. Several Companies have expressed
interest in the graphite  and some have  requested  production  samples 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. The Company is currently  commissioning  the equipment at
the Bissett Creek Graphite  Property and expects to provide  production  quality
samples in the next  quarter.  Investors  should be further  cautioned  that the
Company might not be successful in its marketing efforts.

The Company has current  assets of $423,602,  of which  $230,184 are  designated
deposits against future events and are not available as operating  capital.  The
Company has current  liabilities  of  $5,023,663,  of which  $4,557,687 is loans
payable   currently.   The  Company   projects   operating   costs  of  $241,000
(approximately) per month in the next quarter.

The Company has total  accounts  payable of $184,030.  The Company has until May
31, 2004 to pay to the Minister of Finance for the  Province of Ontario  $65,120
which is the balance of the financial  assurances due to the province of Ontario
securing the Mine  Development  and Closure Plan. The Company has enough cash on
hand and  receivables  due to the  Company to pay the  balance  of the  accounts
payable in the amount of  $118,910.  The Company  also owes  $280,258 in accrued
interest payable. The interest is not due until July 31, 2005.

                                      -13-
<PAGE>

The Company has secured a first  mortgage in the amount of $17,000 during fiscal
year 2002 which requires a payment of $296  (Canadian $400 monthly)  monthly for
five  years and the  balance is then due and  payable at the end of five  years.
This mortgage carries an interest rate of 7% annually.  The Company has the cash
on hand to pay  these  payments  in an  orderly  fashion.  These  payments  were
originally  $260 monthly however due to the weakness of the United States dollar
in relation to the  Canadian  dollar a $36 USD per month  increase  has occurred
during the fiscal year ending  December 31, 2004.  The current  portion of these
payments  have been made for the fiscal  year ending  December  31, 2004 and the
next payment of $296 is due on January 1, 2005.

During the  three-month  period  ending  September 30, 2004 the Company has been
able to secure debt  financing in the amount of $620,000  from a  non-affiliated
shareholder.  Total  loans  payable  now amount to  $4,557,687  as of the period
ending  September  30, 2004.  Interest has accrued on this debt in the amount of
$280,258.  The interest rate associated  with this debt will be 7% yearly.  This
debt is due and payable together with principal and any accrued interest on July
31, 2005.

Industrial  Minerals,  Inc. is beginning mining  operations and expects to spend
approximately  $114,000 monthly on mining operations.  These costs are estimated
as follows:

1        Salaries                              $34,000
2        Fuel and Power                         28,000
3        Repair & Maintenance                   16,000
4        On Going Environmental                 16,000
5        Supplies                               20,000
                                              --------
         Total  Monthly Mining Costs          $114,000


In addition to the above monthly cash requirements the Company estimates it will
need  additional  monthly  funds in the amount of  $127,670 in order to operate.
These funds are required on a monthly basis as follows:

1        Professional Fees                                    $    9,000
2        Royalty Fees                                              1,670
3        Management Fees and Salaries                             12,000
4        Other General & Administrative                          105,000
                                                              ----------
Total Monthly Non-Mining Costs                                $  127,670

The total funds required to operate on a monthly basis are $241,670.

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

Regarding  point  number 4 above  concerning  general  and  administrative  cash
requirements, this figure does not include interest that is accruing at the rate
of 7% per annum.  Management estimates that additional interest in the amount of
approximately  $81,000 will accrue  during the fourth  quarter of the  Company's
fiscal year ending  December 31, 2004.  Since these funds are not due until July
31, 2005  management  has not  included  them in the cash  requirements  for the
balance of fiscal year ending December 31, 2004.  Investors  should be cautioned
that the Company may not have the cash to pay the debt due in July of 2005.  The
Company is currently discussing this debt with the lender but cautions investors
that the Company may not be able to negotiate an extension of the due date.

