UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





(Mark
One)





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





For the
quarterly period ended March 31, 2010





OR





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from ____________ to ______________





Commission
File Number 000-30651





INDUSTRIAL MINERALS,
INC.(Exact name of small business issuer as specified in its charter)





Delaware
                  
                  11-3763974(State
      or other jurisdiction
                  
                  (IRS
      Employer of incorporation ororganization)
                  
                  Identification
      No.)





346 Waverley Street, Ottawa, Ontario, Canada K2P 0W5(Address
      of principal executive
offices)





(613) 241-9959(Issuer's
      telephone number)





Indicate
by check mark whether the registrant has (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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 has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).




Yes  ̈ No
x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a “smaller reporting company”. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act:





Large
      Accelerated Filer  ̈
              Accelerated
      Filer  ̈Non-accelerated
      Filer ̈
              Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





Yes  ̈ No
x





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS





Check
whether the registrant filed all documents and reports required to be filed by
Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes  ̈No
 ̈





Indicate
the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: May 17, 2010: 163,248,416
shares.







PART
I - FINANCIAL INFORMATION





Item
1 - FINANCIAL STATEMENTS





For
financial information 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 footnote 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, 2009, included in the Company's Form 10-KSB.








INDUSTRIAL
MINERALS, INC.


And
Subsidiary


(An
Exploration Stage Company)


CONSOLIDATED
BALANCE SHEETS





March 31,
                      
                      
                      December 31,2010
                      
                      
                      2009ASSETSCURRENT
      ASSETSCash
                      
                      $
                      1,834,877
                      
                      
                      $
                      271,168Receivables
                      
                      
                      14,776
                      
                      
                      
                      8,003Total
      current assets
                      
                      
                      1,849,653
                      
                      
                      
                      279,171RECLAMATION
      DEPOSIT
                      
                      
                      299,277
                      
                      
                      
                      299,277FIXED
      ASSETSBuilding
      and equipment
                      
                      
                      1,243,511
                      
                      
                      
                      1,243,511Less
      accumulated depreciation
                      
                      
                      (772,751
                      )
                      
                      
                      (746,750
                      )470,760
                      
                      
                      
                      496,761TOTAL
      ASSETS
                      
                      $
                      2,619,690
                      
                      
                      $
                      1,075,209LIABILITIES
      & STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                      
                      $
                      455,757
                      
                      
                      $
                      405,049Accrued
      interest payable
                      
                      
                      5,554
                      
                      
                      
                      102,183Loans
      payable
                      
                      
                      464,296
                      
                      
                      
                      820,457Due
      to related party
                      
                      
                      255,815
                      
                      
                      
                      252,746Convertible
      notes payable
                      
                      
                      -
                      
                      
                      
                      300,888Funds
      received in advance
                      
                      
                      -
                      
                      
                      
                      143,280Notes
      payable
                      
                      
                      150,000
                      
                      
                      
                      -Total
      current liabilities
                      
                      
                      1,331,422
                      
                      
                      
                      2,024,604OTHER
      LIABILITIESAsset
      retirement obligations
                      
                      
                      299,277
                      
                      
                      
                      299,2771,630,699
                      
                      
                      
                      2,323,881STOCKHOLDERS'
      EQUITYCommon
      stock, 200,000,000 shares authorized, $0.0001par
      value; 163,248,416 and 163,248,416 sharesissued
      and outstanding, respectively
                      
                      
                      16,322
                      
                      
                      
                      16,322Additional
      paid-in capital
                      
                      
                      12,160,423
                      
                      
                      
                      10,201,185Accumulated
      other comprehensive income
                      
                      
                      (105,985
                      )
                      
                      
                      (105,985
                      )Deficit
      accumulated during exploration stage
                      
                      
                      (11,563,205
                      )
                      
                      
                      (11,360,194
                      )507,353
                      
                      
                      
                      (1,248,672
                      )Non-controlling
      interest
                      
                      
                      481,638
                      
                      
                      
                      -TOTAL
      STOCKHOLDERS' EQUITY
                      
                      
                      988,991
                      
                      
                      
                      (1,248,672
                      )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                      
                      $
                      2,619,690
                      
                      
                      $
                      1,075,209




See
accompanying notes to consolidated financial statements




F1





INDUSTRIAL
MINERALS, INC.


AND
SUBSIDIARY


(An
Exploration Stage Company)


CONSOLIDATED
STATEMENTS OF OPERATIONS





3 Months Ended
                        
                        
                        3 Months EndedMarch 31,
                        
                        
                        March 31,2010
                        
                        
                        2009EXPENSESCost
      of revenues
                        
                        
                        -
                        
                        
                        
                        -Professional
      fees
                        
                        
                        17,212
                        
                        
                        
                        19,550Royalty
      fees
                        
                        
                        12,969
                        
                        
                        
                        10,719Depreciation
      and amortization
                        
                        
                        26,001
                        
                        
                        
                        36,359Management
      fees and salaries
                        
                        
                        108,485
                        
                        
                        
                        74,797General
      exploration expense
                        
                        
                        719
                        
                        
                        
                        166Other
      general and administrative
                        
                        
                        14,791
                        
                        
                        
                        15,650TOTAL
      EXPENSES
                        
                        
                        180,179
                        
                        
                        
                        157,241LOSS
      FROM OPERATIONS
                        
                        
                        (180,179
                        )
                        
                        
                        (157,241
                        )OTHER
      INCOME (LOSS)Foreign
      currency loss
                        
                        
                        (53,367
                        )
                        
                        
                        20,699Gain
      on debt settlement
                        
                        
                        4,359
                        
                        
                        
                        -NET
      LOSS
                        
                        
                        (229,187
                        )
                        
                        
                        (136,542
                        )Net
      loss attributable to non controlling interest
                        
                        
                        25,974
                        
                        
                        
                        -NET
      LOSS ATTRIBUTABLE TO THE COMPANY
                        
                        
                        (203,211
                        )
                        
                        
                        (136,572
                        )NET
      LOSS PER SHARE, BASIC AND DILUTED
                        
                        
                        (0.01
                        )
                        
                        
                        (0.00
                        )WEIGHTED
      AVERAGE NUMBER OFCOMMON
      STOCK SHARES OUTSTANDING, BASIC AND DILUTED:
                        
                        
                        163,248,416
                        
                        
                        
                        160,748,716




See
accompanying notes to consolidated financial statements




F2


INDUSTRIAL
MINERALS, INC. AND SUBSIDIARY


(An
Exploration Stage Company)


CONSOLIDATED
STATEMENTS OF CASH FLOWS





3 Months
                
                
                3 MonthsEnded
                
                
                EndedMarch 31, 2010
                
                
                March 31, 2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (203,211
                )
                
