UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549


                                    FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008 OR

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ______________

                        Commission file number: 000-30651


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


         Delaware                                       11-3763974
----------------------------               ----------------------------------
State or other jurisdiction of            I.R.S. Employer Identification No.
incorporation or organization


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


                     Issuer's telephone number: 604-970-0901


      Securities Registered Under Section 12(b) of the Exchange Act:  None
                                                                      ----

         Securities Registered Under Section 12(g) of the Exchange Act:

                          Common Stock, no par value
                          -----------------------------
                                (Title of class)

Indicate by check mark if the registrant is well-known seasoned issuer, as
defined in Rule 405 of the Securities Act Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act.  Yes [X] No [ ]

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of the issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]


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

Large accelerated filer  [ ]                          Accelerated filer   [ ]
Non-accelerated filer    [ ]                   Smaller reporting company  [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter:(117,693,416 shares) based on the average bid and asked price as of June
30, 2008 being $.05 per share: $5,884,670.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 160,748,416 shares of Common Stock as
of March 23, 2009.

Documents Incorporated by Reference: None

                    NOTE REGARDING FORWARD LOOKING STATEMENTS

Except for statements of historical fact, certain information contained herein
constitutes "forward-looking statements," including without limitation
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, as well as all projections of future results. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results or achievements of the Company
to be materially different from any future results or achievements of the
Company expressed or implied by such forward-looking statements. Such factors
include, but are not limited to the following: the Company's lack of an
operating history, the Company's minimal level of revenues and unpredictability
of future revenues; the Company's future capital requirements to develop
additional property within the defined claim; the risks associated with rapidly
changing technology; the risks associated with governmental regulations and
legal uncertainties; and the other risks and uncertainties described under
"Description of Business - Risk Factors" in this Form 10-K. Certain of the
Forward-looking statements contained in this annual report are identified with
cross-references to this section and/or to specific risks identified under
"Description of Business - Risk Factors".

<PAGE>
                                TABLE OF CONTENTS

PART I

Item 1.  Description of Business
Item 1A  Risk Factors
Item 1B  Unresolved Staff Comments
Item 2.  Description of Properties
Item 3.  Legal Proceedings
Item 4.  Submission of Matters to a Vote of Security Holders

PART II

Item 5.  Market for Registrant's Common Equity and Related
         Stockholder Matters
Item 6.  Selected Financial Data.

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operation
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8.  Financial Statements and Supplementary Data
Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information

PART III

Item 10.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
         And Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Exhibits, Financial Statement Schedules
Item 15. Principal Accounting Fees and Services

SIGNATURES



<PAGE>



ITEM 1 - DESCRIPTION OF BUSINESS

BACKGROUND

     The Company was incorporated on November 6, 1996 and since December 2001
has operated under the name of Industrial Minerals Inc. On January 31, 2002, the
Company acquired its interest in the Bissett Creek Property pursuant to an
assignment of the Bissett Lease from Westland Capital Inc.


In August 2004, the Company through its wholly owned subsidiary, Industrial
Minerals Canada, Inc. received notice from the Ministry of Northern Development
and Mines for the Province of Ontario that the Bissett Creek Graphite Project
Certified Closure Plan as per Subsection 141(3)(a) of the Mining Act for the
Province of Ontario is now considered filed. Industrial Minerals, Inc. through
its wholly owned subsidiary Industrial Minerals Canada, Inc. may now begin
production of graphite on its Bissett Creek Graphite Property. During production
the Company must comply with the Bissett Creek Graphite Closure Plan as filed.


Item 1A                RISK FACTORS

The Company's business is subject to numerous risk factors, including the
following: While the Company intends to develop its mineral property and produce
graphite from the Bissett Creek property,it has no history of operations and
must raise the necessary capital. A processing building and installed equipment
exists on site but the Company will need to purchase and install a substantial
amount of additional equipment in order to commence production.

The Company has the following concerns:

1. The Company has no record of earnings or cash flow from mining operations. It
is also subject to all the risks inherent in a developing business enterprise
including lack of cash flow, and no assurance of recovery and sale of graphite.
Furthermore, there has been minimal graphite production to date on the property
and if the Company is able to proceed to production, commercial viability will
be affected by factors that are beyond its control, including recoverability
from the deposit, uncertainty of graphite prices, cost of construction and
operating a mine, the availability of economic sources for energy, government
regulations including regulations relating to prices, royalties, restrictions on
production, as well as costs of protection of the environment. The Company has
no purchase orders for graphite to be produced by the Company.

2. The Company's success and possible growth will depend on its ability to
recover graphite, process the graphite and successfully sell them on world
markets. It is dependent upon the market's acceptance of the quality and
consistency of the product produced.

3. Liquidity and need for additional financing is a concern for the Company. At
the present time, the Company does not have sufficient cash to meet its payables
and repay debt and must also raise substantial financing to build a mine at
Bissett Creek. The Company is dependent on the ability of its management team
and its Board of Directors to obtain the necessary working capital to continue
operating successfully. There is no assurance that the Company will be able to
obtain additional capital as required or if the capital is available, to obtain
it on terms favorable to the Company. The Company may suffer from a lack of
liquidity in the future that could impair its production efforts and adversely
affect its results of operations.

4. The Company is wholly dependent at the present upon the personal efforts and
abilities of its Officers and Directors, who exercise control over the
day-to-day affairs of the Company.

                                       1
<PAGE>
5. There are no dividends anticipated by the Company. At the present time, the
Company intends to focus on raising additional capital to develop of its Bissett
Creek property in Ontario, Canada.

ITEM 1B  Unresolved Staff Comments

As a smaller reporting Company, the Company is not required to include this
Item.

ITEM 2 - DESCRIPTION OF PROPERTIES

The Company is an exploration stage mining company that holds exclusive rights
to explore and if feasible, develop graphite mineral claims at a site located in
the Maria Township in Northern Ontario, located approximately 180 miles
north-northeast of Toronto, Ontario. The claims are referred to as the "Bissett
Property" because of their proximity to the town of Bissett Creek. The rights in
the Bissett Property are held through a wholly-owned subsidiary Industrial
Minerals Canada, Inc, an Ontario corporation through which we conduct our
operations.

Transportation into and around the property is by four wheel drive vehicle. The
road off of Hwy 17 is hard gravel and extends about 6 miles to the claims owned
by the Company.

On January 31, 2002, the Company acquired its interest in the Bissett Property
pursuant to an assignment of the Bissett Lease from Westland Capital Inc.

The site is close enough to all major highways, rail and power lines to permit
the substantial infrastructure that will be required for a large scale open pit
mining operation, if feasible. The core claims are not subject to any alienation
for parks or special management zones according to information from the Ministry
on Northern Development and Mines. The area comes under the administration of
the Southern Ontario Mining District, and does not include any rural cottage
properties.

The rights in the Bissett Creek Property are based upon a Lease granted by the
Province of Ontario on September 22, 1993 to Consolidated North Coast Industries
Ltd. ("North Coast"). This is referred to as the "Bissett Creek Lease". The
Bissett Creek Lease has a twenty-one year term and an annual rental payment
payable to Ministry of Northern Development and mines in an amount prescribed by
the Mining Act. Under the terms of the Bissett Creek Lease, the tenant is
obligated to pay all taxes on the Bissett Property and remain in compliance with
the Mining Act, the Mining Tax Act, the Forest Fires Prevention Act, the Ontario
Water Resources Act and any amendments to the foregoing legislation.

On December 29, 1997, North Coast amalgamated with Pacific Sentinal Gold Corp,
and the surviving corporation changed its name to Great Basin Gold Ltd. ("Great
Basin"). On December 21, 2001, Great Basin assigned its rights in the Bissett
Creek Lease to Paul C. McLean, Pierre G. Lacombe and Frank P. Tagliamonte
(collectively referred to as the "McLean Group"). In connection with that
assignment, the McLean Group entered into an option agreement with Great Basin
that was subsequently terminated by a court order on May 15, 2001. The court
order granted to the McLean Group all rights of Great Basin in the Bissett Creek
Lease.

The McLean Group assigned the Bissett Creek Lease to Westland Capital Inc.
("Westland") in January of 2002 who in turn assigned the Bissett Creek Lease to
the Company.

                                       2
<PAGE>
As part of the assignment to Westland Capital Inc, Westland agreed to pay to the
McLean Group, an advance royalty payment of $27,000 CDN annually in two equal
installments of $13,500 Canadian each. These payments are due March 15, and
September 15 and each carry a 30 day payment extension provision. The Option
Agreement further provides that in the event that graphite carbon concentrate is
produced at the Bissett Property, a royalty of $20.CDN per ton must be paid to
the McLean Group. Further, pursuant to the Option Agreement a 2.5% net smelter
return royalty is payable to the McLean Group in the event that any other
minerals are derived from the Bissett Property.

As a condition of the assignment of the Bissett Lease to the Company, the
Company agreed to assume all of Westland's obligations under the Option
Agreement. On August 15, 2003, the Company assigned its rights in the Bissett
Creek Lease to its wholly owned subsidiary, Industrial Minerals Canada Inc. All
payments owed to the McLean Group are current and the remaining term of the
Bissett Lease is approximately 6 years.

The Company's wholly owned subsidiary, Industrial Minerals Canada, Inc. is the
lessee of mineral interests at Bissett Creek as follows:

         Lease number 364704 consisting of the following: All those parcels or
         tracts of land and land under water in the Township of Head, Clara and
         Maria, in the County of Renfrew and Province of Ontario, containing by
         ad measurement 564.569 hectares, be the same more or less, composed of
         those parts of lots 21, 22, 23, 24 and 25, Concessions IV and V, and
         part of the bed of Mag Lake and the bed of the unnamed lake, and lots
         23, 24 and 25 and the north half of lots 21 and 22, Concession III as
         shown on the plan of the geographic Township of Maria, designated as
         parts 1, 2, 3 and 5 on a plan and a field notes deposited in the Land
         Registry Office at Pembroke as Plan 49R_11203, comprising mining claims
         EO 608306, EO 608346, EO 608347, EO 608374, EO 608348, EO 608373, EO
         608349, EO 608372, EO 608369, SO 998760, SO 1084577, EO 800884, EO
         800880, EO 800881, EO 608350, EO 608371, EO 608367, EO 608370, EO
         608376, EO 608368, EO 608302, SO 1117797, SO 998754, SO 1117798, SO
         998755, SO 1117799, SO 998756 and SO 998757. These claims are
         registered in the Land Titles Office in North Bay, Ontario.

On June 20, 2002, the Company acquired the following unpatented graphite mining
claims. SO 1249711 (11 units) SO 1249723 (3 units)SO 1234705 (2 units). They
cover a total area of approximately 625 acres or 248 hectares. They are located
in Maria township in Ontario, Canada. The Company acquired the graphite mining
claims from Messrs. P. McLean and F. Tagliamonte and from the estate of P.
Lacombe. The Company paid $50,000 (Canadian) for the property.

