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

                                   FORM 10-QSB

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

_________  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT


                        FOR QUARTER ENDED MARCH 31, 2006

                        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 a shell  company  (as
defined in Rule 12b-2 of the Exchange Act).

                                    Yes                       No ___X____
                                        -------------

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

     As of March 31, 2006 the number of shares  outstanding of the  registrant's
only class of common stock was 111,787,966.


     Transitional Small Business Disclosure Format (Check one):

                                    Yes _________    No     ___X____


<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>                                                                                                               <C>
                                                                                                                  Page
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements                                                                                      1

         Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005 (audited).........     2

         Consolidated Statements of Operations (unaudited) for the Three Months ended
         March 31, 2006 and 2005 and for the period November 6, 1996 (date of inception),
         to March 31, 2006....................................................................................     3

         Consolidated  Statements of Cash Flows (unaudited) for the Three Months
         ended March 31, 2006 and 2005 and for the period November 6, 1996 (date
         of inception) to March 31, 2006 .....................................................................     4

         Consolidated Statement of Stockholders' Equity (unaudited) as of March 31, 2006......................     6

         Notes to Consolidated Financial Statements (unaudited)...............................................     8

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations................................................................................     9

Item 3.  Controls and Procedures..............................................................................     12

PART II - OTHER INFORMATION

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

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

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

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

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

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

Signatures....................................................................................................     14
</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, 2005, included in the Company's Form 10-KSB.

















                                       1
<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
                           Consolidated Balance Sheet
                      March 31, 2006 and December 31, 2005

<TABLE>
<CAPTION>
                                                                                       March 31,        December 31,
                                                                                         2006               2005
                                                                                    -------------      ------------
                                                                                     (Unaudited)
                                     ASSETS

Current assets:
<S>                                                                                 <C>                <C>
     Cash and Cash Equivalents                                                      $       7,921      $     83,300
     Receivables                                                                            1,771            35,158
     Prepaid expenses                                                                      16,626            16,895
     Deposits                                                                              21,921            22,621
                                                                                    -------------      ------------
                           Total current assets                                            48,239           157,974

Long-term deposits                                                                        230,000           230,000
Building and equipment, at cost, less accumulated
     depreciation of $538,379 in 2006 and $504,227 in 2005                              1,736,026         1,770,177
                                                                                    -------------      ------------

                           Total assets                                             $   2,014,265      $  2,158,151
                                                                                    =============      ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                               $     129,321      $     92,044
     Accrued interest payable                                                              21,297            19,637
     Loans payable                                                                         90,796            90,796
     Due to related parties                                                               116,044            51,589
     Current installments of mortgage payables                                              2,348             2,946
                                                                                    -------------      ------------
                           Total current liabilities                                      359,806           257,012

     Accrued interest payable                                                             115,026            71,892
     Loans Payable                                                                      1,761,716         1,745,216
     Mortgage payable, excluding current installments                                      10,425             9,823
                                                                                    -------------      ------------

                           Total liabilities                                            2,246,973         2,083,943
                                                                                    -------------      ------------

Stockholders' equity:
     Common Stock, par value $.00004; 200,000,000 shares authorized;
     111,787,966 shares issued and outstanding                                              3,969             3,949
     Additional paid-in capital                                                         4,273,971         4,204,331
     Deficit accumulated during exploration stage                                      (4,510,648)       (4,134,072)
                                                                                    -------------      ------------

                           Total stockholders' equity                                    (232,708)           74,208
                                                                                    -------------      ------------

                           Total liabilities and stockholders' equity               $   2,014,265      $  2,158,151
                                                                                    =============      ============
</TABLE>


See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
                Consolidated Statements of Operations (Unaudited)
             Three months ended March 31, 2006 and 2005 and for the
       period from November 6, 1996 (Date of Inception) to March 31, 2006

<TABLE>
<CAPTION>

                                                                                             Nov. 6, 1996
                                                         Three months ended March 31,       (inception) to
                                                            2006              2005           Mar. 31, 2006
                                                        ------------     --------------     ---------------