                $
                (136,572
                )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
                
                
                26,001
                
                
                
                36,359Stock
      issued for services
                
                
                -
                
                
                
                44,805Stock
      based compensation
                
                
                10,590
                
                
                
                -Loss
      on settlement of debt
                
                
                4,359
                
                
                
                -Net
      loss attributable to non-controlling interest
                
                
                (25,974
                )
                
                
                -Changes
      in:Receivables
                
                
                (6,773
                )
                
                
                13,994Deposits
                
                
                -
                
                
                
                57Accounts
      payable and accrued expenses
                
                
                50,708
                
                
                
                (1,752
                )Accrued
      interest payable
                
                
                3,824
                
                
                
                7,041Other
      liabilities
                
                
                -
                
                
                
                21,709Net
      cash used in operating activities
                
                
                (149,196
                )
                
                
                (14,359
                )Cash
      flows from investing activities:Advance
      received for sale of Equipment
                
                
                -
                
                
                
                29,471Net
      cash provided from investing activities
                
                
                -
                
                
                
                29,471CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of notes
                
                
                132,922
                
                
                
                -Due
      to related party
                
                
                3,069
                
                
                
                -Net
      proceeds from sale of common stock of subsidiary
                
                
                1,789,569
                
                
                
                -Loan
      repayments
                
                
                (236,856
                )
                
                
                -Net
      cash provided by financing activities
                
                
                1,688,704
                
                
                
                -Effect
      of exchange rate on changes in cash
                
                
                24,201
                
                
                
                (11,562
                )NET
      INCREASE IN CASH
                
                
                1,563,709
                
                
                
                3,550Cash,
      beginning of period
                
                
                271,168
                
                
                
                307Cash,
      end of period
                
                $
                1,834,877
                
                
                $
                3,857SUPPLEMENTAL
      CASH FLOW DISCLOSURES:Interest
      paid
                
                $
                -
                
                
                $
                -Income
      taxes paid
                
                $
                -
                
                
                $
                -Non-cash
      investing and financing activities:Shares
      issued for related party debt
                
                $
                -
                
                
                $
                61,200Shares
      issued for debt
                
                
                -
                
                
                $
                65,000




See
accompanying notes to consolidated financial statements


F3





INDUSTRIAL
MINERALS, INC. AND SUBSIDIARY


(An
Exploration Company)


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


March
31, 2010





AccumulatedDeficit
                            
                            
                            Accumulated
                            
                            
                            Common
                            
                            
                            TotalCommon Stock
                            
                            
                            Additional
                            
                            
                            During
                            
                            
                            Other
                            
                            
                            Stock
                            
                            
                            Stockholders'Number
                            
                            
                            Number
                            
                            
                            
                            
                            
                            Paid-in
                            
                            
                            Exploration
                            
                            
                            Comprehensive
                            
                            
                            Subscriptions
                            
                            
                            Equityof Shares
                            
                            
                            of Shares
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            Stage
                            
                            
                            Income
                            
                            
                            Received
                            
                            
                            (Deficit)Inception
      - November 6, 1996 - See Note A below
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            
                            -Balance
      at December 31, 1998
                            
                            
                            252,500
                            
                            
                            
                            757,500
                            
                            
                            
                            76
                            
                            
                            
                            505,092
                            
                            
                            
                            (750,830
                            )
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            (245,662
                            )Issuance
      of common stock for cash
                            
                            
                            30,000
                            
                            
                            
                            90,000
                            
                            
                            
                            9
                            
                            
                            
                            146,612
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            146,621Issuance
      of common stock for services
                            
                            
                            55,000
                            
                            
                            
                            165,000
                            
                            
                            
                            17
                            
                            
                            
                            274,983
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            275,000Net
      Loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (259,404
                            )
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            (259,404
                            )Balance
      at December 31, 1999
                            
                            
                            337,500
                            
                            
                            
                            1,012,500
                            
                            
                            
                            102
                            
                            
                            
                            926,687
                            
                            
                            
                            (1,010,234
                            )
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            (83,445
                            )Issuance
      of common stock for cash
                            
                            
                            84,900
                            
                            
                            
                            254,700
                            
                            
                            
                            25
                            
                            
                            
                            413,045
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            413,070Issuance
      of common stock for services
                            
                            
                            70,000
                            
                            
                            
                            210,000
                            
                            
                            
                            21
                            
                            
                            
                            349,979
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            350,000Issuance
      of common stock for Multiplex stock
                            
                            
                            3,000
                            
                            
                            
                            9,000
                            
                            
                            
                            1
                            
                            
                            
                            29
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            30Issuance
      of common stock for acquisition
                            
                            
                            475,463
                            
                            
                            
                            1,426,389
                            
                            
                            
                            143
                            
                            
                            
                            4,603
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            4,746Net
      Loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (694,758
                            )
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            (694,758
                            )Balance
      at December 31, 2000
                            
                            
                            970,863
                            
                            
                            
                            2,912,589
                            
                            
                            
                            292
                            
                            
                            
                            1,694,343
                            
                            
                            
                            (1,704,992
                            )
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            (10,357
                            )Issuance
      of common stock for compensation
                            
                            
                            30,000
                            
                            
                            
                            90,000
                            
                            
                            
                            9
                            
                            
                            
                            59,991
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            60,000Net
      Loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (67,251
                            )
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            (67,251
                            )Balance
      at December 31, 2001
                            
                            
                            1,000,863
                            
                            
                            
                            3,002,589
                            
                            
                            
                            301
                            
                            
                            
                            1,754,334
                            
                            
                            
                            (1,772,243
                            )
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            (17,608
                            )Issuance
      of common stock re acquisition of Industrial Minerals
      Incorporated
                            
                            
                            35,000,000
                            
                            
                            
                            105,000,000
                            
                            
                            
                            10,500
                            
                            
                            
                            (1,747,393
                            )
                            
                            
                            1,696,982
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            (39,911
                            )Minimum
      50 shares post-split allocation
                            
                            
                            30,758
                            
                            
                            
                            92,274
                            
                            
                            
                            6
                            
                            
                            
                            (6
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            -Net
      Loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (520,242
                            )
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            (520,242
                            )