In the spring of 2007, the Company also added an additional 950 acres (380
hectares) of staked claims to the site, bringing the total developable area to
approximately 3,250 acres (1,304 hectares). The site itself is located in Maria
Township, about 300 km north-northeast of Toronto and 100 km east of North Bay,
Ontario. The property connects to Highway 17 (the Trans-Canada Highway) by 16 km
of good gravel road, of which 14 km is maintained by the Province of Ontario.
This represents approximately 4-5 hours trucking time to industrial consumers in
the Toronto area, which in turn is 12-16 hours from some of the largest graphite
markets in the world in the northern and eastern regions of the U.S.A.

The Geology on the property is predominantly underlain by Middle Precambrian age
meta-sedimentary rocks. These are divided into graphite gneiss, transitional
graphitic gneiss, and barren gneiss for mapping purposes. The graphitic gneiss
is a distinctive recessive weathering unit, commonly exposed along rock cuts,
hill tops and occasional cliff faces. It is calcareous,
biotite-amphibole-quartzofelspathic gneiss (generally red-brown to pale
yellow-brown weathering). Graphite, pyrite and pyrrhotite occur throughout.
Graphite occurs in concentrations visually estimated to be from 1 to 10%C.
Sulphides occur in concentrations from 1 to 5%. In its unweathered state, the
rock unit is pale to medium grey in color.

                                       3
<PAGE>
This graphite gneiss has a moderate 5 to 20 degree dip to the east and the high
grade layer dips 20 to 30 degrees south of the property. This unit is sandwiched
between the upper barren  noncalcareous gneiss, which forms the hanging wall of
the deposit and similar lower barren gneiss which forms the footwall. A total
thickness of 75 m of graphitic gneiss was intersected by drilling. The barren
gneiss is a pale to dark grey-green non-calcareous unit. Black Biotite, dark
green amphiboles and red garnets distinguish the units from the graphite bearing
varieties.

On May 22, 2007, the Company signed a contract with Geostat International Inc
("Geostat") regarding the preparation of a technical report on the Bissett
Property in compliance with the requirements of Canadian National Instrument
43101. The Geostat work program included a site visit, an independent
certification of resources, an estimation of resources and classification of
resources, certification and validation of the database, verification and
validation of the interpretation of ore zones, and an assessment of the mill and
processing procedures, the market, the capital expenditures for the project and
related operating costs. The process included the drilling of an additional 6
holes for just under 300 meters in order to assist in verification of previously
obtained data. The specific drill targets were determined by Geostat following
their review of the original target data prepared by Kilborn Engineering. In the
summer of 2007, following Geostat's recommendation, the Company undertook an
independent validation drilling program. The program permitted the development
of independent assay results and has also provided material to carry out
metallurgical testing and validation. Six (6) vertical NQ size diamond drill
holes were drilled in the eastern part of the deposit for a total of 246.43
meters (808.5 ft) around the location of Pit #1. The last drill hole (DDH-07-06)
was drilled in an area of the property previously named "Pencil zone". Drilling
was done by George Downing Estate Drilling Ltd from August 1 to August 8, 2007.

The phase 1, independent drilling campaign was done under supervision of Geostat
personnel from beginning to end.

The Property consists of a building and several pieces of equipment. Additional
equipment will be acquired once the final  feasibility study is completed.

The power on site is by generator only and there is ample water on the property.

To December 31, 2007, the Company had incurred general exploration costs at
Bissett of $418,599. For the year ending December 31, 2008, the Company incurred
additional exploration expenses of $49,565, for a cumulative total of $468,164
to December 31, 2008.

Knight Piesold Consulting, a leading worldwide engineering and environmental
services company, has been retained to monitor compliance with the Closure Plan.

The Company's mailing address is 346 Waverley Street, Ottawa Ontario Canada, K2P
0W5

ITEM 3 - LEGAL PROCEEDINGS

The Company has been named in a lawsuit filed by a former employee.

Mr. David Wodar, former President of the Company has filed a Statement of Claim
in the Province of Ontario, Canada, claiming severance and termination benefits
in the amount of $220,000. This matter is currently set for mediation on May 25,
2009 in Toronto.

                                       4
<PAGE>
As Mr. Wodar resigned from his position as President, the Company is of the view
that Mr. Wodar is not entitled to severance.

A Statement of Claim has been filed by Westwynd Retail Consultants Inc in regard
to repayment of a note payable outstanding. The note outstanding is in the
amount of $110,000 CDN ($89,870US).

A Statement of Claim has been filed by McEwen Petroleum in the amount of $10,000
re account balance outstanding. The Company has filed a statement of defense.


ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None


                                     PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     (a) The Registrant's common stock is traded in the over-the-counter market
under the symbol IDSM (OTC Bulletin Board Symbol). The table below sets forth
the high and low bid prices of the Registrant's common stock for the periods
indicated. Such prices are inter-dealer prices, without mark-up, mark-down or
commissions and do not necessarily represent actual sales.


           2007                  HIGH                    LOW
           ----                  ----                    ---
     1st quarter                 0.14                    0.11
     2nd quarter                 0.17                    0.15
     3rd quarter                 0.27                    0.20
     4th quarter                 0.24                    0.17

           2008                  HIGH                    LOW
           ----                  ----                    ---
     1st quarter                 0.08                    0.07
     2nd quarter                 0.08                    0.06
     3rd quarter                 0.04                    0.02
     4th quarter                 0.01                    0.01



     (b) As of December 31, 2008, there were 281 shareholders of record of the
Registrant's common stock.

     (c) The Registrant has neither declared nor paid any cash dividends on its
common stock, and it is not anticipated that any such dividend will be declared
or paid in the foreseeable future.


                                       5
<PAGE>
     Effective August 11, 1993, the Securities and Exchange Commission (the
"Commission") adopted Rule 15g-9, which established the definition of a "penny
stock," for purposes relevant to the Company, as any equity security that has a
market price of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require: (i) that a broker or dealer
approve a person's account for transactions in penny stocks; and (ii) that the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased. In order to approve a person's account for transactions in penny
stocks, the broker or dealer must (i) obtain financial information and
investment experience and objectives of the person; and (ii) make a reasonable
determination that the transactions in penny stocks are suitable for that person
and that person has sufficient knowledge and experience in financial matters to
be capable of evaluating the risks of transactions in penny stocks. The broker
or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prepared by the Commission relating to the penny stock
market, which, in highlight form,(i)sets forth the basis on which the broker or
dealer made the suitability determination; and (ii) states that the broker or
dealer received a signed, written agreement from the investor prior to the
transaction. Disclosure also has to be made about the risks of investing in
penny stock in both public offerings and in secondary trading, and about
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.

Equity Compensation Plan Information
<TABLE>
<CAPTION>
        Equity Compensation Plan Information
                                                                                  Number of securities
                                                                                 remaining available for
                                Number of securities                              future issuance under
                                  to be issued upon        Weighted-average        equity compensation
                                     exercise of          exercise price of         plans (excluding
                                 outstanding options,    outstanding options,    securities reflected in
                                 warrants and rights     warrants and rights           column (a))
          Plan category                  (a)                     (b)                       (c)
   -------------------------   ---------------------     --------------------    ------------------------
<S>                                  <C>                         <C>                       <C>
   Equity compensation plans
   approved by security
   holders                              None                     n/a                       n/a

   Equity compensation plans
   not approved by security
   holders                           22,950,000

   Cancelled                         15,150,001                $0.106                     None

        Total Exercisable             7,799,999
</TABLE>


Using the Black-Scholes option pricing model, the Company had stock compensation
expense for the year of $176,427. A balance of $223,886 remains to be expensed
over the vesting period of the options.

Dividends

The Company has not paid any dividends to date, and has no plans to do so in the
immediate future.

                                       6
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA

As a smaller reporting Company, the Company is not required to include this
Item.


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

MANAGEMENT DISCUSSION AND ANALYSIS

CONSOLIDATED RESULTS

Twelve month periods ending December 31, 2008, 2007

Industrial Minerals, Inc. ("the Company"), a Delaware Corporation, was
incorporated on November 6, 1996, under the name Winchester Mining Corp, and
after a series of mergers, and name changes, became known as Industrial
Minerals, Inc in 2002.

On March 20, 2007, a change in Board of Directors and management occurred when
Mr. W. Campbell Birge (former President & CEO), Mr. Stephen Weathers, and Mr.
Pat Rogers resigned from the Board of Directors. Mr. Robert Dinning remained on
the Board of Directors. These directors were replaced by Mr. William Thomson,
and Mr. William Booth, both of whom became directors on March 20, 2007.

Mr. Thomson, 66, Chairman of Thomson Associates, of Toronto Ontario and London
England remained Chairman and a Director until June 20, 2008 when he submitted
his resignation effective immediately.

Mr. William Booth, 48, a senior officer of Northern Group Retail Ltd, - a large
multi outlet retail entity located throughout North America remained a director
until July 9, 2008 when he submitted his resignation, effective immediately.

On April 16, 2007, Mr. W.Campbell Birge resigned as President & CEO and was
replaced by Mr. Dick van Wyck, a practicing lawyer with over 20 years of
business and commercial law experience. Mr. van Wyck remained President & CEO
until July 9, 2007 when he was replaced by Mr. David J. Wodar who remained
President and CEO until June 12, 2008 when he submitted his resignation.

At the time of Mr. Wodar's appointment, the Company also appointed Paul Cooper
as Chief Operating Officer. Mr. Cooper was mandated to develop and implement the
graphite and marketing strategy. Mr. Cooper's services were terminated on
September 23, 2008.

On June 23, 2008, Mr. Chris Crupi C.A. and Mr. Gregory Bowes, MBA, joined the
Board of Directors. Mr. Robert Dinning C.A. continued as a director and was
appointed President and CEO, and CFO effective June 23, 2008. Mr. Dinning was
originally appointed CFO and Director September 15, 2006. Mr. Crupi was
appointed Chairman of the Audit Committee and both Mr. Crupi and Mr. Bowes are
independent directors of the Company.

The Company also moved its corporate offices to 346 Waverley Street, Ottawa
Ontario, K2P 0W5.

Under the mandate of the restructured Board of Directors, the Company
significantly reduced its monthly operating expenses and focused on refinement
of its business plan and general financing as required going forward.

                                       7
<PAGE>
On October 27, 2008, the Company  engaged RBC Capital Markets, a division of
the Royal Bank of Canada, as financial advisor with respect to strategic options
facing the company. The engagement is for a term of 12 months with success fee
based compensation for completion of a transaction. Under terms of the
agreement, the Company agreed to engage RBC Dominion Securities (RBC), a member
company of RBC Capital Markets, as its exclusive financial advisor in connection
with a potential transaction involving the Company. This includes potential sale
of the Company, investment by a third party, amalgamation, arrangement, or other
business transaction involving the Company.