<S>                                                     <C>              <C>                <C>
Revenue:                                                $         -      $          -       $       16,297
                                                        ------------     --------------     ---------------
Expenses:
     Cost of revenues                                             -                 -               76,201
     Professional fees                                       45,555            15,335            1,357,686
     Royalty fees                                             5,738             5,400               80,053
     Depreciation and amortization                           34,152            55,095              547,088
     Impairment of long-lived assets                              -                 -              582,176
     Management fees and salaries                           112,491            90,125              773,150
     Other general and administrative                       178,643           170,503            3,858,732
                                                        ------------     --------------     ---------------

                               Total expenses               376,579           336,458            7,275,086
                                                        ------------     --------------     ---------------
                         Loss from operations              (376,579)         (336,458)          (7,258,789)
                                                        ------------     --------------     ---------------
Other income:
     Interest income                                              3                 4                2,931
     Gain from extinguishment of debt                             -                 -            1,047,634
     Other income                                                 -                 -                  594
                                                        ------------     --------------     ---------------

                           Total other income                     3                 4            1,051,159
                                                        ------------     --------------     ---------------

                                     Net loss           $  (376,576)     $   (336,454)      $   (6,207,630)
                                                        ============     ==============     ===============

             Net loss per common share issued           $     (0.00)     $      (0.00)
                                                        ============     ==============

Weighted average common shares outstanding              111,621,299       111,587,966
                                                        ============     ==============
</TABLE>







See accompanying notes to consolidated financial statements.

                                       3
<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
                Consolidated Statements of Cash Flows (Unaudited)
                 Three months ended March 31, 2006 and 2005 and
           for the period from November 6, 1996 (Date of Inception) to
                                 March 31, 2006

<TABLE>
<CAPTION>

                                                                              Three months
                                                                                 ended
                                                                                March 31,                 November 6, 1996
                                                                               ---------                  (inception) to
                                                                        2006                2005           March 31, 2006
                                                                   ---------------    --------------      ---------------
Cash flows from operating activities:
<S>                                                                <C>                <C>                 <C>
     Net loss                                                      $    (376,576)        (336,454)           (6,207,630)
     Adjustments to reconcile net loss to
            net cash used in operating activities:
         Depreciation and amortization                                    34,152           55,095               538,796
         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                                                 33,387           94,132                (5,940)
              Inventory                                                        -                -                (5,527)
              Prepaid expenses                                               270           (5,400)              (17,165)
              Deposits                                                       700          (41,632)              (21,921)
              Accounts payable and accrued expenses                       37,281           40,402               (29,705)
              Due to related parties                                      64,454          (11,787)              511,043
                                                                   ---------------    --------------      ---------------

                           Net cash used in operating
                             activities                                 (206,332)        (205,644)           (5,523,519)
                                                                   ---------------    --------------      ---------------

Cash flows from investing activities:
     Purchase of building and equipment                                        -          (76,955)           (2,073,981)
     Investment in Multiplex                                                   -                -               (75,000)
     Acquisition of goodwill                                                   -                -              (149,057)
     Loan to related party                                                     -                -               (50,000)
     Loan repayments                                                           -                -                 4,493
     Long-term deposits                                                        -                -              (159,600)
                                                                   ---------------    --------------      ---------------

                           Net cash used in
                             investing activities                              -          (76,955)           (2,503,145)
                                                                   ---------------    --------------      ---------------

                                                                                                                       (Continued)
</TABLE>


See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
                Consolidated Statements of Cash Flows (Unaudited), Continued

<TABLE>
<CAPTION>

                                                                              Three months
                                                                                 ended
                                                                                March 31,                 November 6, 1996
                                                                               ---------                  (inception) to
                                                                        2006                2005           March 31, 2006
                                                                   ---------------    --------------      ---------------


Cash flows from financing activities:
<S>                                                                <C>                <C>                 <C>
     Net proceeds from sale of common stock                        $      69,660                -               814,519
     Net proceeds from loans payable                                      16,500          280,000             6,801,951
     Proceeds from mortgage                                                    -                -                17,000
     Principal payments on mortgage                                            -             (698)               (3,629)
     Accrued interest payable                                             44,793            3,671               404,604
     Cash acquired in acquisition of Peanut
         Butter & Jelly, Inc.                                                  -                -                   140
                                                                   ---------------    --------------      ---------------

                           Net cash provided by
                               financing activities                      130,953          282,973             8,034,585
                                                                   ---------------    --------------      ---------------

Net decrease in cash                                                     (75,379)             374                 7,921

Cash and Cash Equivalents, beginning of period                            83,300           27,726                     -
                                                                   ---------------    --------------      ---------------

Cash and Cash Equivalents, end of period                           $       7,921           28,100                 7,921
                                                                   ===============    ==============      ===============

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 be accounts payable               $           -                -                70,400
                                                                   ===============    ==============      ===============


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

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

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


See accompanying notes to consolidated financial statements.