                                      -14-
<PAGE>

The Company's operational budget for the three-month period beginning October 1,
2004 in the amount of $725,010  or a monthly  operational  cost of $241,670  for
each of the months of October 1, 2004 through  December 31, 2004. To operate the
Company in the  quarter  ending  December  31, 2004 total funds in the amount of
$725,010 are required.  In addition to these funds the Company requires $118,910
to pay the accounts  payable that are due during the quarter ending December 31,
2004. The Company requires  $342,000 to operate the mine at Bissett Creek during
the quarter ending  December 31, 2004 and to pay non-mining  costs in the amount
of $383,010  for the  three-month  period  beginning  October 1, 2004 and ending
December  31,  2004.  Subsequent  to  September  30, 2004 the  Company  obtained
financing  in the amount of  $175,000  from a  non-affiliated  shareholder.  The
financing in the amount of $175,000 accrues interest at the rate of 7% per annum
and the principal in the amount of $175,000  along with accrued  interest is due
on July 31, 2005.  Since the Company has cash of $94,573 and has a receivable of
$78,310 on hand as of September  30, 2004 and  subsequent  to September 30, 2004
has received an additional  $175,000,  the Company requires additional financing
in the amount of $496,037 to operate until December 31, 2004.  While  management
believes the Company will be successful in obtaining  satisfactory  financing to
operate,  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 will not be
able to continue to operate  throughout it's current fiscal year ending December
31, 2004 without sales of its graphite or additional financing.

With the working capital deficit of ($4,830,245) most of which is current loans,
and the projected operations budget of $725,010 for the net quarter, the Company
needs  approximately  $5,555,255 in additional  capital or long-term loans, or a
combination  thereof.  The Company is seeking sources for private  placements of
its common stock, and may seek long-term financing on its Bissett Creek project,
to restructure the current liabilities. There are no commitments for any private
placements,  or any long-term  financings as of the date of this report,  except
for the $175,000 in a short-term loan mentioned  above. If the Company is unable
to complete either a private placement or long-term refinancing of current debt,
or a combination  thereof,  its restricted  working  capital  position will be a
significant  impediment  to its ability to continue in business  with the result
that the Company may not be able to carry out its business plan.

Investors and potential investors should be aware that Company does not have the
necessary funds to operate  throughout its fiscal year ending December 31, 2004.
Even if the Company is successful in obtaining the necessary  financing there is
no guarantee  that the Company will be  successful  in marketing  graphite.  The
Company  intends to  continue  to seek debt  financing  to ensure its ability to
operate throughout 2004 from  non-affiliates,  and possibly officers,  directors
and  shareholders.  No  commitments  of any type have been made by any person or
entity  to  provide   financing.   Management   has  no  plan  to  overcome  the
uncertainties  surrounding the Company's  ability to continue as a going concern
for a reasonable  period of time extending  beyond  December 31, 2004 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.

                                      -15-
<PAGE>

Once production  begins 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.  Several  Companies have  expressed  interest in the
graphite and some have requested  production  samples from the Company's Bissett
Creek Graphite Property.  Discussions are on going with potential  customers for
graphite  but there are no  contracts  concluded  at this time.  There can be no
guarantee  that the Company will be  successful  in obtaining a contract for its
graphite.

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


ITEM 3.  CONTROLS AND PROCEDURES

Evaluation of Internal and Disclosure Controls

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






















                                      -16-
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None.

ITEM 2.  CHANGES IN SECURITIES

         None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

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

         None.

ITEM 5. OTHER INFORMATION

         None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits.

             EXHIBIT NO.        DESCRIPTION

                31.1     Section 302 Certification - CEO
                31.2     Section 302 Certification - CFO
                32.1     Section 906 Certification - CEO
                32.2     Section 906 Certification - CFO

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

     Report on Form 8-K dated August 6, 2004,  relating to receiving notice from
the  Ministry  of  Northern  Development  and Mines for the  Province of Ontario
regarding the Bissett Creek Graphite Project Certified Closure Plan.

     Report on Form 8-K dated  August 25,  2004,  relating  to the events  taken
place at the Company's annual meeting.

                                      -17-
<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 10, 2004         INDUSTRIAL MINERALS, INC.

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


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


By:/s/John Melnyk                                       Dated: November 10, 2004
   --------------------------------------------------
    John Melnyk, Acting CEO and President
    Chief Financial Officer and Secretary/Treasurer







                                      -18-