In addition to engaging outside technical professional consultants when needed,
the Company on November 7, 2008 announced appointment of George Hawley as
Technical Advisor to the Board of Directors. Mr. Hawley has 40 years experience
in the processing of industrial minerals including mica, graphite, and silica,
all of which are specific to the Bissett Creek property. Mr. Hawley worked for
various mining companies in the USA, Europe, Japan, Australia, Africa and Canada
and has published over 50 technical papers on industrial mineral products
pertaining to technical and marketing topics.

The Company recognizes it requires additional capital in order to repay its
existing debt in an orderly manner and to provide sufficient capital in order to
continue development of the graphite property. It is continually pursuing
financing alternatives. While it feels it will ultimately be successful in
obtaining necessary financing, there is no assurance such
investments/financings, loans or other types of financial assistance will be
forthcoming. World markets since the summer of 2008 have greatly increased the
difficulty in obtaining capital.


RESULTS OF OPERATIONS

During the fiscal years' ending December 31, 2008 and 2007, the Company had no
revenues. The Company originally planned to complete the installation of its
pilot plant which would have generated about 10 tons of graphite per day for
distribution of samples to prospective customers of graphite. The expected cost
of the pilot plant was higher than originally contemplated and the Company
deferred setting up the pilot plant until it completed additional testing on the
property. The general deterioration of financial markets in the summer of 2008
also contributed to a delay in construction of a pilot plant. The Company is
also studying alternatives to its own pilot plant.

Total expenses and the resulting loss for the year in 2008 amounted to
$1,579,801 vs. $2,761,455 in 2007. Due to a lack of capital and a significant
downturn in business activity the Company decided to reduce general overhead,
including consultants hired to assist in the development of the mine plan. This
process was not completed until the end of the third quarter when final staff
cuts were made. The most significant decrease was management fees which amounted
to $827,398 vs. $1,596,263 in 2007. These figures include stock compensation
expense of $176,427 in 2008 and $446,853 in 2007. Management expects further
savings in 2009 when the full effect of the cost reductions will be felt. In
2008, management fees included a total of $445,439 paid in common stock for
services compared to $641,976 paid for services in 2007.

The Company adopted SFAS 123 "Accounting for Stock-Based Compensation",
effective April 1, 2007. Compensation cost for the Company's stock options had
been determined in accordance with the fair value based method prescribed as
SFAS 123. The fair value of option grants is estimated on the date of grant
utilizing the Black-Scholes option pricing model. The fair value of each option
is estimated on the date of the grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for options granted
during the year ending December 31, 2007. Expected volatility of 86.74%,
risk-free interest rate 4%; and an expected life of up to 4 years. The Company
confirms that all stock compensation disclosures adhere to SFAS 123(R).

                                       8
<PAGE>
General exploration expenses in 2008 were $49,565 vs. $418,599 in 2007. Because
of financial constraints, the Company reduced its exploration activities at
Bissett Creek in 2008 pending completion of additional financing. Subject to
completion of additional financing, the Company expects to undertake additional
drilling at its Bissett Creek property. It will advise shareholders of its
program once necessary funding is obtained. In 2007, general exploration
expenditures included consulting engineering charges, equipment evaluation, and
drilling costs at the site, as well as completion of its NI43101 technical
report.

Professional fees in the year amounted to $100,762 vs. $70,170 in 2007. This was
the result of legal expenses in excess of $50,000 related to preparation of
filings for matters that did not proceed. This is a one-time cost and expenses
will decrease in the coming year.

Total depreciation expenses for 2008 were $201,843 compared to $225,575 in 2007.

Total royalty expenses were $22,059 in 2008 compared to $27,324 in 2007. The
expenses in Canadian Dollars were the same each year with currency exchange
rates accounting for the difference between 2008 and 2007. The Company is
required to pay a yearly royalty of $27,000 Canadian whether graphite is
produced or not. These payments are due semi-annually in March and September of
each year. General and administrative expenses totaled $395,677 vs. $451,695 in
2007.

The foreign exchange loss in 2008 of $17,504 and the foreign exchange loss in
2007 of $40,491, reflects the large swing in exchange rates in 2007 and 2008. In
2007 the Canadian Dollar was essentially at par with the US Dollar whereas in
2008, the Canadian Dollar weakened against the US Dollar. At December 31, 2008,
the US Dollar was valued at $0.817 against the Canadian Dollar. Financial
statement reporting is conducted in $U.S. currency while most expenses occur in
Canadian Dollars.

The Company had a net loss from operations of $1,579,801 vs. $2,761,455 in 2007.
The Company recognizes that it must acquire additional financing in order to
properly develop the Bissett Creek property and to sell the resulting graphite
on the world market. There is no assurance that the Company or its management
will be successful in its attempts to acquire additional financing.


Liquidity and Capital Resources

The Company had cash on hand at December 31, 2008 of $307 vs. $104,236 at
December 31, 2007. The receivable on the Balance Sheet represents a refund of
GST tax due from the Government of Canada. This tax refund was received by the
Company in March 2009.

The Company has total deposits at December 31, 2008 of $12,026 vs. $12,510 at
December 31, 2007. This includes a deposit on equipment in the amount of $10,000
in both years and a rent deposit in 2007 of $2,510.

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 was 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.


                                       9
<PAGE>
During the year ending December 31, 2008, the Company had no fixed asset
additions. In 2007 the Company had additions of $38,235. This included office
equipment of $23,471 and additions to the Plant building of $14,764. In 2008,
the Company agreed to sell some equipment to Montana Mining LLC of Nassau
Bahamas for a total consideration of $105,000Cdn ($85,785US), subject to receipt
of all funds prior to completion of the sale. At December 31, the Company had
received $53,105US on deposit and subsequent to the year-end the Company
received an additional $35,000Cdn ($28,595US). Once the balance of $4,085 is
received, the Company will formally complete the sale of the equipment. Items to
be sold are an Impact Crusher, and a Screening Plant.

The Company has total current liabilities in the amount of $672,319 at December
31, 2008 vs. $503,307 at December 31, 2007. This is comprised of:



                                        2008              2007
                                     ---------------------------

         Accounts payable             270,150           $114,986
         Accrued interest              65,317             52,089
         Loans payable - current      416,274            310,932
         Due to related party          28,472             25,000
         Customer Deposit              53,105                  0
                                     --------           --------
                                     $833,319           $503,307
                                     ========           ========

Included in current loans payable is a debt $90,796 plus accrued interest. This
debt is repayable on July 15, 2009. There is also a loan in the amount of
$161,000 which now has a note attached to it paying interest at 10% annually and
is repayable on December 31, 2009. Current loans payable also includes a loan
payable to a shareholder of $89,870US ($110,000Cdn) which carries interest at
10% on a promissory note. This note is currently due and arrangements will be
made for repayment of this debt. The remaining current loans are due to two
shareholders who are former officers and/or directors of the Company and amount
to $74,608. It is the Company's intention to retire these loans in 2009 once
additional financing is secured.

There are no terms of repayment at the present time regarding amounts due to
related party.

The Company recognizes it does not have sufficient funds to retire these
liabilities nor is there any assurance that it will be successful in raising the
funds necessary to retire these obligations. The Company intends to continue to
seek debt or equity financing from non-affiliates, officers, directors and
shareholders. No commitments of any type have been made by any person or entity
to provide financing. All risks and uncertainties inherent in any start-up
company exist with respect to the Company. The Company does not have commitments
for financing at this time but management is optimistic that sufficient
financing can be obtained.

The Company has long term loans payable that have no documentation and no
specific terms of repayment amounting to $334,714 at December 31, 2008 vs.
$567,607 at December 31, 2007. Current loans payable amount $416,274 at December
31, 2009. All of these loans have notes except two loans totaling $74,608. The
majority of the loans are in Canadian dollars and while the loan balances are
essentially unchanged from 2007, the reporting difference results from currency
fluctuations.

The Company requires additional capital in order to repay its existing debt in
an orderly manner and to provide sufficient capital in order to continue
development of the graphite property. Discussions are currently underway in
regard to additional financing.


                                       10
<PAGE>
During 2008, the Company completed private placements as described below:

On February 26, 2008, the Company completed a private placement to one
accredited investor for 227,273 restricted common shares at $0.11 per share for
a total of $25,000. There were no warrants attached to this investment.

On March 10, 2008, the Company completed a private placement with five
accredited investors for 1,780,000 units at $0.09 per unit for $160,200.. Each
unit consisted of one share of common stock and one common stock purchase
warrant entitling the investor to acquire an additional share of common stock at
$0.15 per share on or before March 10, 2010.

On May 15, 2008, the Company completed a private placement to one accredited
investor for 416,667 restricted common shares at $0.06 per share for $25,000.
There were no warrants attached to this investment.

On June 30, 2008, the Company completed a private placement with six accredited
investors for 6,575,000 units at $0.04 per unit for $265,000. Each unit
consisted of one share of common stock and one-half common stock purchase
warrant entitling the investor to acquire an additional share of common stock
for each two common share purchase warrants held at $0.08 per share.

On November 7, 2008, the Company completed a private placement with one
accredited investor for 250,000 units at $0.04 per unit for $10,000. Each unit
consisted of one share of common stock and one-half common stock purchase
warrant entitling the investor to acquire an additional share of common stock
for each two common share purchase warrants held at $0.08 per share

In June 2007, the Company completed a private placement with a single investor
for 910,000 units at $0.10 per unit. Each unit consisted of one share of common
stock and one common stock purchase warrant entitling the investor to acquire an
additional share of common stock at $0.10 per share on or before April 3, 2009.
This placement resulted in the issuance of 910,000 common shares and the receipt
of $91,000 from the investor.

The Company also completed a second private placement in June 2007 with the sale
to a single investor of 5,000,000 units at $0.05 per unit. Each unit consisted
of one share of common stock and one common stock purchase warrant entitling the
investor to acquire an additional share of common stock at $0.05 per share on or
before April 3, 2008. This placement resulted in the issuance of 5,000,000
common shares and the receipt of $250,000 from the investor.

In July, 2007, the Company completed a private placement with Wellington West
Capital Inc for a net of $500,000. This was after payment of commissions of
$33,333. Thirty accredited investors participated, at a price of $0.16 per
share, less a commission of $0.01 per hare, for a net of $0.15 per share. There
are also 500,000 Broker warrants issued at $0.16 exercisable up to April 27,
2009. This financing resulted in the issuance of 3,333,333 common shares. With
respect to the unregistered sales made, the Company relied on Section 4(2) of
the Securities Act of 1933, as amended and Regulation S. This transaction closed
on July 9, 2007. At the same time, It completed a private placement to a single
investor for 335,000 common shares at $0.16 per share for proceeds of $53,560.