                                       5
<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
           Consolidated Statement of Stockholders' Equity (Unaudited)
                                 March 31, 2006

<TABLE>
<CAPTION>
                                                                                           Deficit
                                                                                         Accumulated
                                                                          Additional     During the
                                                  Common Stock             Paid-In       Exploration
                                          ---------------------------       Capital         Stage           Totals
                                           # of Shares          Amount
                                          ------------       ----------  -------------    -----------    ------------

<S>                                       <C>               <C>            <C>           <C>              <C>
Inception - November 6, 1996                        -       $       -              -              -              -

Balance at December 31, 1998                  252,500              25        505,143       (750,830)      (245,662)
Issuance of stock for cash                     30,000               3        146,618              -        146,621
Issuance of stock for services                 55,000               6        274,994              -        275,000
Net loss                                            -               -              -       (259,404)      (259,404)
                                          ------------       ----------  -------------    -----------    ------------

Balance at December 31, 1999                  337,500              34        926,755     (1,010,234)       (83,445)

Issuance of stock for cash                     84,900               8        413,062              -        413,070
Issuance of stock for services                 70,000               7        349,993              -        350,000
Issuance of stock for Multiplex
     stock                                      3,000               1             29              -             30
Issuance of stock for acquisition             475,463              47          4,699              -          4,746
Net loss                                            -               -              -       (694,758)      (694,758)
                                          ------------       ----------  -------------    -----------    ------------

Balance at December 31, 2000                  970,863              97      1,694,538     (1,704,992)       (10,357)

Issuance of stock for
     compensation                              30,000               3         59,997              -         60,000
Net loss                                            -               -              -        (67,251)       (67,251)
                                          ------------       ----------  -------------    -----------    ------------

Balance at December 31, 2001                1,000,863             100      1,754,535     (1,772,243)       (17,608)

Issuance of stock in connection
     with acquisition of Industrial
     Minerals Incorporated                 35,000,000           3,500     (1,740,393)     1,696,982         (39,911)
Minimum 50 shares
     post-split allocation                     30,758               -              -              -               -
Net loss                                            -               -              -       (520,242)       (520,242)
                                          ------------       ----------  -------------    -----------    ------------

Balance at December 31, 2002               36,031,621           3,600         14,142       (595,503)       (577,761)

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

Net loss                                            -               -              -     (1,133,197)     (1,133,197)
                                          ------------       ----------  -------------    -----------    ------------

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

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

Allocation on round-up
              of shares                             7               -              -              -               -
Issuance of stock in settlement of debt     3,492,115             349      4,190,189              -       4,190,538
Net loss                                            -               -              -       (561,153)       (561,153)
                                          ------------       ----------  -------------    -----------    ------------

                                                                                                        (continued)
</TABLE>

See accompanying notes to consolidated financial statements.

                                       6
<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
           Consolidated Statement of Stockholders' Equity (Unaudited)
                                 March 31, 2006

<TABLE>
<CAPTION>
                                                                                           Deficit
                                                                                         Accumulated
                                                                          Additional     During the
                                                  Common Stock             Paid-In       Exploration
                                          ---------------------------       Capital         Stage           Totals
                                           # of Shares          Amount
                                          ------------       ----------  -------------    -----------    ------------


<S>                                       <C>               <C>            <C>           <C>              <C>
Balance at December 31, 2004              111,587,966       $   3,949      4,204,331     (2,289,853)      1,918,427

Net loss                                            -               -              -     (1,844,219)     (1,844,219)
                                          ------------       ----------  -------------    -----------    ------------



Balance at December 31, 2005              111,587,966       $   3,949      4,204,331     (4,134,072)         74,208
                                          ------------       ----------  -------------    -----------    ------------

Issuance of stock for cash                    200,000              20         69,640              -          69,660

Net loss                                            -               -              -       (376,576)       (376,576)
                                          ------------       ----------  -------------    -----------    ------------


Balance at March 31, 2006                 111,787,966       $   3,969      4,273,971     (4,510,648)       (232,708)
                                          ============       ==========  =============    ===========    ============

</TABLE>


















See accompanying notes to consolidated financial statements.

