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

                                    FORM 10-Q

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

                         FOR QUARTER ENDED JUNE 30, 2005

                        Commission file number: 000-30651
                                                ---------

                            INDUSTRIAL MINERALS, INC.
                        -------------------------------
             (Exact name of Registrant as Specified in its Charter)


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


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

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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

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

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

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

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

         As  of  June  30,  2005  the  number  of  shares   outstanding  of  the
registrant's only class of common stock was 111,587,966.


<PAGE>
<TABLE>
<CAPTION>




                                Table of Contents

                                                                                                                 Page
PART I - FINANCIAL INFORMATION
<S>                                                                                                                <C>
Item 1.  Financial Statements                                                                                      1

         Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004 (audited)..........     2

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

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

         Consolidated Statement of Stockholders' Equity (unaudited) as of June 30, 2005.......................     6

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

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk............................................    12

Item 4.  Controls and Procedures..............................................................................     12

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings ...................................................................................     13

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds..........................................     14

Item 3.  Defaults upon Senior Securities......................................................................     14

Item 4.  Submission of Matters to a Vote of Security Holders..................................................     14

Item 5.  Other Information....................................................................................     14

Item 6.  Exhibits and Reports on Form 8-K.....................................................................     14

Signatures....................................................................................................     15
</TABLE>



<PAGE>


PART I.    FINANCIAL INFORMATION

Item 1.   Financial Statements

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

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

         The financial  statements  have been  prepared by Industrial  Minerals,
Inc.  without audit pursuant to the rules and  regulations of the Securities and
Exchange  Commission.  Certain  information and footnotes  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles  have been  condensed or omitted as allowed by such rules
and  regulations,  and management  believes that the disclosures are adequate to
make the  information  presented  not  misleading.  These  financial  statements
include all the adjustments  which, in the opinion of management,  are necessary
for a fair  presentation  of financial  position and results of operations.  All
such  adjustments  are  of  a  normal  and  recurring  nature.  These  financial
statements should be read in conjunction with the audited  financial  statements
at December 31, 2004, included in the Company's Form 10-K.















                                       1
<PAGE>
<TABLE>
<CAPTION>


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

                           Consolidated Balance Sheets

                       June 30, 2005 and December 31, 2004

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

Current assets:
<S>                                                                               <C>                <C>
     Cash                                                                         $        16,846    $       27,726
     Receivables                                                                           26,636           105,925
     Prepaid expenses                                                                      15,702            15,540
     Deposits                                                                              17,421            11,789
                                                                                    -------------      ------------

                           Total current assets                                            76,605           160,980

Long-term deposits                                                                        230,000           230,000
Building and equipment, at cost, less accumulated
     depreciation of $366,592 in 2005 and $256,167 in 2004                              1,885,535         1,778,462
                                                                                    -------------      ------------

                           Total assets                                           $     2,192,140    $    2,169,442
                                                                                     ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

     Accounts payable                                                             $       269,874    $      120,326
     Accrued interest payable                                                              28,610            12,711
     Loans payable                                                                        733,763            90,796
     Due to related parties                                                                24,000            11,787
     Current installments of mortgage payables                                              2,763             2,763
                                                                                    -------------      ------------
                        Total current liabilities                                       1,059,010           238,383


     Mortgage payable, excluding current installments                                      11,061            12,632
                                                                                    -------------      ------------

                           Total liabilities                                            1,070,071           251,015
                                                                                    -------------      ------------

Stockholders' equity:
     Common Stock, par value $.0001; 200,000,000 shares authorized;
     111,587,966 shares issued and outstanding                                              3,949             3,949
     Additional paid-in capital                                                         4,204,331         4,204,331
     Deficit accumulated during exploration stage                                      (3,086,211)       (2,289,853)
                                                                                    -------------      ------------

                           Total stockholders' equity                                   1,122,069         1,918,427
                                                                                    -------------      ------------

