FORM 10-KSB/A


                                  AMENDMENT #2




                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934 For the fiscal year ended: December 31, 2002



                        Commission file number 000-30651

                            Industrial Minerals, Inc.
                            -------------------------
                 (Name of small business issuer in its charter)

                           Formerly PNW Capital, Inc.

        Delaware                                    06-1474412
        --------                                    ----------
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)

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

Issuer's telephone number:             (416) 979-4621
                                      ----------------
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)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer 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-B contained in this form, and no disclosure  will be contained,  to
the best of issuer's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

State issuer's  revenues for its most recent fiscal year: $0

As of December 31, 2002, 27,408,921 shares of the Company's Common Stock, no par
value per share, were held by non-affiliates, which, based upon market closing
price on December 31, 2002, of $1.90 had a value of $52,076,950.

The number of shares of Common Stock of the registrant outstanding as of
December 31, 2002, were 36,031,621. A reverse split of one for one hundred
common shares became effective on January 7, 2002.

                                        1


<PAGE>


                                TABLE OF CONTENTS

PART I                                                                     PAGE

     Item 1.   Description of Business                                         3
     Item 2.   Description of Property                                         5
     Item 3.   Legal Proceedings                                               5
     Item 4.   Submission of Matters to a Vote of Security Holders             6


PART II

     Item 5.   Market for Common Equity and Related Stockholder Matters        6
     Item 6.   Management's Discussion and Analysis or Plan of Operation       8
     Item 7.   Financial Statements                                            9
     Item 8.   Changes in and Disagreements With Accountants on Accounting     9
               and Financial Disclosure


PART III

     Item 9.   Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act              10
     Item 10.  Executive Compensation                                         11
     Item 11.  Security Ownership of Certain Beneficial Owners and Management 15
     Item 12.  Certain Relationships and Related Transactions                 15
     Item 13.  Exhibits and Reports on Form 8-K                               17
     Item 14.  Procedures and Controls                                        17

SIGNATURES                                                                    18

                                        2


<PAGE>


PART I

Item 1 - Description of Business

Background

     The  Company  was formed  November  6, 1996.  The name of the  Company  was
changed to PNW Capital, Inc. on May 16, 2000.

     The Company is a successor  registrant  pursuant to Section  12(g) 3 of the
Securities  Exchange Act of 1934, by virtue of a statutory merger of the Parent,
Winchester  Mining  Corp.,  a  Delaware   corporation,   and  its  wholly  owned
subsidiary,  Hi-Plains  Energy Corp.,  a Wyoming  corporation,  with  Winchester
Mining  Corporation  being the  survivor.  There was no change to the issued and
outstanding shares of Winchester Mining Corporation, and all shares of Hi-Plains
Energy Corp. were retired by virtue of the merger.

     On May 15,  2000,  Winchester  Mining  Corp.  completed  a  Share  Purchase
Agreement  with  shareholders  of Hi-Plains  Energy Corp.  in  which  Winchester
Mining Corp., a Delaware corporation, acquired all 780,000 shares outstanding of
the Registrant for the purposes of  accomplishing  a Merger of Hi-Plains  Energy
Corp. and Winchester Mining Corp. The Merger was completed on May 15, 2000.

     In 1996 the Company was listed on the OTCBB with the symbol WNCR. The prior
management raised funds for a mining property in the Northwest Territories.  The
budget was spent and the Company remained inactive until March of 1999. In March
of 1999, the Company raised  $150,000 to invest in online  gambling  pursuant to
Rule 504, Regulation D for US Investors and Pursuant to Regulation S for foriegn
investors. The Company has since divested itself of these acquistions due to the
questionable nature of the online gambling industry. In September of 1999, Wayne
Miller became  president of Winchester  Mining,  Corp. The Company  commissioned
Digicorp of  Vancouver  British  Columbia,  Canada to develop  websites  for the
Company:  Hollwoodmall.net  and  Pacificnorthwestmall.net.  They have been under
development  since  October of 1999.  Radiant  Communication  of  Vancouver  was
developing and managing these websites until work was terminated in late 2000.

     Bullseye Communication Group was hired to develop an overall marketing plan
for the Company and the two "mall" websites.  All website and "mall" development
work was  terminated in the fall of 2000,  due to lack of capital and difficulty
of attacting  business.  According to Company  records,  Bullseye  Communication
Group was paid a total of $5000 for development of the website.

     In fall of 2000 the  Company  acquired  100% of the issued and  outstanding
stock of PB&J  Inc.,  a newly  formed  Colorado  Corporation  upon  issuance  of
47,460,000  shares of common  stock to the  principals  of PB&J,  who became the
management and Directors of PNWC.

     The  PB&J  transaction  was  brought  to the  Company  by  Messrs.  Silva &
McFarlane who were not officers and Directors or affiliates of the Company.  The
transaction was completed as a share exchange.