F4




AccumulatedDeficit
                                                                          
                                                                          
                                                                          Accumulated
                                                                          
                                                                          
                                                                          Common
                                                                          
                                                                          
                                                                          TotalCommon Stock
                                                                          
                                                                          
                                                                          Additional
                                                                          
                                                                          
                                                                          During
                                                                          
                                                                          
                                                                          Other
                                                                          
                                                                          
                                                                          Stock
                                                                          
                                                                          
                                                                          Stockholders'Number
                                                                          
                                                                          
                                                                          Number
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          Paid-in
                                                                          
                                                                          
                                                                          Exploration
                                                                          
                                                                          
                                                                          Comprehensive
                                                                          
                                                                          
                                                                          Subscriptions
                                                                          
                                                                          
                                                                          Equityof Shares
                                                                          
                                                                          
                                                                          of Shares
                                                                          
                                                                          
                                                                          Amount
                                                                          
                                                                          
                                                                          Capital
                                                                          
                                                                          
                                                                          Stage
                                                                          
                                                                          
                                                                          Income
                                                                          
                                                                          
                                                                          Received
                                                                          
                                                                          
                                                                          (Deficit)Balance
      at December 31, 2002
                                                                          
                                                                          
                                                                          36,031,621
                                                                          
                                                                          
                                                                          
                                                                          108,094,863
                                                                          
                                                                          
                                                                          
                                                                          10,807
                                                                          
                                                                          
                                                                          
                                                                          6,935
                                                                          
                                                                          
                                                                          
                                                                          (595,503
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (577,761
                                                                          )Minimum
      50 shares post-split allocation
                                                                          
                                                                          
                                                                          327
                                                                          
                                                                          
                                                                          
                                                                          981
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          -Net
      Loss
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (1,133,197
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (1,133,197
                                                                          )Balance
      at December 31, 2003
                                                                          
                                                                          
                                                                          72,063,896
                                                                          
                                                                          
                                                                          
                                                                          108,095,844
                                                                          
                                                                          
                                                                          
                                                                          10,807
                                                                          
                                                                          
                                                                          
                                                                          6,935
                                                                          
                                                                          
                                                                          
                                                                          (1,728,700
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (1,710,958
                                                                          )Allocation
      on round-up of shares
                                                                          
                                                                          
                                                                          7
                                                                          
                                                                          
                                                                          
                                                                          7
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          -Issuance
      of common stock in settlement of debt
                                                                          
                                                                          
                                                                          3,492,115
                                                                          
                                                                          
                                                                          
                                                                          3,492,115
                                                                          
                                                                          
                                                                          
                                                                          349
                                                                          
                                                                          
                                                                          
                                                                          4,190,189
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          4,190,538Net
      Loss
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (561,153
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (561,153
                                                                          )Balance
      at December 31, 2004
                                                                          
                                                                          
                                                                          111,587,966
                                                                          
                                                                          
                                                                          
                                                                          111,587,966
                                                                          
                                                                          
                                                                          
                                                                          11,156
                                                                          
                                                                          
                                                                          
                                                                          4,197,124
                                                                          
                                                                          
                                                                          
                                                                          (2,289,853
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          1,918,427Net
      Loss
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (1,844,219
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (1,844,219
                                                                          )Balance
      at December 31, 2005
                                                                          
                                                                          
                                                                          111,587,966
                                                                          
                                                                          
                                                                          
                                                                          111,587,966
                                                                          
                                                                          
                                                                          
                                                                          11,156
                                                                          
                                                                          
                                                                          
                                                                          4,197,124
                                                                          
                                                                          
                                                                          
                                                                          (4,134,072
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          74,208Issuance
      of common stock for cash
                                                                          
                                                                          
                                                                          200,000
                                                                          
                                                                          
                                                                          
                                                                          200,000
                                                                          
                                                                          
                                                                          
                                                                          20
                                                                          
                                                                          
                                                                          
                                                                          69,640
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          69,660Issuance
      of common stock in settlement of debt
                                                                          
                                                                          
                                                                          6,255,810
                                                                          
                                                                          
                                                                          
                                                                          6,255,810
                                                                          
                                                                          
                                                                          
                                                                          625
                                                                          
                                                                          
                                                                          
                                                                          1,876,118
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          1,876,743Net
      Loss
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (1,255,584
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (1,255,584
                                                                          )Balance
      at December 31, 2006
                                                                          
                                                                          
                                                                          118,043,776
                                                                          
                                                                          
                                                                          
                                                                          118,043,776
                                                                          
                                                                          
                                                                          
                                                                          11,801
                                                                          
                                                                          
                                                                          
                                                                          6,142,882
                                                                          
                                                                          
                                                                          
                                                                          (5,389,656
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          765,027Issuance
      of common stock for cash
                                                                          
                                                                          
                                                                          13,193,699
                                                                          
                                                                          
                                                                          
                                                                          13,193,699
                                                                          
                                                                          
                                                                          
                                                                          1,319
                                                                          
                                                                          
                                                                          
                                                                          1,569,486
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          1,570,805Issuance
      of common stock for services
                                                                          
                                                                          
                                                                          6,407,001
                                                                          
                                                                          
                                                                          
                                                                          6,407,001
                                                                          
                                                                          
                                                                          
                                                                          641
                                                                          
                                                                          
                                                                          
                                                                          641,976
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          642,617Stock
      compensation expense
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          446,853
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          446,853Foreign
      Currency Translation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (105,985
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (105,985
                                                                          )Net
      Loss
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (2,761,455
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (2,761,455
                                                                          )




F5




AccumulatedDeficit
                              
                              
                              Accumulated
                              
                              
                              Common
                              
                              
                              TotalCommon Stock
                              
                              
                              Additional
                              
                              
                              During
                              
                              
                              Other
                              
                              
                              Stock
                              
                              
                              Stockholders'Number
                              
                              
                              Number
                              
                              
                              
                              
                              
                              Paid-in
                              
                              
                              Exploration
                              
                              
                              Comprehensive
                              
                              
                              Subscriptions
                              
                              
                              Equityof Shares
                              
                              
                              of Shares
                              
                              
                              Amount
                              
                              
                              Capital
                              
                              
                              Stage
                              
                              
                              Income
                              
                              
                              Received
                              
                              
                              (Deficit)Balance
      at December 31, 2007
                              
                              
                              137,644,476
                              
                              
                              
                              137,644,476
                              
                              
                              
                              13,761
                              
                              
                              
                              8,801,197
                              
                              
                              
                              (8,151,111
                              )
                              
                              
                              (105,985
                              )
                              
                              
                              
                              
                              
                              557,862Issuance
      of common stock for cash
                              
                              
                              
                              
                              
                              
                              9,248,940
                              
                              
                              
                              925
                              
                              
                              
                              484,275
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (265,000
                              )
                              
                              
                              220,200Issuance
      of common stock for services
                              
                              
                              
                              
                              
                              
                              12,605,000
                              
                              
                              
                              1,261
                              
                              
                              
                              445,439
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              446,700Stock
      compensation expense
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              176,427
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              
                              
                              
                              