                           Total liabilities and stockholders' equity             $     2,192,140    $    2,169,442
                                                                                     ============      ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       2
<PAGE>
<TABLE>
<CAPTION>
                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                        (An Exploration Stage Company)

                Consolidated Statements of Operations (Unaudited)

          Three and six month periods ended June 30, 2005 and 2004 and
           for the period from November 6, 1996 (Date of Inception) to
                                  June 30, 2005



                                                      Three months ended                    Six months ended        November 6, 1996
                                                           June 30,                            June 30,               (inception) to
                                                      2005             2004              2005            2004          June 30, 2005
                                                  -----------      -----------       -----------       ----------       ------------
<S>                                              <C>              <C>               <C>               <C>              <C>

Revenue                                           $         -                -                 -                -            15,537
                                                  -----------      -----------       -----------       ----------       ------------

Expenses:
     Cost of revenues                                       -                -                 -                -            76,201
     Professional fees                                 28,687           13,475            44,022           50,448         1,242,616
     Royalty fees                                       5,238                -            10,638           10,000            63,623
     Depreciation and amortization                     55,330           26,307           110,425           49,261           375,301
     Impairment of long-lived assets                        -                -                 -                -           582,176
     Management fees and salaries                     124,785           29,794           214,910           60,620           395,437
     Other general and administrative                 245,867          282,924           416,370          533,742         3,114,519
                                                  -----------      -----------       -----------       ----------       ------------


                           Total expenses             459,907          352,500           796,365          704,071         5,849,873
                                                  -----------      -----------       -----------       ----------       ------------

                           Loss from operations      (459,907)        (352,500)         (796,365)        (704,071)       (5,834,336)
                                                  -----------      -----------       -----------       ----------       ------------


Other income:
     Interest income                                        3               31                 7               71             2,915
     Gain from extinguishment of debt                       -                -                 -                -         1,047,634
     Other income                                           -                -                 -                -               594
                                                  -----------      -----------       -----------       ----------       ------------

                           Total other income               3               31                 7               71         1,051,143
                                                  -----------      -----------       -----------       ----------       ------------

                           Net loss               $  (459,904)        (352,469)         (796,358)        (704,000)       (4,783,193)
                                                  ===========      ===========       ===========       ==========       ============

Net loss per common share                         $      (.01)            (.00)             (.01)            (.01)
                                                  ===========      ===========       ===========       ==========

Weighted average common shares outstanding        111,587,966       72,063,896       111,587,966       72,063,896
                                                  ===========      ===========       ===========       ==========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>
<TABLE>
<CAPTION>


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

                Consolidated Statements of Cash Flows (Unaudited)

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


                                                                              Six months
                                                                                 ended
                                                                                June 30,              November 6, 1996
                                                                                --------               (inception) to
                                                                           2005            2004        June 30, 2005
                                                                        ---------       ----------        ---------
Cash flows from operating activities:
<S>                                                                 <C>                  <C>             <C>
     Net loss                                                       $   (796,358)        (704,000)       (4,783,193)
     Adjustments to reconcile net loss to
            net cash used in operating activities:
         Depreciation and amortization                                   110,425           49,261           367,009
         Provision for bad debts                                               -                -            49,676
         Stock issued for services                                             -                -           414,606
         Impairment of long-lived assets                                       -                -           297,882
         Gain on extinguishment of debt                                        -                -        (1,047,634)
         Changes in:
              Receivables                                                 79,289            3,747           (30,805)
              Inventory                                                        -                -            (5,527)
              Prepaid expenses                                              (162)               -           (16,242)
              Deposits                                                    (5,632)        (115,849)          (17,421)
              Accounts payable and accrued expenses                      149,548         (107,517)          111,446
              Due to related parties                                      12,213                -           419,000
                                                                        ---------       ----------        ---------


                           Net cash used in operating
                             activities                                 (450,677)        (874,358)       (4,241,203)
                                                                        ---------       ----------        ---------