     The Board of Directors  determined that the  consideration for the business
concept of PB&J was  adequate  based upon the facts that:  a) the Company had no
active business. b) the business plan appeared to have potential,  c) the market
price of the stock was very low.  d) no other  more  promising  businesses  were
willing to be acquired,  when the Company had no capital to invest. There was an
arms length  negotiation  between the then Board of Directors and the principals
of PB&J. Two owners of PB&J Mssr. Silva & McFarlane became officers,  directors,
and affiliates of the Company after the PB&J transaction.


                                        3

<PAGE>


     PB&J had developed  magnetized  package  dispensing system for plastic bags
and dryer sheets for location on kitchen refrigerators. The product was designed
to offer enhanced  convenience which managemnet  believed represent a marketable
product.

     PB&J, the now wholly owned  subsidiary had no prior business  operations in
the prior two years,  although the  management  did develop the concept and test
market the product on a limited  local basis.  The product has never been placed
in production nor significant marketing effort made due to lack of capital. PB&J
held a trademark  license on the name Peanut Butter + Jelly,  Inc. by assignment
from Joseph L. McFarlane the magnetic packaging and dispensing system.

     On December 14, 2001, the shareholders  adopted a reverse split of the then
issued  and  outstanding  shares on a 100 for one basis,  except  that no share-
holder  shall be  reduced  to less than 50  shares.  The  effective  date of the
reverse split was January 7, 2002.

     On January 31, 2002, PNW Capital,  Inc. ("PNW" or the  "Company"),  entered
into  a  definitive   acquisition   agreement  to  acquire  Industrial  Minerals
Incorporated  ("IMI"),  a private Nevada  corporation,  owner of certain mineral
leases  located  in the  Townships  of Head,  Clara and  Maria in the  County of
Renfrew and the Province of Ontario,  Canada.  The Agreement for Share  Exchange
was executed  January 31, 2002 and approved by the Board of Directors on January
31, 2002. The negotiation was at arms length.

     Under the terms of the  acquisition  agreement,  PNW  exchanged  a total of
31,511,700  shares of its common  stock for 91% of the  issued  and  outstanding
shares of IMI. By February 20, 2002 the Company received executed documents from
the  participating  shareholders of IMI  representing  31,511,750  common shares
(91%) for the  exchange  of shares of IMI for common  shares of PNW on a one for
one basis.

     In the transaction IMI became a wholly owned subsidiary of PNW. The Company
nor  its  subsidiary  currently  have  any  revenue  producing  operations.  The
stockholders of IMI became stockholders of PNW, and their rights as stockholders
are governed by the PNW articles of  incorporation  and bylaws,  as currently in
effect, and the laws of the State of Delaware. Following the acquisition, PNW is
continuing  on  IMI's  operations  under  the  changed  Company  name-Industrial
Minerals Inc. PNW's then current board of directors  resigned and a new board of
directors was appointed  after Notice  pursuant to Section 14f of the Securities
and Exchange Act of 1934 was mailed to  shareholders.  Shareholders did not vote
on this appointment of directors.

     The IMI  transaction  was introduced to the Company by a shareholder of the
Company who was not an officer or director or  affiliate.  The  transaction  was
approved by the Board,  because the Company had been unable to raise capital for
the PB&J project. The purchase consideration was negotiated based upon a summary
of report prepared by Ben Ainsworth of  Ainsworth-Jenkins.  This report prepared
by Mr. Ainsworth  summarized  previous reports by Kilborn  Engineering Ltd., KHD
Canada Ltd., Pincock, Alan & Holt, Cominco Engineering Services Ltd and Environ-
mental Applications Group Ltd.

     The Board of Directors  approved the acquisition of IMI on January 31, 2002
and  authorized  the issuance of the shares on February  20, 2002.  The vote was
unanimous to approve the agreement.

     The PNW board of directors  negotiated the  acquisition  agreement with IMI
and authorized  the issuance of the exchange  shares  totalling  31,511,750 in a
transaction  exempt from registration  under Section 4(2), 4(6) and Regulation S
as applicable because the board of directors believes that this acquisition will
be to the benefit of shareholders.

     The class of persons to whom the common  shares of issuer  were  issued was
the holders of 91% of the common  stock of  Industrial  Minerals,  Inc. a Nevada
Corporation. The consideration for the issuance of issuers shares was to acquire

                                       4


<PAGE>


(by  exchange)  91%  of  the  shares  of  Industrial  Minerals,  Inc.  a  Nevada
Corporation. Subsequently, in May 2002 the subsidiary, Industrial Minerals, Inc.
was merged  into  issuer in a statutory  merger of a  subsidiary  in to a parent
pursuant to Section 253 of Delaware General Corporation Law.


Certain Risks

     The Company's  business is subject to numerous risk factors,  including the
following:

     The  Company is in the  process of  developing  its  mineral  property  for
graphite at its Bissett Creek property.  The Company is installing  equipment in
preparation for attempted production of graphite.