On October 16, 2007, the Company closed an additional private placement with
Wellington West Capital Inc for the sale to twelve (12) accredited investors,
1,538,891 common shares for a net price of $0.17 per share for $261,611, after
payment of a commission of $15,389. A commission of $0.01 per share was paid on
this transaction and there were no warrants attached to this financing.


                                       11
<PAGE>
On November 16, 2007, the Company closed an additional private placement with
Wellington West Capital Inc for the sale to seventeen (17) accredited investors,
1,291,175 common shares for a net price of $0.17 per share for $219,500. A
commission of $12,912 was paid regarding this financing. A commission of $0.01
per share was paid on this transaction and there were no warrants attached to
this financing.

On November 6, 2007, the Company also completed a private placement with the
sale to two individual investors of a combined 785,300 shares of common stock at
$0.17 per shares for $133,501. There were no warrants attached to this
placement.

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.

CONTRACTUAL OBLIGATIONS AND OTHER LONG-TERM LIABILITIES

Industrial Minerals, Inc. has the following minimum commitments under
contractual obligations, including purchase obligations, as defined by the U.S.
Securities and Exchange Commission. A "purchase obligation" is defined as an
agreement to purchase goods or services that is enforceable and legally binding
on Industrial Minerals, Inc. and that specifies all significant terms,
including: fixed or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the transaction. Other
long-term liabilities are defined as long-term liabilities that are reflected on
Industrial Minerals, Inc.'s balance sheet under GAAP. Based on this definition,
the table below includes only those contracts, which include fixed or minimum
obligations. It does not include normal purchases, which are made in the
ordinary course of business.

The following table provides aggregated information about Industrial Minerals,
Inc.'s outstanding contractual obligations and other long-term liabilities as of
December 31, 2008.

                             Payments due by Period

Contractual         TOTAL      Less than     1-3 Years   3-5 years  More than 5
Obligations                    I year                               years
---------------     -------    -----------   ---------   ---------  -----------

Long Term Debt      646,274    416,274 (1)   0           0          230,000 (2)
Capital Lease       0          0             0           0          0
Operating Lease     0          0             0           0          0
Purchase            0          0             0           0          0
Other Long Term     334,714    0             0           0          334,714 (3)
Liab.
                    -------    -----------   ---------   ---------  -----------
TOTAL               980,987    416,274       0           0          564,713
                    =======    ===========   =========   =========  ===========


(1)  Includes debt of $341,666 with promissory notes and debt of $74,608 without
     specific term of repayment for a total of $416,274.

(2)  Reclamation deposit with Province of Ontario.

(3)  Unsecured debt with no terms of repayment.

                                       12
<PAGE>

CRITICAL ACCOUNTING ESTIMATES

Accounting policies are integral to understanding this MD&A. The consolidated
financial statements of Industrial Minerals, Inc. are prepared in conformity
with GAAP, which requires the use of estimates, judgments, and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the periods presented. Industrial Minerals, Inc.'s accounting policies are
described in Note 1 to the Consolidated Financial Statements. Critical
accounting estimates are described in this section. An accounting estimate is
considered critical if: the estimate requires management to make assumptions
about matters that were highly uncertain at the time the estimate was made;
different estimates reasonably could have been used; or if changes in the
estimate that would have a material impact on the Corporation's financial
condition or results of operations are reasonably likely to occur from period to
period. Management believes that the accounting estimates employed are
appropriate and resulting balances are reasonable; however, actual results could
differ from the original estimates, requiring adjustments to these balances in
future periods. The Corporation has discussed the development, selection and
disclosures of these critical accounting estimates with the Audit Committee of
Industrial Minerals, Inc.'s Board of Directors, and the Audit Committee has
reviewed the Corporation's disclosures relating to these estimates.

GOING CONCERN

The critical assumption made by management of the Company is that the Company
will continue to operate as a going concern. The following is contained in the
notes to the financial statements and the Company's auditors have expressed a
concern that the Company may not be able to continue as a going concern.

The Company's financial statement has been presented on the basis that it is a
going concern. The Company is in the exploration stage and has not earned
significant revenues from operations. The Company's current liabilities exceed
current assets by $805,565 and the Company recorded a net loss amounting to
$1,579,801 during the year ended December 31, 2008. The Company's ability to
continue as a going concern is dependent upon its ability to develop additional
sources of capital to pay its payables and debts, meet administrative expenses
and advance its Bissett Creek Property and ultimately, achieve profitable
operations. Management is attempting to obtain sufficient additional debt or
equity financing to finance operations, capital improvements and other necessary
activities to ensure the business becomes profitable. The accompanying financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.

If the Company cannot continue as a going concern the value of the Company's
assets may approach a level close to zero. Investors should be cautioned that
should the Company cease to operate the Company may recover a small fraction of
the original costs of its assets should a liquidation of the Company's assets
occur.

Impairment of Long-Lived Assets

Industrial Minerals, Inc. periodically reviews the carrying value of its
long-lived assets held and used, other than goodwill and intangible assets with
indefinite lives, and assets to be disposed of when events and circumstances
warrant such a review. This review is performed using estimates of future cash
flows. If the carrying value of a long-lived asset is considered impaired, an
impairment charge is recorded for the amount by which the carrying value of the
long-lived asset exceeds its fair value.

                                       13
<PAGE>
ITEM 8- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section of this report
beginning on page F-1.

ITEM 9- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

ITEM 9A - CONTROLS AND PROCEDURES

Under the supervision and with the participation of Robert G. Dinning, our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our disclosure controls and procedures as defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934 as of the end of
the period covered by this report. Based on his evaluation, Mr. Dinning
concluded that the Company's disclosure controls and procedures are not
effective to ensure that information required to be included in the Company's
periodic SEC filings is recorded, processed, summarized, and reported within the
time periods specified in the SEC rules and forms.

The internal control deficiencies noted consisted primarily of inadequate
staffing and supervision that could lead to the untimely identification and
resolution of accounting and disclosure matters and failure to perform timely
and effective reviews. However, the size of the Company prevents it from being
able to employ sufficient resources to enable it to have adequate segregation of
duties within its internal control system. Mr. Dinning oversees our accounting
and general internal control process, allowing him to override our internal
control systems. As we have a very limited staff, we do not have other
management staff with financial accounting experience for purposes of
crosschecking or advising Mr. Dinning on our accounting or financial reporting
processes. Our current processes and procedures require substantive manual
intervention, estimation and reliance on several sources of information that are
not integrated with our accounting system.

Accordingly, we have concluded that the above is a result of material weaknesses
in our internal controls over financial reporting. Other than described above,
there have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to December
31, 2008.

Management's Annual Report on Internal Control over Financial Reporting

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

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


                                       14
<PAGE>
Based on our evaluation described above, our management has concluded that our
internal control over financial reporting was not effective during the fiscal
year ended December 31, 2008. Management has determined that (i) our inadequate
staffing and supervision, and the resulting ability of management to override
our internal control systems, and (ii) the significant amount of manual
intervention required in our accounting and financial reporting process are
material weaknesses in our internal control over financial reporting.

This annual report does not include an attestation report of the company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation requirements by
our registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management's report in this annual report.


ITEM 9B - OTHER INFORMATION

     Not Applicable.




                                       15
<PAGE>

                                    PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

 The current Executive officers of Registrant at March 10, 2009 are:

         NAME                       POSITION HELD             TENURE
         ----                       -------------             ------

         Robert G. Dinning        President,CEO,CFO           Annual
                                    and Secretary

The persons who are directors of the Registrant at December 31, 2008 are:

         NAME                              AGE
         ----                              ---
         Robert G. Dinning                  69
         Chris Crupi                        39
         Greg Bowes                         54


Business Experience

The following is a brief account of the business experience during at
least the past five years of the directors and officers of the Registrant,
indicating the principal occupation and employment during that period by each,
and the name and principal business of the organizations by which they were
employed.

Mr. Robert G. Dinning, - Director - is President, CEO, CFO and Secretary of the
Company. Mr. Dinning is a Chartered Accountant, and a lifetime member of the
Alberta Institute of Chartered Accountants. Mr. Dinning has an extensive
background in corporate finance, having been and officer of a large public
broadcasting company, a former investment officer of a subsidiary of a large
Canadian bank, and in recent years, an officer and director of several public
companies, primarily in the resource industry and the high tech industry. For
the past five years, Mr. Dinning has acted as a self employed management
consultant to both public and private companies, primarily in the resource
industry. Mr. Dinning is currently a director of three other public companies.

Chris Crupi - Director - Appointed a director on June 23, 2008, Mr. Crupi is a
chartered accountant. Mr. Crupi is currently president and chief executive
officer and a director of Paramount Gold and Silver Corp, a publicly traded
company listed on the AMEX and TSX stock exchanges. From 2000 to 2004, Mr. Crupi
was a Vice President of Pricewaterhouse Coopers LLP. From 1996 to 2000 Mr. Crupi
was with Ernst and Young. From 2005 to December 2007, Mr. Crupi was also
president and chief financial officer of AMMEX Gold and Silver Corp., a publicly
traded exploration mining company with property interests in the United States
and Mexico. Mr. Crupi received a Bachelor of Commerce degree from the University
of Ottawa in 1992. Mr. Crupi received his Chartered Accountant designation in
1995. Mr. Crupi was formerly a special assistant to the Honorable Don
Mazankowski, Deputy Prime Minister and Minister of Finance from 1988 to 1993.
Mr. Crupi is 40 years old. Mr. Crupi serves as Chairman of the audit committee
for the Company.

Greg B. Bowes - Director - Appointed a director on June 23, 2008, Mr. Bowes
holds an MBA in Finance and Accounting from Queens University (1979) and a BA
with Honours in Earth Sciences (Geology) from the University of Waterloo (1977).
Mr. Bowes has been CFO of Orezone Resources Inc, a publicly traded mining
company with reserves in West Africa.


                                       16
<PAGE>
From February of 2006 to March of 2008, Mr. Bowes was the president and CEO of
San Anton Resource Corporation, an exploration mining company and reporting
issuer in Ontario, Canada, whose shares trade on the TSX Stock Exchange. From
January of 2004 to March of 2007, Mr. Bowes was the vice president and then
chief financial officer of Orezone Resources Inc., From 1992 to 2003, Mr. Bowes
operated his own consulting firm providing financial, investment and management
services to mining, mineral exploration and engineering clients. Mr. Bowes is 54
years old.

No appointee for a director position has been found guilty of any civil
regulatory or criminal offense or is currently the subject of any civil
regulatory proceeding or any criminal proceeding.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten percent stockholders are
required by regulation to furnish to the Company copies of all Section 16(s)
forms they file.