Cash flows from investing activities:
     Purchase of building and equipment                                 (217,498)        (490,931)       (2,051,704)
     Investment in Multiplex                                                   -                -           (75,000)
     Acquisition of goodwill                                                   -                -          (149,057)
     Loan to related party                                                     -                -           (50,000)
     Loan repayments                                                           -                -             4,493
     Long-term deposits                                                        -                -          (159,600)
                                                                        ---------       ----------        ---------

                           Net cash used in
                             investing activities                       (217,498)        (490,931)       (2,480,868)
                                                                        ---------       ----------        ---------
                                                                                                                (Continued)
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>
<TABLE>
<CAPTION>



                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

          Consolidated Statements of Cash Flows (Unaudited), Continued

                                                                               Six months
                                                                                 ended
                                                                                June 30,              November 6, 1996
                                                                                --------               (inception) to
                                                                           2005            2004        June 30, 2005
                                                                        ---------       ----------        ---------
Cash flows from financing activities:
<S>                                                                    <C>               <C>             <C>
     Net proceeds form sale of common stock                            $       -                -           744,859
     Net proceeds from loans payable                                     642,967          878,980         5,683,202
     Proceeds from mortgage                                                    -                -            17,000
     Principal payments on mortgage                                       (1,571)          (2,822)           (3,176)
     Accrued interest payable                                             15,899          122,004           296,892
     Cash acquired in acquisition of Peanut
         Butter & Jelly, Inc.                                                  -                -               140
                                                                        ---------       ----------        ---------

                           Net cash provided by
                               financing activities                      657,295          998,162         6,738,917
                                                                        ---------       ----------        ---------

Net decrease in cash                                                     (10,880)        (367,127)           16,846

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

Cash, end of period                                                    $  16,846          218,807            16,846
                                                                        =========       ==========        =========

Supplemental cash flow disclosures:

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

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

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


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

         Equipment financed by:

         Accounts payable                                                      -                -           200,000
         Issuance of common stock                                              -                -             5,000
                                                                        ---------       ----------        ---------

                                                                       $       -                -           205,000
                                                                        =========       ==========        =========

</TABLE>


          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>
<TABLE>
<CAPTION>
                            INDUSTRIAL MINERALS, INC.

                                 AND SUBSIDIARY
                         (An Exploration Stage Company)

           Consolidated Statement of Stockholders' Equity (Unaudited)
                                  June 30, 2005

<S>                                      <C>            <C>            <C>               <C>              <C>
                                                                                           Deficit
                                                                                         Accumulated
                                                Common Stock            Additional       During the
                                          ---------------------------     Paid-In        Exploration
                                         # of Shares        Amount        Capital          Stage            Totals
                                        -------------   -----------    ------------      ------------     ----------
Inception - November 6, 1996                        -   $         -               -                 -             -
Balance at December 31, 1998                  252,500            25         505,143          (750,830)     (245,662)
Issuance of stock for cash                     30,000             3         146,618                 -       146,621
Issuance of stock for services                 55,000             6         274,994                 -       275,000
Net loss                                            -             -               -          (259,404)     (259,404)
                                        -------------   -----------    ------------      ------------     ----------
Balance at December 31, 1999                  337,500            34         926,755        (1,010,234)      (83,445)

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

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

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

Minimum 50 shares
     post-split allocation                        327             -               -                 -             -
2-for-1 split                              36,031,948             -               -                 -             -
Net loss                                            -             -               -        (1,133,197)   (1,133,197)
                                        -------------   -----------    ------------      ------------     ----------
Balance at December 31, 2003               72,063,896         3,600          14,142        (1,728,700)   (1,710,958)

3-for-2 split                              36,031,948             -               -                 -             -
Allocation on round-up of shares                    7             -               -                 -             -
Issuance of stock in settlement of debt     3,492,115           349       4,190,189                 -     4,190,538
Net loss                                            -             -               -          (561,153)     (561,153)
                                        -------------   -----------    ------------      ------------     ----------
Balance at December 31, 2004              111,587,966   $     3,949       4,204,331        (2,289,853)    1,918,427
                                        =============   ===========    ============      ============     ==========