                                       7
<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
                   Notes to Consolidated Financial Statements
                Three months period ended March 31, 2006 and 2005


ORGANIZATION

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

PRESENTATION OF INTERIM INFORMATION

The accompanying  interim financial  statements have been prepared in accordance
with accounting  principles  generally  accepted in the United States of America
and, in the opinion of  management,  include all normal  adjustments  considered
necessary to present fairly the financial  position as of March 31, 2006 and the
results of  operations  and cash flows for the three months ended March 31, 2006
and 2005. Interim results are not necessarily  indicative for results for a full
year.

The  financial  statements  and notes are presented as permitted by Form 10-QSB,
and do not  contain  certain  information  included  in  the  Company's  audited
financial statements and notes for the year ended December 31, 2005.











                                       8
<PAGE>


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

RESULTS OF OPERATIONS FOR THE  THREE-MONTHS  ENDING MARCH 31, 2006 AND MARCH 31,
2005

During the three-month period ending March 31, 2006 the Company had no revenues.
The Company had no revenue during the same  three-month  period ending March 31,
2005.

The Company  incurred  expenses for  professional  fees in the amount of $45,555
during the  three-month  period ending March 31, 2006 compared to $15,335 during
the three-month period ending March 31, 2005. This is an increase of $30,220 due
to the hiring of  engineering  consultants  to oversee the  graphite  production
process.

The  Company  incurred  royalty  expenses  in the  amount of $5,738  during  the
three-month  period  ending  March 31,  2006.  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.  There was a royalty  payment  made in the amount of
$5,400 during the three-month  period ending March 31, 2005. This is an increase
of $338 in royalty expense during the  three-month  period ending March 31, 2006
compared to the three-month period ending March 31, 2005.

Depreciation  and amortization  expense for the three-month  period ending March
31, 2006 totaled $34,152,  compared to $55,095 for the three-month period ending
March 31,  2005.  This  represents a decrease of $20,943.  This  decrease is the
result of fully  depreciated  assets at the  Company's  Bissett  Creek  Graphite
property.

Management fees and salaries during the three-month period ending March 31, 2006
totaled  $112,491  compared to $90,125 for the same  three-month  period  ending
March 31, 2005. The  compensation for the CEO is $10,000 monthly and the Company
still  owes  $30,000  to the CEO.  The  monies  due to the CEO in the  amount of
$30,000  are  reflected  in the  balance  sheet as a  liability  due to  related
parties.  The balance of $82,491 was paid to employees of the Company working at
the Bissett Creek property and at the CEO's office in Mankato, MN.

Other  general and  administrative  expenses for the  three-month  period ending
March 31, 2006 totaled  $178,643  compared to $170,503 for the same  three-month
period ending March 31, 2005.  This  represents  an increase in the  three-month
period  ending  March 31, 2006 of $8,140 over the same period  ending  March 31,
2005.

The Company  began  shipping  production  quality  graphite  samples  during the
quarter ending September 30, 2005 and is continuing to market graphite that will
be available from the Bissett Creek Graphite  Property.  Several  companies have
expressed  interest in the graphite  from the Company's  Bissett Creek  Graphite
Property. The Company is filling two orders totaling eight tons of graphite from
two customers.  The Company  considers these orders as pre contract orders based
on customer quality evaluations.  These orders generated an insignificant amount
of revenue  for the  Company.  These two  companies  previously  received  small
samples of graphite  from the  Company;  they  performed an analysis and ordered
larger samples so that they could conduct further tests.  The Company is pleased
with this response but cautions  investors that there are no firm orders for the
Company's  graphite at this time.  As  production  continued  during the quarter
ending  September  30, 2005 it became  apparent to  management  that a number of
changes to the mill had to be made.  The large flake  graphite (mesh size -12 to
+35) is the most valuable and it was discovered during initial production that a
portion of the large flake size graphite was being  destroyed at certain  stages
of  production.  An  analysis  was and is  being  performed  at  every  stage of
production  from the size of the rock  created by the  initial  blasting  to the
handling  of the  head  grade  ore  throughout  the  primary  crushing,  initial
screening,  secondary crushing, to the intermediary screening, to separating the
graphite,  to the increasing of the carbon  content from the initial  separating
process  to the  final  screening  and  bagging  of  graphite  for  delivery  to