                              176,427Common
      stock subscriptions received
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              265,000
                              
                              
                              
                              265,000Issuance
      of common stock for settlement of debt
                              
                              
                              
                              
                              
                              
                              1,250,000
                              
                              
                              
                              125
                              
                              
                              
                              64,875
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              65,000Net
      Loss
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,579,801
                              )
                              
                              
                              -
                              
                              
                              
                              
                              
                              
                              
                              (1,579,801
                              )Balance
      at December 31, 2008
                              
                              
                              
                              
                              
                              
                              160,748,416
                              
                              
                              
                              16,072
                              
                              
                              
                              9,972,214
                              
                              
                              
                              (9,730,913
                              )
                              
                              
                              (105,985
                              )
                              
                              
                              -
                              
                              
                              
                              151,388Issuance
      of common stock for services
                              
                              
                              
                              
                              
                              
                              2,500,000
                              
                              
                              
                              250
                              
                              
                              
                              49,750
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              50,000Stock
      compensation expense
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              179,221
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              179,221Net
      Loss
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,629,281
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,629,281
                              )Balance
      at December 31, 2009
                              
                              
                              
                              
                              
                              
                              163,248,416
                              
                              
                              
                              16,322
                              
                              
                              
                              10,201,185
                              
                              
                              
                              (11,360,194
                              )
                              
                              
                              (105,985
                              )
                              
                              
                              -
                              
                              
                              
                              (1,248,672
                              )Net
      Loss
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (203,211
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (203,211
                              )Gain
      in dilution in interest of subsidiary
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              1,948,648
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              1,948,648Stock
      compensation expense
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              10,590
                              
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              10,590Balance
      at March 31, 2010
                              
                              
                              
                              
                              
                              
                              163,248,416
                              
                              
                              
                              16,322
                              
                              
                              
                              12,160,423
                              
                              
                              
                              (11,563,405
                              )
                              
                              
                              (105,985
                              )
                              
                              
                              
                              
                              
                              
                              507,353





See
accompanying notes to consolidated financial statements




F6





NOTE
1 - BASIS OF PRESENTATION





The
financial statements have been prepared in accordance with generally accepted
accounting principles for the interim financial information with the
instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of only normal accruals)
considered necessary for a fair presentation have been included.





All
assets and liabilities are translated using period-end exchange rates.
Statements of operations items are translated using average exchange rates for
the period. The resulting translation adjustment is recorded within accumulated
other comprehensive loss, a separate component of stockholders' equity. Foreign
currency transaction gains and losses are recognized in the consolidated
statements of operations, including unrealized gains and losses on short-term
inter-company obligations using period-end exchange rates. Unrealized gains and
losses on long-term inter-company obligations are recognized within accumulated
other comprehensive loss, a separate component of stockholders'
equity.





Exchange
gains and losses are primarily the result of fluctuations in currency rates
between the U.S. dollar (the functional reporting currency) and the Canadian
dollar (currencies of our subsidiaries), as well as their effect on the dollar
denominated inter-company obligations between the Company and its foreign
subsidiary. All inter-company balances are revolving in nature and are not
deemed to be long-term balances. For the three months ended March 31, 2010 and
2009, foreign currency losses of $53,368 and gains of $20,669, respectively,
were recognized.





For
further information, refer to the financial statements and notes thereto
included in the Company's Annual Report on Form 10K for the year ended December
31, 2009.





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





NOTE
2 - ACCOUNTING POLICIES





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





In June
2009, the FASB issued guidance on consolidation applicable to variable interest
entities. The provisions of the standard significantly affect the overall
consolidation analysis. The guidance was effective as of the beginning of the
first fiscal year that begins after November 15, 2009. The guidance was
effective for the Company beginning January 1, 2010. The Company adopted the
provisions of this standard effective January 1, 2010 which did not have a
material impact on the Company’s condensed consolidated financial
statements.





In August
2009, the FASB issued guidance on the fair value measurement of liabilities and
provided clarification that, in circumstances in which a quoted price in an
active market for the identical liability is not available, a reporting entity
is required to measure fair value using one or more of the techniques provided
for in this update. The guidance is effective for the first reporting period,
including interim periods, beginning after issuance. The Company adopted the
provisions of this standard effective January 1, 2010 which did not have a
material impact on the Company’s condensed consolidated financial
statements.





In
December 2009, the FASB issued guidance changing how a reporting entity
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entity’s purpose and design;
and the reporting entity’s ability to direct the activities of the other entity
that most significantly impact the other entity’s economic performance. The
guidance also requires a reporting entity to provide additional disclosures
about its involvement with variable interest entities and any significant
changes in risk exposure due to that involvement. A reporting entity will be
required to disclose how its involvement with a variable interest entity affects
the reporting entity’s financial statements. The guidance is effective at the
start of a reporting entity’s first fiscal year beginning after November 15,
2009, or January 1, 2010, for a calendar year-end entity. Early application is
not permitted. The Company adopted the provisions of this standard effective
January 1, 2010 which did not have a material impact on the Company’s condensed
consolidated financial statements.




F7




In
January 2010, the FASB issued guidance improving disclosures about fair value
measurements. The guidance requires some new disclosures and clarifies some
existing disclosure requirements about fair value measurement as set forth in
the ASC. The FASB‟s objective is to
improve these disclosures and, thus, increase the transparency in financial
reporting. Specifically, the guidance now requires: A reporting entity should
disclose separately the amounts of significant transfers in and out of Level 1
and Level 2 fair value measurements and describe the reasons for the transfers;
and In the reconciliation for fair value measurements using significant
unobservable inputs, a reporting entity should present separately information
about purchases, sales, issuances, and settlements.





In
addition, the guidance clarifies the requirements of the following existing
disclosures: For purposes of reporting fair value measurement for each class of
assets and liabilities, a reporting entity needs to use judgment in determining
the appropriate classes of assets and liabilities; and A reporting entity should
provide disclosures about the valuation techniques and inputs used to measure
fair value for both recurring and nonrecurring fair value
measurements.





This
guidance is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances,
and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The
Company adopted the provisions of this standard on January 1, 2010 which did not
have a material impact on its condensed consolidated financial
statements.





In
February 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-09,
Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements. The amendments in the ASU remove the requirement for a Securities
and Exchange Commission (SEC) filer to disclose a date through which subsequent
events have been evaluated in both issued and revised financial statements.
Revised financial statements include financial statements revised as a result of
either correction of an error or retrospective application of U.S. GAAP. The
FASB also clarified that if the financial statements have been revised, then an
entity that is not an SEC filer should disclose both the date that the financial
statements were issued or available to be issued and the date the revised
financial statements were issued or available to be issued. The FASB believes
these amendments remove potential conflicts with the SECs literature. All of the
amendments in the ASU were effective upon issuance except for the use of the
issued date for conduit debt obligors. That amendment is effective for interim
or annual periods ending after June 15, 2010. The Company does not expect the
adoption of this guidance to have a material impact on its consolidated
financial statements position or results of operations.