     There has been no  graphite  production  to date  (April  10,  2003) by the
Company.  The Company has no purchase  orders for graphite to be produced by the
Company.  The Company  hopes to be in  production  for graphite in the summer of
2003 at its Bissett Creek mineral  prospect.  (Please see "Plan of Operation" as
contained in Item 6 hereof.)

Item 2 - Description of Property
--------------------------------

     After  December  31, 2002 the Company has  acquired  and merged  Industrial
Minerals,  Incorporation  a Nevada  corporation  into  itself.  The Company owns
mineral interests in a graphite mineral property in Canada as follows:

     The  Company is the  "lessee"  of 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 admeasurement 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.

     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 covers a total area of  approximately  625 acres or 248  hectares.  They're
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.  The trans-
action to acquire the claims were at "arms length" with Sellers. Sellers are not
and were not  affiliates of IMI at the time of the  transaction.  The Company is
responsible  for a royalty in the amount of $20 (Canadian) per tonne of graphite
produced.  The Company must pay an advance  royalty of $27,000  Canadian  yearly
which will be recaptured once the property is producing and there are sales.


                                       5

<PAGE>

     The  Company's  mailing  address is One Dundas  Street  West,  Suite  2500,
Toronto, Ontario, Canada M5G 1Z3.


Item 3 - Legal Proceedings
--------------------------

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


Item 4 - Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

     No  matters  were  submitted  by the  Company  to a vote  of the  Company's
shareholders through the solicitation of proxies or otherwise, during the fiscal
year covered by this report.

                                    PART II

Item 5 - Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------

     (a) The Registrant's common stock is traded in the over-the- counter market
under the symbol INDM (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.


             2002                                  High Bid      Low Bid
             ----                                  --------      -------
          1st quarter                                1.60           .25
          2nd quarter                                1.55           .74
          3rd quarter                                2.05          1.21
          4th quarter                                2.10          1.47


             2001                                  High Bid      Low Bid
             ----                                  --------      -------
          1st quarter                                 .31          .13
          2nd quarter                                 .23          .07
          3rd quarter                                 .14          .04
          4th quarter                                 .095         .0055


     (b) As of December 31, 2002,  there were 182  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.

                                        6
<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.

Dividends

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

                                        7

<PAGE>


Item 6 - Management's Discussion and Analysis or Plan of Operation
------------------------------------------------------------------

Twelve month period ending December 31, 2002 and December 31, 2001

     During the twelve-month  period ending December 31, 2002 the Company had no
revenues.  The Company had no revenue during the same twelve-month period ending
December 31, 2001.

     The  Company  incurred  expenses  for  professional  fees in the  amount of
$86,275  during the  twelve-month  period  ending  December 31, 2002 compared to
$60,000  during the  twelve-month  period ending  December 31, 2001.  This is an
increase of $26,275. This increase is due to an increase in activity surrounding
the operations of the Company during the twelve-month period ending December 31,
2002 compared to the same twelve-month period ending December 31, 2001.

     The Company  incurred  royalty expenses in the amount of $17,550 during the
twelve-month  period ending December 31, 2002.  These expenses are the result of
the  Company  obtaining  the Bissett  Creek  Graphite  property.  The Company is
required to pay a minimum yearly royalty of $17,550 whether graphite is produced
or not.  There were no royalty  payments  paid  during the  twelve-month  period
ending December 31, 2001, as the Company did not have an interest in the Bissett
Creek Graphite property.  This royalty is an advance royalty.  As an exploration
Company  the  treatment  of  this  advance   royalty  is  expensed  rather  then
capitalized.

     Depreciation  and amortization  expense for the twelve-month  period ending
December 31, 2002 totaled  $56,193.  There was no depreciation  and amortization
expense during the twelve-month period ending December 31, 2001. This represents
a 100% increase in the  twelve-month  period  ending  December 31, 2002 over the
same period  ending  December 31, 2001.  This  increase is due to an increase in
activity  surrounding  the  operations  of the Company  during the  twelve-month
period ending December 31, 2002 compared to the same twelve-month  period ending
December  31,  2001.  This  increase in activity is due to the  companies'  100%
interest in the Bissett Creek Graphite property.

     Other  general and  administrative  expenses  for the  twelve-month  period
ending December 31, 2002 totaled  $360,227.  This represents a $352,856 increase
in the twelve-month  period ending December 31, 2002 over the same period ending
December 31, 2001.  This increase is due to an increase in activity  surrounding
the operations of the Company during the twelve-month period ending December 31,
2002 compared to the same  twelve-month  period ending  December 31, 2001.  This
increase in activity is due to the companies' 100% interest in the Bissett Creek
Graphite property.

                                       8

<PAGE>


     The  Company  has had a net loss of $520,242  for the  twelve-month  period
ending  December  31,  2002  as  compared  to a net  loss  of  $67,251  for  the
twelve-month  period ending  December 31, 2001.  This  represents an increase of
$452,991 for the twelve-month  period ending December 31, 2002. This increase is
due to an increase in activity  surrounding the operations of the Company during
the  twelve-month   period  ending  December  31,  2002  compared  to  the  same
twelve-month period ending December 31, 2001.