Net loss                                            -             -               -          (796,358)     (796,358)
                                        -------------   -----------    ------------      ------------     ----------
Balance at June 30,  2005                 111,587,966   $     3,949       4,204,331        (3,086,211)    1,122,069
                                        =============   ===========    ============      ============     ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       6

<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

                   Notes to Consolidated Financial Statements

                 Six months period ended June 30, 2005 and 2004


ORGANIZATION

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


PRESENTATION OF INTERIM INFORMATION

The accompanying  interim financial  statements have been prepared in accordance
with accounting  principles  generally  accepted in the United States of America
and, in the opinion of  management,  include all normal  adjustments  considered
necessary to present  fairly the financial  position as of June 30, 2005 and the
results of operations  and cash flows for the six months ended June 30, 2005 and
2004.  Interim  results are not  necessarily  indicative  for results for a full
year.

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







                                       7

<PAGE>


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

THREE-MONTHS ENDING JUNE 30, 2005 AND JUNE 30, 2004

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

         The Company incurred  expenses for  professional  fees in the amount of
$28,687 during the  three-month  period ending June 30, 2005 compared to $13,475
during the  three-month  period  ending  June 30,  2004.  This is an increase of
$15,212.

         Depreciation and amortization expense for the three-month period ending
June 30, 2005 totaled  $55,330,  compared to $26,307 for the three-month  period
ending June 30, 2004. This  represents an increase of $29,023.  This increase is
the result of additional asset purchases  involving the Company's  Bissett Creek
Graphite property.

         Other general and  administrative  expenses for the three-month  period
ending  June  30,  2005  totaled  $245,867  compared  to  $282,924  for the same
three-month  period  ending June 30,  2004.  This  represents  a decrease in the
three-month  period  ending June 30, 2005 of $37,057 over the same period ending
June 30, 2004.

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

         Management fees and salaries during the three-month  period ending June
30, 2005 totaled $124,785  compared to $29,794 for the same  three-month  period
ending June 30, 2004. The Company incurred $30,000 in management fees to the CEO
and  President  of the  Company  and  $12,000  in salary to the Chief  Financial
Officer.  Of these monies the Company paid $10,000 to the CEO and  President and
$8,000 to the CFO. The Company  still owes $20,000 to the CEO and  President and
$4,000 to the CFO.  These  monies in the amount of $24,000 are  reflected on the
balance  sheet  as a  liability  due to  related  parties,  which  is  discussed
elsewhere in this report. The balance of $82,785 in management fees and salaries
was  paid to  employees  at the  Bissett  Creek  Graphite  property  during  the
three-month  period ending June 30, 2005.  The increase in the amount of $94,991
in management  fees and salaries during the period ending June 30, 2005 compared
to the period  ending June 30, 2004 is because the Company had employees on site
during the quarter  ending June 30, 2005 and had no employees on site during the
three-month  period  ending June 30, 2004 as the Company  used a  sub-contractor
during the three-month period ending June 30, 2004.

         The  Company  had a net loss of  $459,904  for the  three-month  period
ending June 30, 2005 as compared to a net loss of $352,469  for the  three-month
period  ending June 30, 2004.  This  represents  an increase of $107,435 for the
three-month  period ending June 30, 2005 compared to the same three-month period
ending  June  30,  2004.  This  increase  is  due  to an  increase  in  activity
surrounding the operations of the company during the  three-month  period ending
June 30, 2005 compared to the same three-month  period ending June 30, 2004. The
loss per share for the quarter in 2005 was $.01  compared to nominal in the same
period in 2004.

                                       8
<PAGE>


SIX-MONTHS ENDING JUNE 30, 2005 AND JUNE 30, 2004

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

         The Company incurred  expenses for  professional  fees in the amount of
$44,022  during the  six-month  period  ending June 30, 2005 compared to $50,448
during the six-month period ending June 30, 2004. This is a decrease of $6,426.