The following persons failed to file forms on a timely basis during the past two
fiscal years as required under Section 16(a) as follows: Robert G. Dinning did
not timely file a Form 4 Change in Beneficial Ownership for a single
transaction. Chris Crupi and Greg Bowes did not timely file a Form 3, Initial
Statement of Beneficial Ownership.

Conflicts of Interest

Members of the Company's management are associated with other firms involved in
a range of business activities. Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of the Company.
Insofar as the officers and directors are engaged in other business activities,
management anticipates it will devote only a minor amount of time to the
Company's affairs.

The Company's Board of Directors has adopted a policy that the Company will not
seek a merger with, or acquisition of, any entity in which any officer or
director serves as an officer or director or in which they or their family
members own or hold a controlling ownership interest. Although the Board of
Directors could elect to change this policy, the Board of Directors has no
present intention to do so.

There can be no assurance that management will resolve all conflicts of interest
in favor of the Company.



                                       17

<PAGE>

ITEM 11- EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

Cash Compensation.

     Compensation paid for all services provided up to December 31, 2008 -

(1)  to each of our executive officers and (2) to all officers as a group.
<TABLE>
<CAPTION>
                                 ANNUAL COMPENSATION         LONG TERM COMPENSATION
                         ----------------------------------  ----------------------
                         -       ANNUAL COMPENSATION      -   - AWARDS     PAYOUTS -
                         --------- ------------------------  ---------- -----------

NAME AND PRINCIPAL       YEAR  SALARY    BONUS OTHER ANNUAL  RESTRICTED   All Other
Position                                       COMPENSATION    STOCK       Comp.
                                                              AWARD(S)     ($)
  (a)                     (b)    (c)      (d)      (e)          (f)         (i)
<S>                        <C>       <C>        <C>      <C>     <C>        <C>

Robert Dinning, CEO/CFO  2008  108,000        0     0            0           0
                CEO      2007   54,000        0 $11,000          0           0
------------------------------------------------------------------------------------
David Wodar former
President/CEO            2008   61,212              0            0           0
                         2007   85,000           20,000
------------------------------------------------------------------------------------
W. Campbell Birge
former President &
CEO (resigned
04/16/07)                          0          0 $18,018          0           0
President & CEO &
------------------------------------------------------------------------------------
Paul Cooper, COO         2008   57,225        0     0            0           0
Paul Cooper, COO         2007   67,500        0     0            0           0
------------------------------------------------------------------------------------
Officers as a Group      2008  226,437
Officers as a Group      2007  206,500        0  $31,000         0           0
------------------------------------------------------------------------------------
</TABLE>
The above covers compensation to officers for 2008 and 2007. No compensation was
paid to Directors who were not officers.

STOCK OPTION PLAN

The Company adopted SFAS 123 "Accounting for Stock-Based Compensation",
effective April 1, 2007. Compensation cost for the Company's stock options had
been determined in accordance with the fair value based method prescribed as
SFAS 123. The fair value of option grants is estimated on the date of grant
utilizing the Black-Scholes option pricing model. The fair value of each option
is estimated on the date of the grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for options granted
during the year ending December 31, 2007. Expected volatility of 86.74%,
risk-free interest rate 4%; and an expected life of up to 4 years.


                                       18
<PAGE>

The following summarized the stock options outstanding at the present time:

Equity compensation plans       No. of Securities        Weighted     Weighted
Not approved by              to be issued on exercise average price   Average
shareholders                  Of outstanding options   of options    Fair Value
------------                 -----------------------  ------------- ------------

Outstanding Dec 31, 2006                      0              0             0
Granted                              22,950,000          $0.106        $0.09
Exercised                                     0          $0.00         $0.00
Cancelled                            15,150,001          $0.00         $0.00

Exercisable                           7,799,999

Using the Black-Scholes option pricing model, the Company had stock compensation
expense for the year of $176,427. There remains a balance of $223,886 to be
expensed over the vesting period of the options.


Other than as disclosed above, no director or officer has been or was previously
paid separate annual fees, meeting fees or any other form of compensation. Fees
as outlined above to the three officers listed above are the sum total of
compensation paid during the year.


The following committees have been formed as of July 23, 2008 and membership as
of December 31, 2008 is as follows:

     1) Nominating Committee - Members are Robert Dinning, Chris Crupi and Greg
Bowes. Messrs Crupi and Bowes are independent Directors as defined by the
Sarbanes-Oxley Act of 2002.

     2) Audit Committee - Members are Chris Crupi who acts as chairman and Greg
Bowes, both of whom are independent Directors as defined by the Sarbanes-Oxley
Act of 2002.

     3) Compensation Committee - Members are Chris Crupi, Greg Bowes and Robert
Dinning. Messrs Crupi and Bowes are independent Directors as defined by the
Sarbanes-Oxley Act of 2002.

Compensation Discussion and Analysis
------------------------------------

The following Compensation Discussion and Analysis (CD&A) provides information
on the compensation programs established for our "Named Executive Officers"
during our fiscal year ended December 31, 2008. All information provided herein
should be read in conjunction with the tables provided below.

Our Board of Directors is responsible for establishing, implementing and
monitoring the policies governing compensation for our executives. Currently our
Board does not have a compensation committee. Our officers are members of our
Board of Directors and are able to vote on matters of compensation. We are not
currently under any legal obligation to establish a compensation committee and
have elected not to do so at this time. In the future, we may establish a
compensation committee if the Board determines it to be advisable or we are
otherwise required to do so by applicable law, rule or regulation. During the
year ended December 31, 2008 our Board did not employ any outside consultants to
assist in carrying out its responsibilities with respect to executive
compensation, although we have access to general executive compensation
information regarding both local and national industry compensation practices.
In future periods we may participate in regional and national surveys that
benchmark executive compensation by peer group factors such as company size,
annual revenues, market capitalization and geographical location.


                                       19
<PAGE>
The executive employment market in general is very competitive due to the number
of companies with whom we compete to attract and retain executive and other
staff with the requisite skills and experience to carry out our strategy and to
maintain compliance with multiple Federal and State regulatory agencies. Many of
these companies have significantly greater economic resources than our own. Our
Board has recognized that our compensation packages must be able to attract and
retain highly talented individuals that are committed to our goals and
objectives, without at this time paying cash salaries that are competitive with
some of our peers with greater economic resources. Our compensation structure is
weighted towards equity compensation in the form of options to acquire common
stock, which the Board believes motivates and encourages executives to pursue
strategic opportunities while managing the risks involved in our current
business stage, and aligns compensation incentives with value creation for our
shareholders.

Components of Our Executive Compensation Program
------------------------------------------------

Our executive compensation program incorporates components we believe are
necessary in order for the Company to provide a competitive compensation package
relative to our peers and to provide an appropriate mix between short-term and
long-term cash and non-cash compensation. Elements of our executive compensation
are listed below:

     o    Base Salary
     o    Stock Awards
     o    Other benefits available to all employees
     o    Items specific to our President and Chief Executive Officer per an
          employment agreement


Base Salary: At present we do not have a salary structure for employees and
Executives, and amounts are based on skill set, knowledge and responsibilities.
Base salaries may be established as necessary. During the year ended December
31, 2008 none of our Named Executive Officers received a salary increase.

Stock Awards: A portion of compensation paid to our executives is equity based.
We believe equity compensation helps align the interests of our executives with
the interests of our shareholders. In that regard, our executives' compensation
is subject to downside risk in the event that our common stock price decreases.
In addition, we believe stock awards provide incentives to aid in the retention
of key executives. No stock compensation awards were granted during the year
ending December 31, 2008.

Other Benefits: Our Executive Officers and employees receive no other benefits.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

The following table shows the share ownership of officers, directors and 5% or
greater shareholders as of March 23, 2009. There are 160,748,416 at March 23,
2009

                                       20
<PAGE>

--------------------------------------------------------------------------------
NAME AND ADDRESS OF              AMOUNT AND NATURE OF          PERCENT OWNERSHIP
BENEFICIAL OWNERSHIP             BENEFICIAL OWNERSIP              OF CLASS
--------------------------------------------------------------------------------

Robert G. Dinning, President &           4,405,000 (1)              2.74%
CEO And CFO
346 Waverley Street
Ottawa Ontario, Canada, K2P 0W5

Chris Crupi, Director,                   2,000,000                  1.24%
346 Waverley Street
Ottawa, Ontario, Canada K2P 0W5

Greg Bowes, Director                     2,000,000                  1.24%
346 Waverley Street
Ottawa Ontario, Canada, K2P 0W5

Directors and officers as a Group        8,405,000                  5.22%


(1)  Total includes options exercisable by Mr. Dinning on April 3, 2009 in the
     amount of 1,000,000 shares.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not Applicable.


ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)    (1) See attached Financial Statements.

       (2) Not applicable.

       (3) See (b) below.

(b)  Exhibits filed with this annual report.

 EXHIBIT NO.               DESCRIPTION
 -----------               -----------
3.1                        Articles of Incorporation (1)
3.2                        Bylaws (2)
14.1                       Code of Ethics (3)
31.1                       Section 302 Certification (CEO)
31.2                       Section 302 Certification (CFO)
32.1                       Section 906 Certification (CEO)
32.2                       Section 906 Certification (CFO)

(1)  Incorporated by reference from the exhibits included with the Company's
     prior Report on Form 8K filed with the Securities and Exchange Commission,
     dated March 16, 2004.

(2)  Incorporated by reference from the exhibits included with the Company's
     prior Report on Form 8K filed with the Securities and Exchange Commission,
     dated January 6, 2004.

(c)  Not applicable.

                                       21
<PAGE>
ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

(1) Disclose, under the caption Audit Fees, the aggregate fees billed for each
of the last two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial statements and
review of financial statements included in the registrant's Form 10-Q (17 CFR
249.308a) or 10-QSB (17 CFR 249.308b) or services that are normally provided by
the accountant in connection with statutory and regulatory filings or
engagements for those fiscal years.

                           2008             2007
                         -------           -------
Audit fees               $20,975           $29,000

(2) Disclose, under the caption Audit-Related Fees, the aggregate fees billed in
each of the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
or review of the registrant's financial statements and are not reported under
Item 9(e)(1) of Schedule 14A. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.

None

(2) Disclose, under the caption Tax Fees, the aggregate fees billed in each of
the last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.

(3) Registrants shall describe the nature of the services comprising the fees
disclosed under this category.

                             2008                2007
                          -------------       -------------
                          $3,391.50 (1)         2,980 (2)

(1) Services rendered for consent letters included with registration statement.
(2) Consultation regarding application of U.S. GAAP.

(4) Disclose, under the caption All Other Fees, the aggregate fees billed in
each of the last two fiscal years for products and services provided by the
principal accountant, other than the services reported in Items 9(e)(1) through
9(e)(3) of Schedule 14A. Registrants shall describe the nature of the services
comprising the fees disclosed under this category.