Liquidity and Capital Resources

     The  Company  has cash on hand of  $5,537  and  accounts  receivable  as at
December 31, 2002 of $19,594.  The account  receivable of $19,594 is a result of
tax input credits owed to the Company by the Government of Canada.

     The Company has prepaid  expenses  of $6,400.  This  represents  the unused
portion of an  insurance  policy that the Company  carries for its  building and
equipment. This policy expires September 6, 2003.

     The  Company  has on  deposit  with  its  landlord  $796  which  represents
one-month rent and common costs  associated  with its premises  located at Suite
2500, One Dundas Street West,  Toronto, On M5G 1Z3. The Company has entered into
a lease, which expires on April 30, 2003 at which time the Company will continue
to rent office space on a month to month basis.

     The  Company has no revenue  during the first  twelve-month  period  ending
December  31,  2002  and  expects  to  have  no  revenue  in  each  of the  next
two-quarters  ending March 31, 2003 and June 30, 2003.  The Company is currently
seeking  customers for its  graphite.  Discussions  are on going with  potential
customers for graphite but there are no contracts  concluded at this time. There
can be no guarantee  that the Company will be successful in obtaining a contract
for its graphite.

     The Company has total  accounts  payable of $183,845.  Related  parties are
owed  $180,000 and  non-related  parties are owed $3,845.  The Company  requires
additional  financing  in order to pay  these  accounts  payable  in an  orderly
fashion.  If the Company does not receive additional  financing the Company will
not be able to continue as a going concern.

     During the fiscal year ending  December  31, 2002 the Company has secured a
first mortgage in the amount of $17,000 which requires a payment of $260 monthly
for five years and the balance is then due and payable at the end of five years.
This  mortgage  carries an interest  rate of 7% annually.  The Company  requires
additional  financing in order to pay these  mortgage  payments.  If the Company
does not receive  additional  financing the Company will not be able to continue
as a going concern.

                                       9

<PAGE>

     During the three-month period ending December 31, 2002 the Company has been
able to secure debt  financing in the amount of $301,812  from a  non-affiliated
shareholder.  This debt now totals  $775,372 for the period ending  December 31,
2002. Interest in the amount of $16,098 had accrued on this debt to December 31,
2002.  The Company  signed notes for this interest in the amount of $16,098 thus
the accrued  interest is now part of the total debt of  $775,372.  The  interest
rate associated  with this debt will be 7% yearly.  This debt is due and payable
together  with  principal and accrued  interest on July 31, 2003.  Subsequent to
December 31, 2002 the Company has arranged an additional  debt  financing in the
amount of  $181,200  at a rate of 7% from a  non-affiliated  shareholder.  These
loans along with the accrued interest are due and payable on July 31, 2003.

     Industrial  Minerals  has a  number  of  future  commitments  for  which it
presently does not have the funds on hand to satisfy.  These commitments include
the payment of the  short-term  liabilities  to  affiliated  and  non-affiliated
parties  described in the preceding  paragraphs.  While Industrial  Minerals has
been  seeking  financing  sources for the Bissett  Creek  Graphite  Property the
Company  must also seek  financing  sources for its  general and  administrative
operations.  Although Industrial Minerals has been successful in obtaining funds
to  date,  there  can be no  assurance  that it will be able to  continue  to be
successful in doing so.  Industrial  Mineral's ability to finance its operations
will,  in the end,  be  dependent  on its  ability  to  generate  cash flow from
operations, of which there can be no assurance.

     During fiscal year ending  December 31, 2002 the Company has completed work
on it's Bissett Creek Graphite Property as follows:

o       Access roads on the property have been upgraded along with 800 feet of
        new road built to the mill site area.
o       Site preparation for the crushing facility, including a concrete pad,
        has been completed.
o       Stripping of the overburden at pit #4 is complete. This is the area
        where the mining will begin.
o       All equipment required for the crushing facility has been procured and
        delivered to the site.
o       The primary crusher has been assembled.
o       Screening equipment and a secondary crusher have been put in place.
o       A bulk sample (approximately 200 tons of material) has been crushed
        through the primary crusher.
o       The ground for two buildings has been prepared.
o       As per the mining lease the mine closure plan is being developed.
o       Various metallurgical tests have been performed on the Bissett Creek
        Graphite.