                                       9
<PAGE>

customers.  The analysis that has been conducted resulted in management deciding
to make some  changes to the  process  which  involves  the  relocating  of some
equipment that is currently installed to a different position in the line and to
purchase  additional  equipment.  At this  writing  these steps are at a work in
progress  stage and the  management  estimates  that an  additional  $592,000 in
capital expenditures will be required.  This is discussed in the section of this
report  under  liquidity  and  capital  resources  contained  in the  management
discussion and analysis section of this Form 10-QSB.

The Company has had a net loss of $376,576  for the  three-month  period  ending
March 31, 2006 as compared to a net loss of $336,454 for the three-month  period
ending  March  31,  2005.  This  represents  an  increase  of  $40,122  for  the
three-month period ending March 31, 2006 compared to the same three-month period
ending March 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES

The  Company has cash on hand at March 31,  2006 of $7,921 and a  receivable  of
$1,771 as a result of tax input credits owed to the company by the Government of
Canada.

The Company has prepaid expenses of $16,626.  This represents the unused portion
of an insurance  policy that the company  carries for its building and equipment
in the amount of $7,063.  This policy expires  September 6, 2006. The balance in
the amount of $9,563 represents a prepaid royalty expense.

The  Company has total  deposits in the amount of $21,921 as of March 31,  2006.
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 will
continue to rent office space on a month-to-month  basis. The Company also has a
deposit on equipment in the amount of $18,400 and an advance against expenses to
one employee in the amount of $2,000.

The Company has a long-term deposit of $230,000 with the Ministry of Finance for
the  Province  of  Ontario.  During the year  ending  December  31,  2004 a Mine
Development  and Closure Plan has been filed with, and accepted by, the Ministry
of Northern  Development  and Mines,  in accordance  with the Mining Act, R.S.O.
1990,  Ontario  Regulation  240/00,  including  the  standards,  procedures  and
requirements of the Mining Code of Ontario.  The Company's deposit in the amount
of $230,000 is a financial  guarantee to the Province of Ontario  ensuring  that
there are enough funds on hand to affect a proper  closure of the Bissett  Creek
Graphite property.

The Company had no revenue during the  three-month  period ending March 31, 2006
and expects to have limited  revenue in the next  quarter  ending June 30, 2006.
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  $129,321.  The  Company  also owes
$21,297 in accrued interest payable. This accrued interest is due and payable on
July 31,  2006.  The Company  owes $4,250 to an officer in  management  fees and
salaries that were due and payable in the quarter ending September 30, 2005. The
Company owes $50,000 to an officer in management  fees that were due and payable
as of March 31, 2006.  The Company owes $36,294 in  business-related  travel and
repair  expenses  and $25,500 in loans to officers.  In total,  the Company owes
$116,044 to its officers, reported as due to related parties at March 31, 2006.

The Company has secured a first  mortgage in the amount of $17,000 during fiscal
year 2002 which requires a payment of $320  (Canadian $400 monthly)  monthly for
five  years and the  balance is then due and  payable at the end of five  years.
This mortgage carries an interest rate of 7% annually.  The Company has the cash
on hand to pay these payments in an orderly fashion.

                                       10
<PAGE>


During the three-month period ending March 31, 2006 the Company has been able to
secure  debt   financing  in  the  amount  of  $16,500  from  a   non-affiliated
shareholder.  Total  loans  payable  now amount to  $1,852,512  as of the period
ending  March 31,  2006.  The  interest  rate  associated  with the  $16,500  of
borrowing  during the  quarter  ending  March 31, 2006 is 10%  annually  and the
principal  along with  $115,026  of accrued  interest  is due and  payable on or
before December 31, 2006. The interest rate associated with $90,796 of the total
loans  payable is 7% annually and the  principal in the amount of $90,796  along
with accrued interest is payable on or before July 31, 2006.