         The Company  incurred  royalty expenses in the amount of $10,638 during
the six-month  period ending June 30, 2005 compared to $10,000 for the six-month
period  ending  June 30,  2004.  This is an  increase  of $638.  The  company is
required  to pay a minimum  yearly  royalty of  $21,600  ($27,000  CDN  dollars)
whether the Company is  producing  graphite or not.  The  weakness of the United
States dollar in relation to the Canadian dollar over the past year has resulted
in an increased  cost in US dollars to the Company.  If the United States dollar
remains at the  current  level in relation  to the  Canadian  dollar the royalty
payment in subsequent years will remain at $21,600 US dollars.

         Depreciation and  amortization  expense for the six-month period ending
June 30, 2005 totaled  $110,425,  compared to $49,261 for the  six-month  period
ending June 30, 2004. This  represents an increase of $61,164.  This increase is
the result of additional asset purchases  involving the Company's  Bissett Creek
Graphite property and more of the Company's assets being put into service.

         Other  general and  administrative  expenses for the  six-month  period
ending  June  30,  2005  totaled  $416,370  compared  to  $533,742  for the same
six-month  period  ending  June 30,  2004.  This  represents  a decrease  in the
six-month  period  ending June 30, 2005 of $117,372  over the same period ending
June 30, 2004.

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

         Management  fees and salaries  during the six-month  period ending June
30, 2005  totaled  $214,910  compared to $60,620 for the same  six-month  period
ending June 30, 2004. The Company incurred $60,000 in management fees to the CEO
and  President  of the  Company  and  $24,000  in salary to the Chief  Financial
Officer.  Of these monies the Company paid $40,000 to the CEO and  President and
$20,000 to the CFO. The Company  still owes $20,000 to the CEO and President and
$4,000 to the CFO.  These  monies in the amount of $24,000 are  reflected on the
balance  sheet  as a  liability  due to  related  parties,  which  is  discussed
elsewhere  in this  report.  The  balance of  $130,910  in  management  fees and
salaries was paid to employees at the Bissett Creek Graphite property during the
six-month period ending June 30, 2005. This represents an increase in the amount
of $154,290 in  management  fees and salaries  during the period ending June 30,
2005 compared to the period  ending June 30, 2004.  The Company had employees on
site during the  six-month  period  ending June 30, 2005 and had no employees on
site during the  six-month  period  ending  June 30, 2004 as the Company  used a
sub-contractor during the six-month period ending June 30, 2004.

         The Company had a net loss of $796,358 for the six-month  period ending
June 30, 2005 as compared to a net loss of  $704,000  for the  six-month  period
ending June 30, 2004.  This  represents an increase of $92,358 for the six-month
period  ending June 30, 2005 compared to the same  six-month  period ending June
30,  2004.  This  increase is due to an increase  in  activity  surrounding  the
operations  of the  Company  during the  six-month  period  ending June 30, 2005
compared to the same  six-month  period ending June 30, 2004. The loss per share
was $.01 in the six-month period in 2005 and 2004.


                                       9
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES


         The  Company  has  cash  on  hand at June  30,  2005 of  $16,846  and a
receivable  of $26,636 as a result of tax input  credits  owed to the company by
the Government of Canada.

         The Company has prepaid expenses of $15,702. This represents the unused
portion of an  insurance  policy that the Company  carries for its  building and
equipment in the amount of $12,210.  This policy expires  September 6, 2005. The
balance in the amount of $3,492 represents a prepaid royalty expense.

         The Company has total  deposits in the amount of $17,421 as of June 30,
2005.  The Company has on deposit  with its  landlord  $1,521  which  represents
one-month rent and common costs associated with its premises located at 2500 One
Dundas Street West, Suite 2500,  Toronto,  Ontario,  Canada M5G 1Z3. The Company
has  entered  into a lease,  which  expired on April 30,  2005 at which time the
Company  continues to rent office space on a month- to-month basis.  The Company
also has a deposit  on future  professional  fees in the  amount of  $4,000,  an
advance  against  expenses to two  employees in the amount of $1,900 and $10,000
for the purchase of equipment.