                                       10

<PAGE>

     As of the date of this  filing the  following  work is required in order to
complete the plant:

o        Construction of two buildings, one 2,500 square feet and one 10,200
         square feet.
o        Conveyor belts.
o        Completing the mine closure plan.
o        Concrete pads.
o        Construction of bins.
o        Dust collection.
o        Steel structures and collection pans.
o        Electrical installations


     As discussed  above the following along with the estimated cost is required
to complete the plant on the Bissett Creek Graphite Property.

o        Two buildings total 12,700 square feet                   $  65,000
o        Conveyor belts                                           $  49,000
o        Completion of mine closure plan.                         $  35,000
o        Concrete work.                                           $  62,000
o        Dust collection equipment and bins.                      $  31,600
o        Steel work.                                              $  13,455
o        Electrical installations                                 $ 225,000
o        Payment to Contractors to complete work.                 $ 142,300


     Through  December  31,  2002,  the  Company  has been able to  obtain  debt
financing  in the  amount of:  $775,372.  The  interest  rate on this debt is 7%
calculated yearly and is currently accruing.  The principal and accrued interest
is due and payable on July 31, 2003.

     In addition to the  financing  discussed  in the  preceding  paragraph  the
Company  secured  a first  mortgage  in the  amount  of  $17,000  on a house and
separate building. The payments on this mortgage are $260 monthly at an interest
rate of 7% per annum,  calculated  semi-annually  not in advance.  This mortgage
matures August 29, 2007.

     The Company also owes to a related party  $180,000 as of December 31, 2002.
Subsequent  to December  31, 2002 the Company has paid  $40,000 to this  related
party.

     Subsequent to December 31, 2002 the Company  secured debt  financing in the
amount of $181,200 at an interest rate of 7% calculated annually.  The principal
and  accrued  interest  is due and  payable on July 31,  2003.  These funds were
advanced by a non-affiliated shareholder.

     In  addition  to the  financing  currently  in place the  Company  requires
additional  financing in the amount of $623,355 to complete the  construction of
the mine  facility.  The Company has also budgeted for a monthly  administration
cost of $30,000.  The Company  will also  require  $200,000 to start  processing
graphite to build an inventory  of  approximately  1000 tons of graphite;  these
funds  are  required  for  the  operation  of the  mine.  The  Company  requires
additional  financing in the amount of $962,155 ($1,143,355 minus financing that
was obtain- ed subsequent to December 31, 2002 in amount of $181,200). This will
enable the  Company to finish  building  the plant  ($623,355),  pay the account
payable  to  a  related  party  ($140,000)  and  provide  $180,000  for  monthly
administration  costs of  $30,000  each for the months of  January  through  and
including  June of 2003  and  have  $200,000  to  operate  the  mine to build an
inventory of 1000 tons of graphite.

     It should also be noted that  virtually  100% of the Company's  debt is due
and  payable on July 31,  2003.  Management  of the  Company  has  entered  into
discussions to renegotiate the terms of the Company's debt.  These  negotiations
are on going and no agreement has been reached as of this date.

                                       11

<PAGE>

The Company has the following loans due on dates in next year:

Loans Due

     $775,372  outstanding  balance as of  December  31, 2002  includes  accrued
interest of $16,098 at the rate of 7% per annum payable in United States dollars
due July 31, 2003.

     $181,200  advanced to the  Company  subsequent  to  December  31, 2002 plus
accrued  interest at the rate of 7% per annum payable in United  States  dollars
due July 31, 2003.

     The Company has the following capital commitments for leases and equipment:

Capital Commitments

Equipment: NONE

     Office premises January,  February,  March and April $455 (USD) monthly for
rent. The premises will then be occupied on a month-to-month basis at the rental
rate of $455 (USD)  monthly.  The Company  expects to continue  occupying  these
premises for the  remainder of its 2003 fiscal year.  These  payments are due on
the first of every month.

Mortgage Payable

     The Company has  committed  to a payment of $260 (USD)  monthly  throughout
2003 for its house in Bissett Creek.  These payments are due on the 29th of each
month.

     Investors  and  potential  investors  should be aware that even  though the
Company has been able to raise funds to date in the amount of $973,673 there can
be no guarantee  that the Company will be successful  in obtaining  satisfactory
additional financing in the amount of $962,055 which the Company requires. There
are no financing  commitments  currently in place for the required  funds in the
amount of $962,055.  The Company  intends to continue to seek debt  financing to
complete this project from non-affiliates,  and possibly officers, directors and
shareholders.  No commitments of any type have been made by any person or entity
to provide  financing.  Management  has no plan to  overcome  the  uncertainties
surrounding  the  Company's  ability  to  continue  as a  going  concern  for  a
reasonable period of time. Management will deal with issues as they arise but as
a "start up"  Company in a graphite  mining  attempt,  the  Company  can neither
predict  nor solve,  in  anticipation,  the  uncertainties  of  mining,  capital
raising,  marketing or operations.  All risks and uncertainties  inherent in any
start up Company  exist in the chosen area of the Company.  The Company does not
have any other plan in place to provide capital or financing for its operations.

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

                                       12

<PAGE>

Item 7 - Financial Statements
-----------------------------

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

     For 2001 Michael  Johnson & Co. was the auditor and that report is found at
p. F-1 to F-8.  For 2002,  Toski,  Schaefer & Co.,  PC was the  auditor and such
report is found at p. F-9 to F-20.