None

(5) (i) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X.

(ii) Disclose the percentage of services described in each of Items 9(e)(2)
through 9(e)(4) of Schedule 14A that were approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(6) If greater than 50 percent, disclose the percentage of hours expended on the
principal accountant's engagement to audit the registrant's financial statements
for the most recent fiscal year that were attributed to work performed by
persons other than the principal accountant's full-time, permanent employees.

None

                                       22
<PAGE>
General.   Rotenberg & Co LLP, is the Company's principal public accounting
firm. The Company's Board of Directors has considered whether the provisions of
audit services are compatible with maintaining Rotenberg's independence.

The Company appointed an Audit Committee in 2008 consisting of independent
directors Chris Crupi and Greg Bowes. Mr. Crupi is a CA and a "qualified
financial expert.


The auditors' full time employees performed all audit work.





                                       23

<PAGE>




                                  SIGNATURES

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

                                                Industrial Minerals, Inc.


 Date: March 30, 2009                           By: /s/Robert G. Dinning
                                                    ---------------------------
                                                    Robert G. Dinning,
                                                    Chief Executive Officer

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




Date: March 30, 2009                          By: /s/Robert G. Dinning
                                                  --------------------
                                                  Robert G. Dinning
                                                  Chief Executive Officer and
                                                  Chief Financial Officer


DIRECTORS


Date: March 30, 2009                          By: /s/Robert G. Dinning
                                                  --------------------
                                                  Robert Dinning, Director and
                                                  CEO,CFO and Secretary



Date: March 30, 2009                          By: /s/ Chris Crupi
                                                  ---------------
                                                  Chris Crupi, Director



Date: March 30, 2009                          By: /s/ Greg Bowes
                                                  --------------
                                                  Greg Bowes, Director




                                       24


<PAGE>


 Rotenberg  & Co., LLP
Certified Public Accountants
                                               585.295.2400 * 585.295.2150 (fax)
              1870 Winton Road South, Rochester, NY 14618 * www.rotenbergllp.com


                  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Board of Directors
  and Stockholders of Industrial
Minerals, Inc. and Subsidiary (An
Exploration Stage Company) Delaware


     We have audited the accompanying consolidated balance sheets of Industrial
Minerals, Inc. and Subsidiary as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years then ended and for the period since inception (November 6,
1996) to December, 31 2008. Industrial Mineral's management is responsible for
these consolidated financial statements. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Industrial
Minerals, Inc. and Subsidiary as of December 31, 2008 and 2007, and the results
of its operations and its cash flows for each of the years then ended and for
the period since inception (November 6, 1996) to December 31, 2008 in conformity
with accounting principles generally accepted in the United States of America.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
8 to the consolidated financial statements, the Company's significant operating
losses raise substantial doubt about its ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.




/s/ ROTENBERG & CO., LLP.
------------------------
Rochester, New York
  March 31, 2009



<PAGE>
<TABLE>
<CAPTION>
                            INDUSTRIAL MINERALS, INC.
                                 And Subsidiary
                         (An Exploration Stage Company)
                           CONSOLIDATED BALANCE SHEETS
                     December 31, 2008 and December 31, 2007


                                                              December 31    December 31
ASSETS                                                            2008           2007
                                                              -----------    -----------
<S>                                                           <C>            <C>
    CURRENT ASSETS
       Cash                                                   $       307    $   104,236
       Receivables                                                 15,420         18,520
       Deposits                                                    12,026         12,510
                                                              -----------    -----------
          Total Current Assets                                     27,753        135,266

    LONG-TERM DEPOSITS                                            230,000        230,000

    FIXED ASSETS
       Building and Equipment                                   2,388,876      2,388,876
       Less accumulated depreciation                           (1,097,209)      (895,366)
                                                              -----------    -----------
                                                                1,291,667      1,493,510
                                                              -----------    -----------



TOTAL ASSETS                                                  $ 1,549,420    $ 1,858,776
                                                              ===========    ===========

LIABILITIES & STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES
       Accounts payable                                       $   270,150    $   114,986
       Accrued interest payable                                    65,317         52,089
       Loans payable - current                                    416,274        310,932
       Due to related party                                        28,472         25,300
       Other current liabilities                                   53,105             --
                                                              -----------    -----------
          Total Current Liabilities                               833,319        503,307

    OTHER LIABILITIES
       Asset retirement obligations                               230,000        230,000
       Loans payable - Due beyond one year                        334,714        567,607
                                                              -----------    -----------
                                                                1,398,032      1,300,914
                                                              -----------    -----------

    STOCKHOLDERS' EQUITY
       Common stock, 200,000,000 shares authorized, $0.0001
          par value; 160,748,416 and 137,644,476 shares
          issued and outstanding, respectively                     16,072         13,761
       Additional paid-in capital                               9,972,214      8,801,197
       Accumulated other comprehensive income                    (105,985)      (105,985)
       Deficit accumulated during exploration stage            (9,730,913)    (8,151,111)
                                                              -----------    -----------

       TOTAL STOCKHOLDERS' EQUITY                                 151,388        557,862
                                                              -----------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $ 1,549,420    $ 1,858,776
                                                              ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements

                                      F-2

<PAGE>
<TABLE>
<CAPTION>

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

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                                          Period from
                                                                                                          Nov 6, 1996
                                                               Year Ended           Year Ended           (Inception)
                                                              December 31,          December 31,        to December 31,
                                                                 2008                  2007                  2008
                                                           ------------------    ------------------    ------------------
<S>                                                        <C>                   <C>                   <C>
REVENUE
     Income earned during exploration stage                $               --    $               --    $           19,337
                                                           ------------------    ------------------    ------------------


EXPENSES
     Cost of revenues                                                      --                    --                86,901
     Professional fees                                                100,762                70,170             1,655,452
     Royalty fees                                                      22,059                27,324               147,437
     Depreciation and amortization                                    201,843               225,575             1,179,481
     Impairment of long-lived assets                                       --                    --               582,176
     Loss on disposal of assets                                            --                11,920                11,920
     Management fees and salaries                                     827,398             1,596,263             3,370,035
     General exploration expense                                       49,565               418,599               468,164
     Other general and administrative                                 395,677               451,695             5,000,407
                                                           ------------------    ------------------    ------------------

        TOTAL EXPENSES                                              1,597,305             2,801,546            12,501,974
                                                           ------------------    ------------------    ------------------

LOSS FROM OPERATIONS                                               (1,597,305)           (2,801,546)          (12,536,889)
                                                           ------------------    ------------------    ------------------

OTHER INCOME (EXPENSE)
     Interest income                                                                             --                 3,172
     Gain from extinguishment of debt                                                                           1,047,634
     Foreign currency loss                                            (17,504)              (40,091)              (57,595)
     Other income                                                                                --                   594
                                                           ------------------    ------------------    ------------------

        TOTAL OTHER INCOME                                            (17,504)              (40,091)              993,805
                                                           ------------------    ------------------    ------------------

LOSS FROM OPERATIONS                                               (1,579,801)           (2,761,456)          (11,427,894)
                                                           ------------------    ------------------    ------------------

INCOME TAXES                                                               --

NET LOSS                                                   $       (1,579,801)           (2,761,456)          (11,427,894)
                                                           ==================    ==================    ==================

     NET LOSS PER SHARE, BASIC AND DILUTED                 $            (0.01)                (0.02)
                                                           ==================    ==================

WEIGHTED AVERAGE NUMBER OF
     COMMON STOCK SHARES OUTSTANDING, BASIC AND DILUTED:          139,275,920           127,672,181
                                                           ==================    ==================
</TABLE>



          See accompanying notes to consolidated financial statements

                                       F-3


<PAGE>
<TABLE>
<CAPTION>
                            INDUSTRIAL MINERALS, INC.
                         (An Exploration Stage Company)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                          Period from
                                                                                        November 6, 1996
                                                                                         (Inception of
                                                              Year           Year      Exploration Stage)
                                                              Ended          Ended            To
                                                          December 31,    December 31,    December 31,
                                                              2008           2007             2008
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                              $ (1,579,801)   $ (2,761,455)   $(11,427,894)
    Adjustments to reconcile net loss
        to net cash used by operating activities:
           Depreciation                                        201,843         225,575       1,171,189
           Provision for bad debts                                --                --          49,676
           Stock issued for services                           623,127       1,089,470       2,127,203
           Impairment of long-lived assets                        --                --         297,882
           Loss on disposal of assets                             --            11,920          66,170
           Gain on extinguishment of debt                         --                --      (1,047,634)
           Changes in:
               Receivables                                       3,100         (18,520)        (19,589)
               Inventory                                          --              --            (5,527)
               Prepaid expenses                                   --              --              (540)
               Deposits                                            484          (2,510)        (12,026)
               Accounts payable and accrued expenses           127,565           4,276          89,123
               Accrued interest payable                         13,228          13,318         333,598
               Due to related parties                            4,520            --           664,426
                                                          ------------    ------------    ------------
    Net cash used in operating activities                     (605,934)     (1,437,926)     (7,718,943)
                                                          ------------    ------------    ------------
    Cash flows from investing activities:
        Purchase of building and equipment                        --           (38,235)     (2,116,266)
        Advance received for sale of Equipment                  53,105            --            53,105
        Investment in Multiplex                                   --              --           (75,000)
        Acquisition of goodwill                                   --              --          (149,057)
        Loan to related party                                     --              --           (50,000)
        Long-term deposits                                        --              --          (159,600)
                                                          ------------    ------------    ------------
    Net cash used in investing activities                       53,105         (38,235)     (2,496,818)
                                                          ------------    ------------    ------------

    CASH FLOWS FROM FINANCING ACTIVITIES:

        Net proceeds from sale of common stock                 485,200       1,570,805       4,747,267
        Net proceeds from loans payable                           --            23,246       7,272,185
        Loan repayments                                        (18,796)        (10,000)     (1,786,020)
        Proceeds from mortgage                                    --              --            17,000
        Principal payments on mortgage                            --           (10,413)        (17,000)
        Stock issued in settlement of debt                        --              --              --
        Cash acquired in acquisition of Peanut
        Butter & Jelly, Inc.                                      --              --               140
                                                          ------------    ------------    ------------
    Net cash provided by financing activities                  466,404       1,573,638      10,233,572
                                                          ------------    ------------    ------------
    Effect of Exchange Rate on Changes in Cash                 (17,504)             --         (17,504)

NET INCREASE (DECREASE) IN CASH                               (103,929)         97,477             307


Cash, beginning of period                                      104,236           6,759            --
                                                          ------------    ------------    ------------

Cash, end of period                                       $        307    $    104,236    $        307
                                                          ============    ============    ============