         The Company had no revenue  during  three-month  period ending June 30,
2005 and expects to have some revenue  during the quarter  ending  September 30,
2005. The Company expects to complete  commissioning  its Bissett Creek graphite
plant and begin  production  during  the  quarter  ending  September  30,  2005.
Management  believes  production  will begin sometime  during the quarter ending
September 30, 2005 and the Company will have some revenue.  Investors  should be
cautioned  that the  commissioning  of the graphite  plant might  extend  beyond
September 30, 2005 thus delaying planned production of graphite.  As of the date
of this  filing  the  Bissett  Creek  Graphite  Project  Closure  Plan  has been
considered  filed as per subsection 141 (3)(a) of the Mining Act in the Province
of Ontario.  Investors should be cautioned that the company is currently seeking
customers for its graphite.  Discussions  are on going with potential  customers
for graphite but there are no contracts  concluded at this time. There can be no
guarantee  that the company will be  successful  in obtaining a contract for its
graphite.

         The Company has total  accounts  payable of $269,874.  The Company does
not have the cash on hand in order to pay these  accounts  payable in an orderly
fashion. The Company also owes $28,610 in accrued interest payable.  Interest in
the amount of $12,744 is due on December 31, 2005 and the balance of interest in
the amount of $15,866 due was payable on July 31, 2005. The Company is seeking a
one-year  extension on the interest  that was due on July 31, 2005.  The Company
has received verbal  confirmation that the interest in the amount of $15,866 due
on July 31, 2005 will be extended to July 31, 2006.

         The  Company  has  secured a first  mortgage  in the  amount of $17,000
during fiscal year 2002 which requires a payment of $260 (Canadian $400 monthly)
monthly  for five years and the  balance  is then due and  payable at the end of
five years.  This mortgage carries an interest rate of 7% annually.  The Company
does not have the cash on hand to pay  these  payments  in an  orderly  fashion.
These payments were  originally  $260 monthly however due to the weakness of the
United States dollar in relation to the Canadian  dollar they are $320 as of the
date of this report.

         During the three-month period ending June 30, 2005 the Company has been
able to secure debt financing in the amount of $362,967 from two  non-affiliated
shareholders. Total loans payable now amount to $733,763 as of the period ending
June 30, 2005.  Interest has accrued on this debt in the amount of $28,610.  The
interest rate associated with this debt will be 7% yearly. Debt in the amount of
$90,796 was due and payable on July 31, 2005 and the Company has received verbal
confirmation that this portion of the debt payment has been extended to July 31,
2006.  The Company is waiting for written  confirmation  of this  extension  and
management  expects to receive this  confirmation  shortly.  However,  investors

                                       10
<PAGE>

should  be   cautioned   that  the  Company   might  not  receive  this  written
confirmation.  The  balance  of the debt in the  amount of  $642,967  is due and
payable on November  15, 2005 in the amount of $96,000 and  December 31, 2005 in
the amount of $546,967.  Any  interest  accrued is also due and payable on these
dates.

         The  Company  owes  $24,000  to two  officers  in  management  fees and
salaries  that were due and payable in the quarter  ending June 30, 2005.  There
are no provisions to repay these monies at this time.

         Industrial  Minerals has completed the construction of the crushing and
processing  facility located at Bissett Creek.  During the second quarter ending
June 30, 2005 work has continued at the Bissett Creek  Graphite  Mine. As of the
date  of  this  filing,  commissioning  of the  mill  is at  various  stages  of
completion and an insignificant amount of graphite has been produced.  Investors
should be aware that  during the  commissioning  process  management  decided to
upgrade certain screens and crushing of the ore as this will enhance  production
capabilities as the Company expands graphite production.  This is expected to be
complete by August 15, 2005.