Item 8 -  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure
--------------------------------------------------------------------------------

     Michael  Johnson  & Co.,  LLC.,  formerly  auditors  for the  Company,  was
dismissed as auditor.  On April 5, 2002, Toski,  Schaefer & Co, PC. were engaged
as auditors for Company.  The Change of Accountants was approved by the Board of
Directors.  No audit  committee  exists  other than the  members of the Board of
Directors.  In  connection  with audit of the two most  recent  fiscal  year and
through the date of termination of the accountants,  no disagreements exist with
any former  accountant  on any matter of  accounting  principles  or  practices,
financial  statement   disclosure,   or  auditing  scope  of  procedure,   which
disagreements if not resolved to the satisfaction of the former accountant would
have caused them to make reference in connection  with his report to the subject
of the disagreement(s).  The audit report by Michael Johnson & Co., LLC. for the
year ended  December 31, 2001,  contained an opinion which  included a paragraph
discussing  uncertainties  related to  continuation of the Registrant as a going
concern. Otherwise, the audit report by Michael Johnson & Co., LLC. for the year
ended  December  31, 2001 did not contain an adverse  opinion or  disclaimer  of
opinion,  nor was  qualified  or modified as to  uncertainty,  audit  scope,  or
accounting principles.

     In April 5, 2002, the Company engaged Toski,  Schaefer & Co., PC, New York,
as its new principal  independent  accountant  to audit the Company's  financial
statements.  The prior accountant was Michael Johnson & Co., LLC. There has been
no  disagreement  between  accountants  regarding the  application of accounting
principles  to any specific  completed  or  contemplated  transaction,  or as to
policies as to accounting.

                                       13

<PAGE>

                                    PART III

Item  9  -  Directors,   Executive  Officers,  Promoters  and  Control  Persons;
Compliance with Section 16(a) of the Exchange Act
--------------------------------------------------------------------------------

     The current Executive officers of Registrant at December 31, 2002 are:


              NAME                     POSITION HELD              TENURE
------------------------------------------------------------------------
         Edward V. Verby               President                  Annual
         John Melnyk                   Chief Financial
                                       Officer & Secretary        Annual


     The persons who are directors of the Registrant at December 31, 2002 are:

         Name                               Age
         ----                               ---
         Edward V. Verby                     60
         John Melnyk                         53
         Stephen W. Weathers                 42


         Business Experience

     The following is a brief account of the business experience during at least
the past five years of the persons  designated  to be new 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.

     EDWARD V.  VERBY,  age 60, in 1963 earned his  Bachelor of Commerce  degree
from Loyola College in Montreal with a major in economics.  From 1963 to 1991 he
worked in the tire industry retiring from  Uniroyal-Goodrich  Canada, Inc. where
he held the  position  of Vice  President  of Sales.  (This was a tire  products
manufacturer.)  Mr. Verby  became a director and later  President of Great Lakes
Nickel Limited, a mineral exploration  venture, in 1991 resigning both positions
in December  of 2001.  He has been a partner  and  director  of Anderson  Tire &
Treads in Hamilton since 1991. (This is a tire retail Company.)

     JOHN MELNYK,  age 53, studied Business  Administration  and Commerce at the
University  of Alberta  from 1970 to 1974.  From 1974 to 1978 he managed a sales
territory  for McQueen  Sales  Company,  Ltd.,  a  distributor  of  photographic
products.  From  1978  to  1982  he  was a  self  employed  sales  agent  in the
photographic industry. In 1982 he purchased an interest in a photo finishing lab
which he sold in 1994. From 1994 to present he has been a self employed business
consultant.  Mr.  Melnyk also served as the President and a director of Murphy's
Investment Corp. a privately held Corporation which invests in various ventures.
He  resigned  his  position in March 2002.  Mr.  Melnyk  works full time for the
Company.

                                       14

<PAGE>

     STEPHEN W.  WEATHERS,  age 42, earned his B. S. in Geology from Boise State
University.  He has  worked as an  environmental  geologist  both in the  mining
industry and oil and gas industry. His duties included permitting, environmental
compliance,   environmental   remediation/reclamation   and  natural  gas  asset
acquisitions  both in the United  States and  Canada.  Mr.  Weathers  worked for
Maxxim  Environmental/Terracon from 1997 through 1999 and presently works in the
environmental  remediation  division for a Duke Energy Field Services which is a
natural  gas  processing  Company  (1999-2002).  Mr.  Weathers  also serves as a
director of Sun River Mining, Inc. which is seeking a business acquisition.

     No  appointee  for a  director  position  has  been  subject  of any  civil
regulatory proceeding or any criminal proceeding.

     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 the  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(a) 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:

        Steve Weathers                  1x Form 3 (late filing)
        Krystar International, Inc.     1x Form 3 (late filing)
        John Melnyk                     1x Form 3 (late filing)
        Edward Verby                    1x Form 3 (late filing)


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.


                                       15

<PAGE>

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.