NOTE
3 - ORGANIZATION





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





NOTE
4 – NORTHERN GRAPHITE CORPORATION FINANCING





On
October 28, 2009, the Company announced that its subsidiary, Northern Graphite
Corporation (“Northern”), had entered into a non brokered agreement to issue
approximately CDN$300,000 (US$286,560) in senior secured convertible
non-interest bearing notes (the “Notes”) to keep the Company solvent and pay the
costs of attempting to raise financing and take Northern public in Canada. The
Notes were secured by a security interest over all of the assets of Northern,
including the mineral claims and leases comprising the Bissett Creek Property.
 During the first quarter of 2010 the amount of the Notes was increased to
C$600,000 and they automatically converted into units upon the closing of the
private placement described below, at a conversion price of $0.175 per
unit, each unit consisting of one common share and one common share purchase
warrant exercisable at a price of C$0.245 per share for a period of 18 months
from the date upon which Northern or its successor becomes a reporting issuer in
a jurisdiction of Canada.




F8




On March
8, 2010, Northern completed a non-brokered private placement financing
consisting of the issuance of 6,000,000 units at a price of C$0.25 per unit,
each unit being comprised of one common share and one common share purchase
warrant exercisable at a price of C$0.35 per share for a period of 18 months
from the date upon which Northern or its successor becomes a reporting issuer in
a jurisdiction of Canada. Gross proceeds were C$1,500,000.





On March
31, 2010 Northern completed additional private placements totalling 1,327,000
units for gross proceeds of C$331,750.  Each unit was priced at C$0.25
and is comprised of one common share and one common share purchase warrant
exercisable at a price of C$0.35 per share for a period of 18 months from the
date upon which Northern or its successor becomes a reporting issuer in a
jurisdiction of Canada.  In addition, Northern issued 400,000 units,
with the same terms, as part of debt settlement agreements with three
creditors.





As a
result of the private placements, the conversion of the Notes and the debt
settlements, Northern issued a total of 11,155,571 common shares, and 11,155,571
common share purchase warrants, and now has 22,905,571 common shares
outstanding. The Company owns 11,750,000 common shares of Northern which
represents a 51.3% interest.  If all warrants were exercised Northern
would receive an additional C$3,544,450 and the Company’s interest in Northern
would be 34.5%.  The Company retains its controlling financial
interest in Northern and a non-controlling interest of $444,525 has been
recorded to reflect the change in its ownership interest in
Northern.  The difference of $2,048,236 between the fair value of the
controlling interest and the amount of the non-controlling interest has been
recognized in paid-in capital.





NOTE
5 - PRESENTATION OF INTERIM INFORMATION





The
accompanying interim financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and, in
the opinion of management, include all normal adjustments considered necessary
to present fairly the financial position as of March 31, 2010 and the results of
operations and cash flows for the three month periods ended March 31, 2010 and
2009. Interim results are not necessarily indicative of results for a full
year.





The
financial statements and notes are presented as permitted by Form 10-Q, and do
not include information included in the Company's audited financial statements
and notes for the year ended December 31, 2009.





NOTE
6 - COMMON STOCK OPTIONS AND WARRANTS





The
Company adopted ASC 718 (formerly SFAS 123) “Stock-Based Compensation”,
effective April 1, 2007. Compensation cost for the Company’s stock options have
been determined in accordance with the fair value based method prescribed as ASC
718. The fair value of option grants is estimated on the date of grant utilizing
the Black-Scholes option pricing model. The fair value of each option is
estimated on the date of the grant using the Black-Scholes option-pricing
model.





The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for options granted during the three months ended March 31,
2010: expected volatility of 88%; risk-free interest rate ranging from 4.93% to
5.18%; and an expected term of up to 6 years.





The
following table summarizes stock option activity for the three months ended
March 31, 2010:





Number of
                            securities to be
                          
                          
                          Weighted-average
                          
                          
                          WeightedEquity compensation plans
                          
                          issued
                          
                          
                          exercise price
                          
                          
                          Averagenot approved by security
                          
                          upon exercise of
                          
                          
                          of outstanding
                          
                          
                          Fairholders
                          
                          outstanding options
                          
                          
                          options
                          
                          
                          ValueOutstanding
      Dec 31, 2009
                          
                          
                          7,349,999
                          
                          
                          $
                          0.106
                          
                          
                          $
                          0.09Granted
                          
                          
                          0Exercised
                          
                          
                          0
                          
                          
                          $
                          0.00
                          
                          
                          $
                          0.00Cancelled
      or expiredTotal
                          
                          
                          7,349,999Exercisable
      at March 31, 2010
                          
                          
                          7,349,999





Using the
Black-Scholes option pricing model, the Company had stock compensation expense
for the three months ending March 31, 2010 of $10,590. There remains a balance
of $34,076 to be expensed over the vesting period of the
options.


F9


NOTE
7 - COMMITMENTS AND CONTINGENCIES





Operating
Lease


The
Company relocated its head office to 346 Waverley Street, Ottawa, Ontario,
Canada, effective September 30, 2008. There is no lease arrangement at the
present time and the premises are occupied on a month to month
basis.





Mine
Development and Closure


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. A financial assurance in the amount of $299,277 has been accounted
for as a long term deposit.  The Company has paid this amount to the
Minister of Finance for the Province of Ontario. This financial assurance
represents the amount that would be required to restore the Company's Bissett
Creek Graphite Property to its original environmental state. The money pledged
for this financial assurance will be returned to the Company once the Ministry
of Northern  Development  and Mines is satisfied that the
obligations contained in the Mine  Development  and Closure
Plan have been performed by the Company. Should the Company not perform its
obligations contained in the Mine Development and Closure Plan the Ministry of
Northern Development and Mines will restore the Company's Bissett Creek Graphite
property site to its original environmental state using the $299,277 financial
assurance.





NOTE
8 – NOTES AND LOANS PAYABLE





During
the quarter ended March 31, 2010, the Company settled $379,792 of loans payable
and $102,183 of accrued interest through the issuance of 400,000 units of
Northern Graphite, the payment of $236,859 cash and the issuance of a $150,000
note.  The note payable is unsecured, non-interest bearing and matures
in 1 year.





NOTE
9 – SUBSEQUENT EVENT





Subsequent
to quarter end, 1,091,600 restricted common shares of the Company were issued in
settlement of a $385,665 loan payable.