On April 4, 2006,  in order to provide for the  conversion  of certain long term
debt to  equity,  the  Board  has  determined  that it is  appropriate  to issue
6,255,810  shares of restricted  common stock, for total debt to be converted to
$1,876,742. The following settlement of debt was in payment of a loan payable to
SEGO  Holdings,  a  non-affiliated  shareholder,  consisting of principal in the
amount of $1,761,716 and interest accrued in the amount of $115,026.

Industrial   Minerals  has  completed  the  construction  of  the  crushing  and
processing  facility  located at Bissett Creek.  During the first quarter ending
March 31, 2006 work has continued at the Bissett Creek  Graphite Mine. As of the
date of this filing commissioning of the mill is at various stages of completion
and an insignificant  amount of graphite has been produced.  Investors should be
aware that during the  commissioning  process  management has decided to upgrade
certain  screens  and  crushing  of the  ore as  this  will  enhance  production
capabilities as the Company expands graphite production.

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

1.       Completion of Equipment Installation                 $    40,000
2.       Upgrading of Screens                                     125,000
3.       Modify Air Classifiers                                   100,000
4.       New Classification Process                               327,000
                                                               -----------

Total Upgrade Requirement                                     $   592,000
                                                               ===========


1.       Professional fees                                    $   195,750
2.       Royalty Payments                                          16,200
3.       Management fees and salaries                             230,500
4.       General & Administrative Expenses                        519,750
5.       Environmental monitoring and testing                     105,500
                                                               -----------

Total Operating Budget                                        $ 1,067,700
                                                               ===========

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


                                       11
<PAGE>


The Company  requires  $592,000 to complete the upgrades  discussed above on its
Bissett Creek Property. The company has an operational budget for the nine-month
period  beginning  April  1,  2006 in the  amount  of  $1,067,700  or a  monthly
operational  cost of $118,633 for each of the months of April  through  December
2006.  Thus total  funds in the amount of  $1,659,700  are  required to fund the
anticipated  operations at the Company's  Bissett Creek Graphite Mine. Since the
Company  has cash of $7,921 and has a  receivable  of $1,771 on hand as of March
31, 2006, the Company requires additional financing in the amount of $1,650,008.
While   management   believes  the  Company  will  be  successful  in  obtaining
satisfactory   financing  to  complete   construction  of  the  mine  and  begin
operations,  investors  should be cautioned  that the Company  currently  has no
commitments  of any type made by any  person or  entity  to  provide  financing.
Investors and potential  investors should be aware that the Company might not be
able to continue to operate  throughout its current fiscal year ending  December
31, 2006 without sales of its graphite or additional financing.

Investors and potential investors should be aware that the company does not have
the funds to complete  construction  of the mine. In addition,  the Company does
not have the  necessary  funds to  operate  throughout  its fiscal  year  ending
December 31, 2006.  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 2006 from  non-affiliates,  and possibly officers,
directors and  shareholders.  No  commitments  of any type have been made by any
person or entity to provide  financing.  Management  has no plan to overcome the
uncertainties  surrounding the Company's  ability to continue as a going concern
for a reasonable  period of time extending  beyond  December 31, 2006 unless the
Company  obtains  additional  financing or begins  production  and  successfully
obtains a contract for it's graphite.  Management  will deal with issues as they
arise but as a "start up" company in a graphite mining attempt,  the Company can
neither predict nor solve, in anticipation, the uncertainties of mining, capital
raising,  marketing or operations.  All risks and uncertainties  inherent in any
start up company  exist in the chosen area of the Company.  The Company does not
have any other plan in place to provide capital or financing for its operations.

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

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


Item 3.  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 March 31, 2006,  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 effective.

                                       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.

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.

There have not been any changes in our internal control over financial reporting
(as such term is defined in Rules  13a-15(f)  and  15d-15(f)  under the Exchange
Act) during our first fiscal  quarter ended March 31, 2006 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.


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.


                                       13
<PAGE>

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 March 28, 2006



                                   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 15, 2006                 INDUSTRIAL MINERALS, INC.

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


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

Dated: May 15, 2006                 INDUSTRIAL MINERALS, INC.

                                    By:/s/Larry Van Tol
                                       _______________________________________
                                       Larry Van Tol, Acting Chief Financial
                                       Officer, Secretary/Treasurer and Director






















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