SUPPLEMENTAL CASH FLOW DISCLOSURES:

    Interest paid                                         $       --      $       --      $      4,524
                                                          ============    ============    ============
    Income taxes paid                                     $       --      $       --      $       --
                                                          ============    ============    ============

    Non-cash investing and financing activities:
        Shares issued for related party debt                    61,200            --            61,200
                                                          ============    ============    ============

        Shares issued for debt                                    --              --        11,437,279
                                                          ============    ============    ============

        Shares issued for services                                --           642,617         642,617
                                                          ============    ============    ============

        Shares issued for investment                              --              --           200,030
                                                          ============    ============    ============

        Shares issued for accrued interest                        --              --           651,702
                                                          ============    ============    ============

        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

                                      F-4


<PAGE>
<TABLE>
<CAPTION>

                     INDUSTRIAL MINERALS, INC.AND SUBSIDIARY
                         (An Exploration Stage Company)
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                               December 31, 2008

                                                                            Accumulated  Accumulated      Common
                                            Common Stock                      Deficit       Other         Stock           Total
                                        --------------------    Additional    During       Compre-       Subscrip-    Stockholders'
                             Number        Number                 Paid-in   Exploration    hensive         tions         Equity
                           of Shares     of Shares    Amount      Capital      Stage        Income       Received       (Deficit)
                          -----------   -----------   ------    ----------- -----------    ---------    ---------    -----------
<S>                        <C>          <C>            <C>        <C>        <C>            <C>         <C>              <C>
Inception -
 November 6, 1996 -
 See Note A below                  --            --   $    --   $        -- $        --    $      --    $      --             --
Balance at
 December 31, 1998            252,500       757,500        76       505,092    (750,830)          --           --       (245,662)
Issuance of common
  stock for cash               30,000        90,000         9       146,612          --           --           --        146,621
Issuance of common
 stock for services            55,000       165,000        17       274,983          --           --           --        275,000
Net Loss                           --            --        --            --    (259,404)          --           --       (259,404)
                          -----------   -----------   -------   ----------- -----------    ---------    ---------    -----------
Balance at
 December 31, 1999            337,500     1,012,500       102       926,687  (1,010,234)          --           --        (83,445)

Issuance of common
 stock for cash                84,900       254,700        25       413,045          --           --           --        413,070
Issuance of common
 stock for services            70,000       210,000        21       349,979          --           --           --        350,000
Issuance of common
 stock for Multiplex
 stock                          3,000         9,000         1            29          --           --           --             30
Issuance of common
 stock for acquisition        475,463     1,426,389       143         4,603          --           --           --          4,746
Net Loss                           --            --        --            --    (694,758)          --           --       (694,758)
                          -----------   -----------   -------   ----------- -----------    ---------    ---------    -----------
Balance at
 December 31, 2000            970,863     2,912,589       292     1,694,343  (1,704,992)          --           --        (10,357)

Issuance of common
 stock for compensation        30,000        90,000         9        59,991          --           --           --         60,000
Net Loss                           --            --        --            --     (67,251)          --           --        (67,251)
                          -----------   -----------   -------   ----------- -----------    ---------    ---------    -----------
Balance at
 December 31, 2001          1,000,863     3,002,589       301     1,754,334  (1,772,243)          --           --        (17,608)

Issuance of common
 stock re acquisition of   35,000,000   105,000,000    10,500    (1,747,393)  1,696,982           --           --        (39,911)
 Industrial Minerals
 Incorporated
Minimum 50 shares
 post-split allocation         30,758        92,274         6            (6)         --           --           --             --
Net Loss                           --            --        --            --    (520,242)          --           --       (520,242)
                          -----------   -----------   -------   ----------- -----------    ---------    ---------    -----------

Balance at
 December 31, 2002         36,031,621   108,094,863    10,807         6,935    (595,503)          --           --       (577,761)

Minimum 50 shares
 post-split allocation            327           981        --            --          --           --           --             --

Net Loss                           --            --        --            --  (1,133,197)          --           --     (1,133,197)
                          -----------   -----------   -------   ----------- -----------    ---------    ---------    -----------
Balance at
 December 31, 2003         72,063,896   108,095,844    10,807         6,935  (1,728,700)          --           --     (1,710,958)

Allocation on round-up
 of shares                          7             7        --            --          --           --           --             --
Issuance of common
 stock in settlement
 of debt                    3,492,115     3,492,115       349     4,190,189          --           --           --      4,190,538
Net Loss                           --            --        --            --    (561,153)          --           --       (561,153)
                          -----------   -----------   -------   ----------- -----------    ---------    ---------    -----------
Balance at
 December 31, 2004        111,587,966   111,587,966    11,156     4,197,124  (2,289,853)          --           --      1,918,427
Net Loss                           --            --        --            --  (1,844,219)          --           --     (1,844,219)
                          -----------   -----------   -------   ----------- -----------    ---------    ---------    -----------
Balance at
 December 31, 2005        111,587,966   111,587,966    11,156     4,197,124  (4,134,072)          --           --         74,208

Issuance of common
 stock for cash               200,000       200,000        20        69,640          --           --           --         69,660
Issuance of common
 stock in settlement
 of debt                    6,255,810     6,255,810       625     1,876,118          --           --           --      1,876,743
Net Loss                           --            --        --            --  (1,255,584)          --           --     (1,255,584)
                          -----------   -----------   -------   ----------- -----------    ---------    ---------    -----------
Balance at
 December 31, 2006        118,043,776   118,043,776    11,801     6,142,882  (5,389,656)          --           --        765,027

Issuance of common
 stock for cash            13,193,699    13,193,699     1,319     1,569,486          --           --           --      1,570,805
Issuance of common
 stock for services         6,407,001     6,407,001       641       641,976          --           --           --        642,617
Stock compensation
 expense                           --            --        --       446,853          --           --           --        446,853
Foreign Currency
 Translation                       --            --        --            --          --     (105,985)          --       (105,985)

Net Loss                           --            --        --            --  (2,761,455)          --           --     (2,761,455)
                          -----------   -----------   -------   ----------- -----------    ---------    ---------    -----------
Balance at
 December 31, 2007        137,644,476   137,644,476    13,761     8,801,197  (8,151,111)    (105,985)          --        557,862
                          ===========   ===========   =======   =========== ===========    =========    =========    ===========

Issuance of common
 stock for cash                    --     9,248,940       925       484,275          --           --     (265,000)       220,200
Issuance of common
 stock for services                --    12,605,000     1,261       445,439          --           --           --        446,700
Stock compensation
 expense                           --            --        --       176,427          --           --           --        176,427
Common stock
 subscriptions
 received                          --            --        --            --          --           --      265,000         65,000
Issuance of common
 stock for
 settlement of debt                --     1,250,000       125        64,875          --           --           --         65,000
Net Loss                           --            --        --            --  (1,579,801)          --           --     (1,579,801)
                          -----------   -----------   -------   ----------- -----------    ---------    ---------    -----------
Balance at
 December 31, 2008                 --   160,748,416    16,072     9,972,214  (9,730,913)    (105,985)          --        151,388
                          ===========   ===========   =======   =========== ===========    =========    =========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements


                                      F-5

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

                   Notes to Consolidated Financial Statements

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) 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, Incorporated. On
May 2, 2002, the Company merged the remaining 9% of Industrial Minerals,
Incorporated into PNW Capital, Inc. and changed its name to Industrial Minerals,
Inc.

(b) Nature of Operations

The Company owns the mineral rights on its Bissett Creek Graphite property in
the Province of Ontario, Canada. Commissioning of the plant began in September
2004 and preliminary testing of the graphite began in fiscal 2005. During 2007,
the Company received its completed NI 43101 Resource Estimate report from
Geostat Services Inc. As a result of this report it is the intention of the
Company to proceed to additional exploration and pilot plant testing and
preparation of final feasibility. Once this is completed the Company intends to
proceed to full plant development of a 2,500 tonne of ore per day plant using a
standard wet flotation recovery process, with an upgrade facility to produce
high purity graphite.

(c) Basis of Presentation - Exploration Stage Company

The Company has not earned significant revenues from limited test operations.
Accordingly, the Company's activities have been accounted for as those of a
"Development Stage Enterprise" as set forth in Financial Accounting Standards
Board (SFAS) No. 7. Among the disclosures required by SFAS No. 7 are that the
Company's consolidated statements of operations, stockholders' equity and cash
flows disclose activity since the date of the Company's inception. Since the
Company has not entered into production, it is classified as an "Exploration
Stage Company."

(d) Basis of Accounting

The accompanying consolidated financial statements have been prepared on the
accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America.

(e) Cash and Equivalents

For the purpose of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments, purchased with an original
maturity of three months or less, to be cash equivalents.


                                      F-6

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

                   Notes to Consolidated Financial Statements

(f) Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.

(g) Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, from 3 to 20
years. Significant improvements are capitalized, while expenditures for
maintenance, repairs and replacements are charged to expense as incurred. Upon
disposal of depreciable property, the appropriate property accounts are reduced
by the related costs and accumulated depreciation and gains and losses are
reflected in the consolidated statements of operations.

The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicated that the carrying amount of the assets may not be
recoverable. In determining whether there is an impairment of long-lived assets,
the Company compares the sum of the expected future net cash flows (undiscounted
and without interest charges) to the carrying amount of the assets. For the
years ended December 31, 2008 and 2007, no impairment in value has been
recognized. For the period since inception, $582,176 of impairment losses were
recognized.

(h) Basic and Diluted Loss Per Share

Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighing
them by the amount of time that they were outstanding. Basic and diluted loss
per share are the same.

(i) Comprehensive Income (Loss)

The Company adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for reporting and presentation of comprehensive income
(loss) and its components in a full set of financial statements. Comprehensive
income (loss) is presented in the consolidated financial statements of
operations and foreign currency translation adjustments. SFAS No. 130 requires
only additional disclosures in the consolidated financial statements and does
not affect the Company's consolidated financial position or results of
operations.

(j) Reclassifications

Certain amounts in the prior year financial statements have been reclassified to
conform with the current year presentation.

(j) Fair Value of Financial Instruments

The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. The fair
market value of the Company's financial instruments comprising cash, accounts
receivable and accounts payable and accrued liabilities were estimated to
approximate their carrying values due to immediate or short-term maturity of
these financial instruments. The estimated fair value of the Company's financial
instruments approximated their carrying values at December 31, 2008 and 2007.

                                      F-7

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

                   Notes to Consolidated Financial Statements

(k) Segment Information

The Company's operating segments all involve the development of mineral rights
on the Company's Bissett Creek Graphite property for future production and sale
of both large and moderately sized crystalline flake graphite.