F10


Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





Overview


Industrial
Minerals, Inc. (“IMI” or "the Company"), a Delaware Corporation, was
incorporated on November 6, 1996 under the name Winchester Mining Corp. The name
of the Company was changed to PNW Capital, Inc. on May 16, 2000.  In
2002, PNW Capital, Inc. acquired Industrial Minerals Incorporated, a private
Nevada Corporation, and changed its name to Industrial Minerals,
Inc.





The
Company is an exploration stage company.  The Company’s sole asset and
entire focus is its 51% interest in Northern Graphite Corporation
(“Northern”).  Northern holds a 100% interest in a number of mineral
claims and a mining lease located in Maria Township in Northern Ontario,
approximately 180 miles northeast of Toronto, Ontario. The property and the
claims are referred to as "Bissett Creek" because of their proximity to the town
of Bissett Creek.





In August
2004, Northern received notice from the Ministry of Northern Development and
Mines for the Province of Ontario that the Bissett Creek Graphite Project
Certified Closure Plan as per Subsection 141(3)(a) of the Mining Act for the
Province of Ontario was considered filed. Accordingly, Northern was authorized
to begin mining graphite ore from Bissett Creek and to produce graphite using a
dry recovery process.  This process was not successful and commercial
production was never achieved.  Bissett Creek has been kept on care
and maintenance since 2004.  In the latter part of 2009 and in the
first quarter of 2010 Northern raised additional financing which had the effect
of reducing the Company’s interest in Northern from 100% to approximately
51%.  The financings have enabled the Company and Northern to deal
with serious debt and creditor issues and to begin moving the Bissett Creek
project forward.  Northern has recently initiated the environmental
and permitting process, metallurgical testing and a Pre Feasibility Study with
the objective of being in a position to make a construction decision, subject to
financing, in 2011.





From 2004
until late 2009 the Company experienced serious financial difficulties and went
through many changes to the Board and management.  For the fiscal year
commencing January 1, 2008, the Board of Directors was comprised of William
Thomson, William Booth and Robert Dinning. Mr. Thomson, who was also Chairman of
the Company, resigned on June 20, 2008 and Mr. Booth, an independent director
resigned on July 9, 2008. The President of the Company, David Wodar, who was
appointed July 9, 2007, resigned on June 12, 2008. He was replaced as President
by Paul Cooper who also subsequently resigned.  Chris Crupi CA and
Gregory Bowes, MBA, were appointed directors of the Company and Mr. Robert
Dinning CA was appointed President and CEO on June 23, 2008. Mr. Robert Dinning
CA continued as a director and was also reappointed CFO effective June 23, 2008.
Mr. Dinning was originally appointed CFO and Director September 15, 2006. Mr.
Crupi was appointed Chairman of the Audit Committee and is an independent
director.  In May 2009, Gregory Bowes was appointed as CEO of
Northern.  Robert Dinning resigned as a director and CFO of Northern
effective April 1, 2010 and resigned as a director, CEO and CFO of the Company
effective May 10, 2010. Miles Nagamatsu CA was appointed CFO of Northern on
April 1, 2010 and Gregory Bowes was appointed CEO and CFO of the Company
effective May 10, 2010.





Under the
mandate of the restructured Board of Directors, the Company significantly
reduced its monthly operating expenses and focused its efforts on settling
payables, reducing debt, raising financing and developing a plan to move the
Bissett Creek project forward.





On
October 27, 2008, the Company engaged RBC Capital Markets (“RBC”) as
exclusive financial advisor with respect to strategic options facing the
Company including the potential sale of the Company, investment by a third
party, and an amalgamation, arrangement, or other business
transaction.  By mutual consent, the agreement was terminated in June
2009.





On
October 28, 2009, the Company announced that Northern had entered into a non
brokered agreement with various lenders, including a director of the Company, to
issue approximately CDN$300,000 (US$286,560) in senior secured convertible
non-interest bearing notes (the “Notes”) to keep the Company solvent and pay the
costs of attempting to raise financing and take Northern public in Canada. The
Notes were secured by a security interest over all of the assets of Northern,
including the mineral claims and leases comprising Bissett
Creek.  Subsequent to year end the amount of the Notes was increased
to C$600,000 and they were converted into units of Northern as described
below.





In
addition to the Note financing, the Company announced on October 28, 2009, that
Northern had entered into a letter of intent to effect a business combination
with Rattlesnake Ventures Inc.(“RVI”) (the “Transaction”). The Transaction would
constitute the Qualifying Transaction of RVI, a Capital Pool Company, and if
completed would result in Northern becoming publicly listed on the TSX
Venture Exchange. Subsequent to the year end, the agreement with RVI was
terminated.


F11


In
conjunction with the Transaction, the Company also signed an engagement letter
with Research Capital to complete, on a best efforts basis, a financing for
Northern of up to C$6,000,000.  This financing was not completed and
the agreement with Research Capital was terminated in December
2009.





On March
8, 2010, Northern completed a non-brokered private placement financing
consisting of the issuance of 6,000,000 units at a price of C$0.25 per unit,
each unit being comprised of one common share and one common share purchase
warrant exercisable at a price of C$0.35 per share for a period of 18 months
from the date upon which Northern or its successor becomes a reporting issuer in
a jurisdiction of Canada. Gross proceeds were C$1,500,000. In addition, Northern
had increased the capital raised through the issuance of the Notes to C$600,000
and the Notes, pursuant to their terms, automatically converted into units upon
the closing of the private placement at a conversion price of $0.175 per unit,
each unit consisting of one common share and one common share purchase warrant
exercisable at a price of C$0.245 per share for a period of 18 months from the
date upon which Northern or its successor becomes a reporting issuer in a
jurisdiction of Canada.





On March
31, 2010 Northern announced that it has completed additional private placements
totalling 1,327,000 units for gross proceeds of C$331,750.  Each unit
was priced at C$0.25 and is comprised of one common share and one common share
purchase warrant exercisable at a price of C$0.35 per share for a period of 18
months from the date upon which Northern or its successor becomes a reporting
issuer in a jurisdiction of Canada.  In addition, Northern issued
400,000 units, with the same terms, as part of debt settlement agreements with
three creditors.





As a
result of the private placements, the conversion of the Notes and the debt
settlements, Northern issued a total of 11,155,571 common shares, and 11,155,571
common share purchase warrants, and now has 22,905,571 common shares
outstanding. The Company owns 11,750,000 common shares of Northern which
represents a 51.3% interest.  If all warrants were exercised Northern
would receive an additional C$3,544,450 and the Company’s interest in Northern
would be 34.5%.  Subject to the receipt of all required corporate,
regulatory and stock exchange approvals, Northern plans to complete a going
public transaction in Canada as soon as possible and the Company plans to
distribute its Northern shares to its shareholders.