                                       16
<PAGE>

Item 10 - Executive Compensation
--------------------------------

                             EXECUTIVE COMPENSATION

Cash Compensation.

     Compensation paid for all services provided up to December 31, 2002 (1) to
each of our executive officers and (2) to all officer as a group.

<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE OF EXECUTIVES

                                    Cash Compensation                  Security Grants
<S>               <C>       <C>          <C>        <C>              <C>         <C>               <C>
NAME AND          YEAR      SALARY       BONUS      CONSULTING       NUMBER OF   SECURITIES        LONG TERM
PRINCIPAL                                           FEES/OTHER       SHARES      UNDERLYING        COMPENSATION/OPTION
POSITION                                            FEES ($)                     OPTIONS/
                                                                                 SARS (#)
================= ========= ============ ========== ================ =========== ================= ================
Daneil C          2000      0            0          0                0           0                 0
Silva,            2001      0            0          0                750,000*    0                 0
President         2002      0            0          0                0           0                 0
(resigned 2002)
----------------------------------------------------------------------------------------------------------
Joseph L.         2000      0            0          0                0           0                 0
McFarland Jr.     2001      0            0          0                750,000*    0                 0
Secretary         2002      0            0          0                0           0                 0
Resigned (2002)
----------------------------------------------------------------------------------------------------------
Gary Burnie,      2000      0            0          0                0           0                 0
Secretary         2001      0            0          0                0           0                 0
(Resigned 2000)   2002      0            0          0                0           0                 0
----------------------------------------------------------------------------------------------------------
John Melnyk,      2002      0            0          0                0           0                 0
Secretary/
Treasurer, CFO
----------------------------------------------------------------------------------------------------------
Edward Verby,     2002      0            0          0                0           0                 0
President
----------------------------------------------------------------------------------------------------------
Officers as a     2000      0            0          0                  550,000   0                 0
Group             2001      0            0          0                1,500,000*  0                 0
                  2002      0            0          0                0           0                 0
----------------------------------------------------------------------------------------------------------
</TABLE>

* Shares issued in December 2001 for services rendered, valued at $15,000 for
each 750,000 shares.

                                       17
<PAGE>

                     SUMMARY COMPENSATION TABLE OF DIRECTORS
<TABLE>
<CAPTION>

                             (TO DECEMBER 31, 2002)
<S>                       <C>       <C>           <C>          <C>                <C>           <C>
NAME AND PRINCIPAL        YEAR      ANNUAL        MEETING      CONSULTING         NUMBER OF     SECURITIES
                                    RETAINER      FEES ($)     FEES/OTHER FEES    OPTION        UNDERLYING OPTIONS/
POSITION                            FEES ($)                   ($)                SHARES        SARS (#)
                                                                                  EXERCISED
===============================================================================================================
Daniel C. Silva           2000          0             0            0                  0             0
(Resigned 2002)           2001          0             0            0                  0             0
                          2002          0             0            0                  0             0
-------------------------------------------------------------------------------------------------------------
Joseph L. McFarland, Jr.  2000          0             0            0                  0             0
(Resigned 2002)           2001          0             0            0                  0             0
                          2002          0             0            0                  0             0
-------------------------------------------------------------------------------------------------------------
Gary Burnie, Secretary    2000    100,000             0            0          2,000,000             0
(Resigned 2000)
-------------------------------------------------------------------------------------------------------------
Wayne Miller              2000    100,000             0            0          2,000,000             0
(Resigned 2000)
-------------------------------------------------------------------------------------------------------------
Barry Miller              2000     25,000             0            0                  0       500,000
(Resigned 2000)
-------------------------------------------------------------------------------------------------------------
Edward Verby,             2002          0             0            0                  0             0
President
-------------------------------------------------------------------------------------------------------------
John Melnyk, Secretary/   2002          0             0            0                  0             0
Treasurer, CFO
-------------------------------------------------------------------------------------------------------------
Directors as a            2000    225,000             0            0          4,000,000       500,000
Group                     2001          0             0            0                  0             0
                          2002          0             0            0                  0             0
===============================================================================================================
</TABLE>

     In August,  2000, the Company  adopted the 2000  Nonqualified  Stock Option
Plan. The Plan sets aside 10,000,000  shares of common stock option for issuance
to employees,  directors, officers, attorneys, accounts, consultants or advisors
to the Company. The Plan has a ten year term.

     On September 20, 2000, the Company granted  options to officers,  directors
and consultants to purchase  7,000,000  shares of the Company's  common stock at
$0.05 per share under the Plan.  The options  were  immediately  exercised,  and
shares were  issued in  satisfaction  of the  Company's  obligation  to the four
individuals for consulting  services  rendered  through  September 30, 2000. The
transaction  was recorded by a charge to expense for  $257,035,  and a charge of
$92,965 against amounts previously accrued for such services,  for a total value
of $350,000.