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

         1        Professional fees                                 $30,000
         2        Royalty Payments                                   10,800
         3        Management fees and salaries                      245,000
         4        General & Administrative Expenses                 445,200
         5        Environmental testing (ongoing)                    37,000
         6        Mine closure plan (ongoing)                        65,000
                                                                   --------
Total Operating Budget                                             $833,000
                                                                   ========

         Investors  should be aware that the above are estimates  only and could
change as production begins during the quarter ending September 30, 2005.

         The Company requires $1,892,010 in order to continue operations through
December 31, 2005.  The Company's  operational  budget for the six-month  period
beginning July 1, 2005 in the amount of $833,000 or a monthly  operational  cost
of $138,833  for each of the months of July 1, 2005  through  December 31, 2005.
Total  funds  in the  amount  of  $1,059,010  are  required  to pay the  current
liabilities due. These liabilities include loans and accrued interest payable in
the amount of $762,373, accounts payable of $269,874, mortgage payable of $2,763
and  $24,000  due to related  parties.  Subsequent  to June 30, 2005 the Company
obtained  financing in the amount of $40,000 from a  non-affiliated  shareholder
and  $135,000  from an officer of the Company.  This  financing in the amount of
$175,000  accrues interest at the rate of 10% per annum and the principal in the
amount of $175,000  along with  accrued  interest is due on December  31,  2005.
Since the Company has cash of $16,846 and has a receivable of $26,636 on hand as
of June 30,  2005 and  subsequent  to June 30, 2005 has  received an  additional
$175,000, the Company requires additional financing in the amount of $1,673,528.
While   management   believes  the  Company  will  be  successful  in  obtaining
satisfactory financing to begin operations and continue operating throughout the
balance of the  fiscal  year  ending  December  31,  2005,  investors  should be
cautioned that the Company  currently has no commitments of any type made by any
person or entity to provide financing.  Investors and potential investors should
be aware that the Company  might not be able to  continue to operate  throughout
the current  fiscal year ending  December 31, 2005 without sales of its graphite
or additional financing.

         Investors and potential investors should be aware that Company does not
have the necessary  funds to operate  throughout its fiscal year ending December
31, 2005. Even if the Company is successful in obtaining the necessary financing
there is no guarantee that the Company will be successful in marketing graphite.
The company  intends to continue to seek debt financing to ensure its ability to
operate throughout 2005 from  non-affiliates,  and possibly officers,  directors
and  shareholders.  No  commitments  of any type have been made by any person or

                                       11
<PAGE>

entity  to  provide   financing.   Management   has  no  plan  to  overcome  the
uncertainties  surrounding the Company's  ability to continue as a going concern
for a reasonable  period of time extending  beyond September 30, 2005 unless the
Company  obtains  additional  financing or begins  production  and  successfully
obtains a contract for graphite.  Management will deal with issues as they arise
but as a "start up"  company in a  graphite  mining  attempt,  the  Company  can
neither predict nor solve, in anticipation, the uncertainties of mining, capital
raising,  marketing or operations.  All risks and uncertainties  inherent in any
start up company  exist in the chosen area of the Company.  The Company does not
have any other plan in place to provide capital or financing for its operations.

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

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


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

         Our product is quoted for sale in United States dollars.


Item 4.    CONTROLS AND PROCEDURES

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

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


                                       12
<PAGE>


INTERNAL CONTROL OVER FINANCIAL REPORTING

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

MATERIAL WEAKNESS IN DISCLOSURE CONTROLS

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

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

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

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

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

PART II.  - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS


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


                                       13
<PAGE>


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

None.


Item 3. DEFAULTS UPON SENIOR SECURITIES

None.


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

None.


Item 5. OTHER INFORMATION

None.


Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         EXHIBIT NO.                DESCRIPTION

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

(b) The following is a list of Current  Reports on Form 8-K filed by the Company
during and subsequent to the quarter for which this report is filed.

         Form 8-K Report filed on April 28, 2005


                                       14
<PAGE>




                                   SIGNATURES

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

Dated: August 9, 2005          INDUSTRIAL MINERALS, INC.

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


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

Dated: August 9, 2005          INDUSTRIAL MINERALS, INC.

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


























                                       15