While the
Company was unsuccessful in raising financing through Research Capital and
taking Northern public in Canada through the RVI transaction, the private
placements, Note financings and debt settlements enabled it to deal with
critical issues relating to payables and corporate debts and have put Northern
on a better footing to move Bissett Creek forward.  It is still the
Company’s objective to take Northern public.  However, the Company
recognizes it will require substantial additional capital in the future to
continue the development of Bissett Creek.  While the Company is
optimistic such capital can be obtained, there is no assurance that it will be
available or available on terms that are attractive to the Company.





The
Bissett Creek lease, number 364704, consists of all those parcels or tracts of
land and land under water in the Township of Head, Clara and Maria, in the
County of Renfrew and Province of Ontario, containing by ad measurement 564.569
hectares, be the same more or less, composed of those parts of lots 21, 22, 23,
24 and 25, Concessions IV and V, and part of the bed of Mag Lake and the bed of
the unnamed lake, and lots 23, 24 and 25 and the north half of lots 21 and 22,
Concession III as shown on the plan of the geographic Township of Maria,
designated as parts 1, 2, 3 and 5 on a plan and a field notes deposited in the
Land Registry Office at Pembroke as Plan 49R_11203, comprising mining claims EO
608306, EO 608346, EO 608347, EO 608374, EO 608348, EO 608373, EO 608349, EO
608372, EO 608369, SO 998760, SO 1084577, EO 800884, EO 800880, EO 800881, EO
608350, EO 608371, EO 608367, EO 608370, EO 608376, EO 608368, EO 608302, SO
1117797, SO 998754, SO 1117798, SO 998755, SO 1117799, SO 998756 and SO 998757.
These claims are registered in the Land Titles Office in North Bay,
Ontario.  The Company also holds unpatented mining claims 1192304 (10
units), 1192305 (10 units), 1192306 (9 units), 1192307 (3 units), 4200145 (4
units) and 4200146 (3 units) totally approximately 624 ha.  Together
with the mining lease, the total size of the Bissett Creek property is
approximately 1,188 ha.  Bissett Creek is subject to a C$20 per ton
royalty on graphite concentrate produced which includes an annual advance
royalty C$27,000.  A 2.5% net smelter return royalty is payable with
respect to any other minerals are produced from Bissett Creek.





In 2007
Geostat International Inc. ("Geostat") prepared a Preliminary Assessment of
Bissett Creek in compliance with the requirements of Canadian National
Instrument 43-101. The Geostat work program included a site visit, an
independent estimation, classification and certification of resources,
certification and validation of the database, verification and validation of the
interpretation of ore zones, an assessment of mining and processing procedures,
and an estimation of the capital and operating costs to build and operate a mine
at Bissett Creek. The process included the drilling of an additional six holes
in order to assist in verification of previously obtained data. The program
provided independent assay results and material to carry out independent
metallurgical testing and validation.


F12


In the
first quarter of 2010 the Company engaged Stantec Consulting to review the
current status of the site and the permit and to provide a detailed scope of
work, schedule and estimated costs to complete a Closure Plan amendment, obtain
needed environmental approvals, and conduct a critical issues assessment of
Bissett Creek.  It is anticipated that the process of amending the
current Mine Closure Plan at Bissett Creek and obtaining the necessary approvals
to begin development of Bissett Creek will take place in
2011.  Geostat, now SGS Canada Inc., has been retained to perform
additional metallurgical testing and complete a Pre Feasibility Study which are
scheduled for completion in the third quarter of 2010.  The Company’s
objective is to be able to make a construction decision in 2011, subject to
financing.





RESULTS
OF OPERATIONS


For the
three month period ending March 31, 2010, the Company recorded a net loss of
$203,211, compared to a loss of $136,572 for the three months ending March 31,
2009.  The Company had no revenues for the three months ending March
31, 2010. The Company is an exploration stage company and will not have revenues
until the current permit at Bissett Creek is amended, a positive pre feasibility
study is completed and the Company raises the necessary financing and builds a
graphite mine at Bissett Creek.





For the
three months ending March 31, 2010, expenses amounted to $180,179 compared to
$157,241 for the three months ending March 31, 2009. Management fees and
salaries were $108,485 for the three months ended March 31, 2010 compared
to  $74,797 for the three months ending March 31, 2009, as Northern
hired a full time CEO and retained a number of consultants to raise financing
and manage its affairs. Included in expenses for the three months ended March
31, 2010 were $10,590 in stock compensation expenses with respect to options
previously authorized. Expenses in the three months ending March 31, 2009
included stock compensation expense of $44,805. As at March 31, 2010, there is a
balance of $34,076 in stock compensation expense remaining to be written off.
Professional fees decreased to $17,212 in the quarter ended March 31, 2010 from
$19,550 in the first quarter of 2009.





The
Company currently has no full time employees.  It contracts with a
number of consultants for engineering, technical, administrative and financial
services and intends to do so for the foreseeable future.





LIQUIDITY
AND CAPITAL RESOURCES


The
Company had cash on hand at March 31, 2010 of $1,834,877 versus $271,168 at
December 31, 2009 as a result of the Note financing and private placements
described below.





In 2009,
Northern completed a non-brokered financing with various lenders, including a
director of the Company, for CDN$300,000 through the issuance of senior secured
convertible non-interest bearing notes (the “Notes”).  A first
mortgage and security interest over all of the assets of Northern, including
Bissett Creek was granted to 2221862 Ontario Inc., a newly-incorporated company
incorporated and controlled by Gregory Bowes, a Director of the Company and CEO
of Northern, to hold the security on behalf of the Note holders as well as to
hold the proceeds from sale of the Notes in trust, and to distribute such
proceeds to Northern as required to cover the costs that were to be incurred in
connection with a proposed transaction with RVI and the Research Capital
financing and to pay existing and future expenses which were critical and
necessary to keep Northern functional and solvent and protect its
assets.  In the first quarter of 2010 the principal amount of the
Notes was increased to C$600,000 to provide additional working capital and the
Notes were converted to units of Northern pursuant to their terms and the
completion of the private placements described below.





On
February 15, 2010 First Plain Inc. agreed to a settlement of C$95,000 in cash
plus 160,000 units of Northern as per the private placement terms, in settlement
of amounts due plus accrued interest. On
February 15, 2010, a lender agreed to settle a $161,000 loan in one year on
receipt of $150,000 with no interest payable on the extension. In addition, the
lender will receive a payment of C$35,000 on other loans due plus 140,000 units
of Northern as per the private placement terms. A loan
payable to Westwynd Retail Consultants Inc. of $105,072 US ($110,000Cdn) plus
accrued interest was settled through the payment of CDN$125,000 ($119,400US)
plus the issuance of 100,000 units of Northern as per the private placement
terms.