(l) Income Taxes

The Company is liable for income taxes on future taxable income generated. As of
December 31, 2008, the Company has net loss carry forwards of $9,738,500 which
will be used as an offset to future taxable income. Due to the Exploration Stage
nature of the Company, a deferred tax asset has not been recorded at December
31, 2008.

(m) Principles of Consolidation

The consolidated financial statements include all accounts of Industrial
Minerals, Inc. and its wholly owned subsidiary, Industrial Minerals Canada, Inc.
All material inter-company transactions have been eliminated.

(n) Recent Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value
Measurements". SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.
SFAS 157 is effective as of the beginning of the first fiscal year that begins
after November 15, 2007. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended December 31, 2008. The
Company is currently evaluating the impact of SFAS 157 on its consolidated
financial statements but does not expect it to have a material effect.

In February 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities, including an amendment of
FASB Statement No. 115". SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value at specified
election dates. SFAS 159 is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2007. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
December 31, 2008. The Company is currently evaluating the impact of SFAS 159 on
its consolidated financial statements but does not expect it to have a material
effect.

In December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 160, "Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51". SFAS 160
establishes accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. As such, the Company is required to
adopt these provisions at the beginning of the fiscal year ended December 31
2009/2010. The Company is currently evaluating the impact of SFAS 160 on its
consolidated financial statements but does not expect it to have a material
effect.

                                      F-8
<PAGE>
In December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 141(R), "Business Combinations". SFAS
141(R) establishes principles and requirements for how the acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, an any non-controlling interest in the acquiree, recognizes
and measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and determines what information to disclose to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141(R) is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. As
such, the Company is required to adopt these provisions at the beginning of the
fiscal year ended December 31, 2009/2010. The Company is currently evaluating
the impact of SFAS 141(R) on its consolidated financial statements but does not
expect it to have a material effect.

In March 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 161, " Disclosures about
Derivative Instruments and Hedging Activities--an amendment of FASB Statement
No. 133 ". SFAS 161 requires enhanced disclosures about an entity's derivative
and hedging activities. SFAS 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008 with
early application encouraged. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended December 31, 2009. The
Company is currently evaluating the impact of SFAS 161 on its financial
statements but does not expect it to have a material effect.

In May 2008, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 162, " The Hierarchy of Generally
Accepted Accounting Principles ". SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States. SFAS 162 is effective 60 days following the SEC's approval of
the Public Company Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company is currently evaluating the impact of SFAS 162 on its
financial statements but does not expect it to have a material effect.

In May 2008, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 163, " Accounting for Financial
Guarantee Insurance Contracts--an interpretation of FASB Statement No. 60 "
("SFAS 163"). SFAS 163 interprets Statement 60 and amends existing accounting
pronouncements to clarify their application to the financial guarantee insurance
contracts included within the scope of that Statement. SFAS 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
December 31, 2009. The Company is currently evaluating the impact of SFAS 163 on
its financial statements but does not expect it to have a material effect.


                                      F-9
<PAGE>
NOTE 2 - BUILDING AND EQUIPMENT

Building and equipment are recorded at cost. A summary of building and equipment
at December 31, 2008 and 2007 are as follows:

                                                       2008               2007
                                                    ----------        ----------
Building and improvements                           $  591,005        $  591,005
Equipment                                            1,567,871         1,567,871
Mine closure deposit                                   230,000           230,000
                                                    ----------        ----------
Total building and equipment                         2,388,876         2,388,876
Less accumulated depreciation                        1,097,209           895,366
                                                    ----------        ----------
Net building and equipment                          $1,291,667        $1,493,510
                                                    ==========        ==========

NOTE 3- LOANS PAYABLE

Loans payable at December 31, 2008 and 2007 consists of the following:

                                                          2008           2007
                                                       ---------      ---------
Non-affiliated shareholder, unsecured,
 interest at 10%. No installments                      $  161,000     $  161,000
 required.
Principal and accrued interest at 7%
 Due July 2008.                                            90,796         90,796
Non-affiliated shareholder, unsecured,
interest at 10%. No installments
 required.                                                 89,870        111,320
Non-affiliated shareholder, unsecured,
 Interest at 10%. No installments                              --         23,456
Non-affiliated shareholders(2), unsecured                  74,608         85,360
                                                       ----------     ----------

Loans payable - current                                   416,274        471,932
                                                       ----------     ----------
Loans - noncurrent, unsecured,
 no terms of repayment, and no interest                   334,714        406,607
                                                       ----------     ----------

Total notes payable                                     $ 750,988      $ 878,539
                                                        =========      =========


                                      F-10

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

                   Notes to Consolidated Financial Statements

NOTE-4 RELATED PARTY TRANSACTION

The Company was liable to an officer of the Company, for unpaid management fees
of $26,021 and loan from a director of $2,451, for a total of $28,472 owing to
related parties at December 31, 2008. Related party balances at December 31,
2007 amounted to $25,300.

NOTE-5 COMMITMENTS

(a) Office Space

As of July 1, 2007, the Company leased premises for its head office at 2904
South Sheridan Way, Suite 100, Oakville Ontario, L6J 7L7. The lease executed was
for a three year period. The Company is in negotiations regarding termination of
this lease. The office of the Company has been moved to 346 Waverley Street,
Ottawa Ontario, K2P 0W5.

The Company terminated its former lease during 2007 located at #304 - 201 Broad
Street, Mankato, Minnesota. This lease was originally set to expire on September
30, 2008 but the landlord and tenant agreed to terminate the lease in return for
a termination fee of $5,000 which was paid.

(b) Leased Mineral Claim

In connection with leased mineral claims, the Company is required to make
royalty payments to the seller of $20 (Canadian dollars) per ton of graphite
carbon concentrate produced and 2.5% of net smelter return payable on any other
minerals derived from the property. An advance royalty of $27,000 (Canadian
dollars) per annum will be paid to the seller in semi-annual installments.


 (c) Mine Development and Closure

A Mine Development and Closure Plan has been filed with, and accepted by, the
Ministry of Northern Development and Mines, in accordance with the MINING ACT,
R.S.O. 1990, Ontario Regulation 240/00, including the standards, procedures and
requirements of the Mining Code of Ontario. A financial assurance in the amount
of $230,000 has been accounted for as a long term deposit. The Company has paid
$230,000 to the Minister of Finance for the Province of Ontario. This financial
assurance represents the amount that would be required to restore the Company's


                                      F-11


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

                   Notes to Consolidated Financial Statements


Bissett Creek Graphite Property to its original environmental state. The money
pledged for this financial assurance will be returned to the Company once the
Ministry of Northern Development and Mines is satisfied that the obligations
contained in the Mine Development and Closure Plan have been performed by the
Company. Should the Company not perform its obligations contained in the Mine
Development and Closure Plan the Ministry of Northern Development and Mines will
restore the Company's Bissett Creek Graphite property site to its original
environmental state using the $230,000 financial assurance.

Note 6 - Capital Stock

There were 23,103,940 common shares of capital stock issued during 2008 in
return for cash, services and settlement of debt. The Company has 160,748,416
shares issued and outstanding at December 31, 2008.

Note 7 - Stock Option Plan

The Company adopted SFAS 123 "Accounting for Stock-Based Compensation",
effective April 1, 2007. Compensation cost for the Company's stock options have
been determined in accordance with the fair value based method prescribed as
SFAS 123. The fair value of option grants is estimated on the date of grant
utilizing the Black-Scholes option pricing model. The fair value of each option
is estimated on the date of the grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for options granted
during the year ending December 31, 2008. Expected volatility of 86.74%,
risk-free interest rate 4%; and an expected life of up to 4 years.

The following summarized the stock options outstanding at the present time:


Equity compensation plans       No. of Securities        Weighted     Weighted
Not approved by              to be issued on exercise average price   Average
shareholders                  Of outstanding options   of options    Fair Value
------------                 -----------------------  ------------- ------------
Outstanding Dec 31, 2006                0                   0            0

Granted to date                     22,950,000            $0.106       $0.09

Exercised                               0                 $0.00        $0.00

Cancelled                           15,150,001            $0.00        $0.00

Exercisable                          7,799,999

Using the Black-Scholes option pricing model, the Company had stock compensation
expense for the year of $176,427. There remains a balance of $223,886 to be
expensed over the vesting period of the options.


                                      F-12

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

                   Notes to Consolidated Financial Statements

NOTE 8- GOING CONCERN

The Company is an Exploration Stage Company that incurred a net loss of
$1,579,801 for the year ended December 31, 2008 and has an accumulated deficit
of $9,730,913 since inception of the Company. Current liabilities exceed current
assets by $805,565 and the Company's ability to continue as a going concern is
dependent upon its ability to obtain additional capital to pay payables and
loans, meet administrative expenses and continue the development of its Bissett
Creek Property. The Company is actively seeking additional capital and
management believes that the Bissett Creek Property can ultimately be developed
to enable the Company to continue its operations. However, there are inherent
uncertainties in mining operations and management cannot provide assurances that
it will be successful in its endeavors.

The Company's management believes that it will be able to generate sufficient
funds from public or private debt or equity financing for the Company to
continue to operate. The accompanying financial statements do not include any
adjustments that might result from the outcome of these uncertainties.

NOTE 9- TRANSLATION OF FOREIGN CURRENCIES

The assets and liabilities of subsidiaries located outside of the United States
are translated in U.S. dollars at the rates of exchange at the balance sheet
dates. Foreign currency transaction gains or losses are reflected in the results
of operations.

NOTE 10 - Comprehensive Loss

Comprehensive loss for the years ended December 31, 2008 and 2007 consisted of
the following:
                                                   2008            2007
                                                ----------      ----------

     Net loss                                   (1,579,801      (2,761,455)
     Foreign currency translation                       --        (105,985)
                                                ----------      ----------
                                                (1,579,801)     (2,867,440)
                                                ==========      ==========

NOTE 11- INCOME TAXES

The Company has made no provisions for income taxes because the Company has
incurred operating losses in all jurisdictions.

The FASB has issued Statement of Financial Accounting Standards Number 109 (SFAS
109) "Accounting for Income Taxes", which requires a change from the deferred
method to the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying the enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing liabilities.

                                      F-13
<PAGE>
                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)

                   Notes to Consolidated Financial Statements


The net deferred income tax asset consisted of the following components at
December 31, 2008 and 2007:

                                                  2008           2007
                                              ------------    ------------
     Deferred tax asset:
     Net operating loss carry forwards        $ 11,427,894       9,848,093
     Valuation allowance                       (11,427,894)     (9,848,093)
                                              ------------    ------------

     Net deferred income tax asset            $         --    $         --
                                              ============    ============

At December 31, 2008, the Company had a net operating loss carry forwards of
approximately $11,427,894 for federal income tax purposes. These carry forwards
if not utilized to offset taxable income will begin to expire in 2020.




                                      F-14
<PAGE>