F13


The
Company also had loans of $385,665 outstanding at March 31,
2010.  Agreement has been reached on settling this loan for
shares of the Company which have not yet been issued.





On March
8, 2010, Northern completed a non brokered private placement of 6,000,000 units
at $0.25 per unit for total proceeds of C$1,500,000 (US$1,476,900). Each unit
was priced at C$0.25 and is comprised of one common share and one common share
purchase warrant exercisable at a price of C$0.35 per share for a period of 18
months from the date upon which Northern or its successor becomes a reporting
issuer in a jurisdiction of Canada.





On March
31, 2010 Northern completed private placements totalling 1,327,000 units for
gross proceeds of CDN$331,750 (US$326,641).  Each unit was priced at
C$0.25 and is comprised of one common share and one common share purchase
warrant exercisable at a price of C$0.35 per share for a period of 18 months
from the date upon which Northern or its successor becomes a reporting issuer in
a jurisdiction of Canada.





The
Company has a long-term deposit with the Ministry of Finance for the Province of
Ontario to ensure that enough funds are available to affect the proper
reclamation and closure of Bissett Creek. The Company's initial deposit in 2004
amounted to C$288,363 and since that time accrued interest increased the deposit
to $299,277 at December 31, 2009.





The
funding recently raised by the Company’s subsidiary, Northern, is sufficient to
pay operating and administrative costs and to fund initial environmental and
permitting work as well as metallurgical testing and a Pre Feasibility Study
currently underway at Bissett Creek.  However, the Company will
require substantial additional financing for construction of a mine at Bissett
Creek and there is no assurance that such financing will be available or will be
available on terms acceptable to the Company.





Going
Concern Consideration


The
Company's auditors in their report for the year ended December 31, 2009 have
expressed a concern that the Company may not be able to continue as a going
concern.  The Company is an exploration stage company and had a net
loss of $174,182 for the quarter ended March 31, 2010.  The Company
has had recurring losses and an accumulated deficit of $11,534,376 since
inception.  The Company’s ability to continue as a going concern is
dependent upon its ability to raise additional capital for operating and
administrative costs as well as to ultimately build a mine and processing plant
at Bissett Creek and to enable the Company to generate cash flow. However, there
is a high degree of risk and many inherent uncertainties in natural resource
development and management cannot provide assurances that it will be
successful.





The
Company’s management believes that it will continue to be able to raise
additional funds from public or private debt or equity financing for the Company
to continue to operate. If the Company cannot continue as a going concern the
value of the Company's assets may approach a level close to zero. Investors
should be cautioned that should the Company cease to operate the Company may
only recover a small fraction of the original costs of its assets should a
liquidation of the Company's assets occur. The accompanying financial statements
do not include any adjustments that might result if the going concern assumption
is not valid.





Item
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





IMI is a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and is not required to provide information under this
item.


F14


Item
4.  CONTROLS AND PROCEDURES




At the
end of the period covered by this report, an evaluation was carried out under
the supervision of and with the participation of the Company’s management,
including the Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”), of the effectiveness of the design and operations of the Company’s
disclosure controls and procedures (as defined in Rule 13(a) – 15(e) and Rule
15(d) – 15(e) under the Exchange Act). Based on that evaluation and in light of
the discussion of the material weakness discussed below in the Management’s
Report on Internal Control over Financial Reporting, the CEO and the CFO have
concluded that as of the end of the period covered by this report, the Company’s
disclosure controls and procedures were effective in ensuring that: (i)
information required to be disclosed by the Company in reports that it files or
submits to the Securities and Exchange Commission under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable rules and forms and (ii) material information required to be
disclosed in our reports filed under the Exchange Act is accumulated and
communicated to our management, including our CEO and CFO, as appropriate, to
allow for accurate and timely decisions regarding required
disclosure.




Management's
Annual Report on Internal Control over Financial Reporting


Management
is responsible for establishing and maintaining adequate internal controls over
financial reporting. Internal control over financial reporting is a process
designed by, or under the supervision of, the CEO and implemented by the board
of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.





The
evaluation of internal controls over financial reporting includes an analysis
under the COSO framework, an integrated framework for the evaluation of internal
controls issued to identify the risks and control objectives related to the
evaluation of the control environment by the Committee of Sponsoring
Organizations of the Treadway Commission.





Based on
the evaluation described above, management has concluded that the Company’s
internal control over financial reporting was not effective during the quarter
ended March 31, 2010. Management has determined that (i) inadequate staffing and
supervision, and the resulting ability of management to override internal
control systems, and (ii) the significant amount of manual intervention required
in the accounting and financial reporting process are material weaknesses in the
Company’s internal control over financial reporting.





This
quarterly report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting.





Changes
in Internal Control over Financial Reporting


There
were no changes in the Company’s internal control over financial reporting that
occurred during the Company’s most recent fiscal quarter and the period covered
by this quarterly report that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial
reporting.




On April
1, 2010 Miles Nagamatsu was appointed CFO of Northern and Tracy Albert was
appointed Controller of Northern.  On May 10, 2010 Robert Dinning
resigned as CEO and CFO of the Company and Gregory Bowes was appointed
CEO/CFO.





PART
II.  - OTHER INFORMATION





Item
1. LEGAL PROCEEDINGS





The
Company has been named in a lawsuit filed by Windale Properties in the amount of
C$19,781. The claim is the result of termination of leased premises in Oakville,
Ontario prior to the expiry of the lease. Discussions regarding settlement are
ongoing.





MGI
Securities Inc. obtained a default judgment on September 1, 2009 in the amount
of C$10,000. The Company is currently in discussions with MGI regarding
settlement of this claim.





Item
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None


F15




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





EXHIBIT NO.
              
              DESCRIPTION31.1
              
              CERTIFICATION
      OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
      ACT31.2
              
              CERTIFICATION
      OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
      ACT32.1
              
              CERTIFICATION
      OF DISCLOSURE BY CHIEF EXECUTIVE PURSUANT TO 18 U.S.C. SECTION 1350, AS
      ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
      200232.2
              
              CERTIFICATION
      OF DISCLOSURE BY CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION
      1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
      2002





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.





Dated:  May
      21, 2010
                INDUSTRIAL MINERALS, INC.By:
                /s/
      Gregory BowesPresident
      and CEO




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





Dated:
      May 21, 2009
                INDUSTRIAL
      MINERALS, INC.By:
                /s/
      Gregory BowesGregory
      Bowes, Chief Financial
Officer




F16