     Also,  on  September  20,  2000,  the  Company   granted  options  to  five
consultants  (0ne of  whom  was  also a  director,  Barry  Miller)  to  purchase
2,200,000  shares at $0.05 per share under the Plan. The options are exercisable
at any time before ten years from the date the Plan was adopted.  The options to
purchase  shares are subject to the reverse  split of one for one hundred  which
was completed in January  2002. At December 31, 2000,  none of these options had
been exercised.

                                       18

<PAGE>

Item 11 - Security Ownership of Certain Beneficial Owners and Management
----------------------------------------------------------------------

     The following table shows the share ownership of officers, directors and 5%
or greater shareholders.


Name and Address of                         Number of          Percent of Common
Beneficial Owner                          Shares Owned         Shares Owned
                                          Beneficially
                                          and of Record
-------------------                       -------------         ------------
Edward V. Verby (1)(2)                    200,000               less than .1%
One Dundas Street West, Suite 2500
Toronto, Ontario, Canada M5G 1Z3

John Melnyk (1)(2)(3)                     1,925,400             5.3%
One Dundas Street West, Suite 2500
Toronto, Ontario, Canada M5G 1Z3

Stephen W. Weathers (2)                   2,200                 less than .1%
1926 S. Xenon Street
Lakewood, CO  80228

Krystar International                     6,498,000             18%
P.O. Box N-8198
East Bay Street
Management International Building
Nassau, Bahamas, BWI

Officers and Directors as a Group         2,127,600             5.9%

(1)     Officer
(2)     Director
(3)     Includes Murphy's Investment Corp. and Olympic View Investments
        (beneficially John Melnyk's wife)


Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

Acquisition of Peanut Butter and Jelly, Inc.
-------------------------------------------

     On September 25, 2000, the Company  authorized  the  acquisition of 100% of
the  outstanding  stock of  Peanut  Butter  and  Jelly,  Inc.  in  exchange  for
47,460,000  restricted  common  shares of the Company.  Peanut Butter and Jelly,
Inc. was a development  stage Company.  After the acquisition of Peanut Butter &
Jelly,  Inc. the following shows the share ownership of officers,  directors and
5% or greater shareholders.

     The following  shares were issued to the persons in the amunts indicated in
consideration  for 100% of the  outstanding  shares of Peanut  Butter and Jelly,
Inc.:

Joseph McFarland                        12,339,600
Europark Holdings, Inc.                 12,339,600
Daniel C. Silva, President & Director   12,339,600
Maya Investment Corporation*             4,460,000
Robert Alan Kitsmiller                   3,322,200
Daniel Enright                           2,373,000

 *(beneficially Bruce Twa and Pete Cochrane)

                                       19
<PAGE>

     On September 20, 2000, the Company granted  options to officers,  directors
and consultants to purchase  7,000,000  shares of the Company's  common stock at
$0.05 per share under the Plan.  The options  were  immediately  exercised,  and
shares were  issued in  satisfaction  of the  Company's  obligation  to the four
individuals for consulting  services  rendered  through  September 30, 2000. The
transaction  was recorded by a charge to expense for  $257,035,  and a charge of
$92,965 against amounts previously accrued for such services,  for a total value
of $350,000.

     On May 9, 2000, the Company acquired all the outstanding stock of Hi-Plains
Energy Corp., a Wyoming  corporation that was also in the development stage, for
$15,600.  Concurrently therewith,  the Company paid consulting and legal fees of
$134,420 to facilitate the merger of Hi-Plains into  Winchester,  and the filing
of related  forms with the  Securities  and  Exchange  Commission.  The total of
$150,020 deemed to be the cost of the Hi-Plains shares.

     Effective May 13, 2000,  Hi-Plains was merged into  Winchester,  Winchester
changed its name to PNW Capital,  Inc.,  and each share  issued and  outstanding
immediately  prior to the  effective  date  remained  as issued and  outstanding
common stock in Winchester (renamed PNW) without change.

     On  December  1, 2001,  the Company  issued  750,000  shares each valued at
$15,000 each for services rendered to the following persons:

        1.  Daniel Silva, President and Director
        2.  Joseph McFarland, Secretary and Director
        3.  Robert Kitsmiller
        4.  Europark Holdings, Inc.

     On January 31, 2002, PNW Capital,  Inc. ("PNW" or the  "Company"),  entered
into  a  definitive   acquisition   agreement  to  acquire  Industrial  Minerals
Incorporated  ("IMI"),  a private Nevada  corporation,  owner of certain mineral
leases  located  in the  Townships  of Head,  Clara and  Maria in the  County of
Renfrew and the Province of Ontario,  Canada.  The Agreement for Share  Exchange
was executed  January 31, 2002 and approved by the Board of Directors on January
31, 2002. The negotiation was at arms length.

     Under the terms of the  acquisition  agreement,  PNW  exchanged  a total of
31,511,700  shares of its common  stock for 91% of the  issued  and  outstanding
shares of IMI. By February 20, 2002 the Company received executed documents from
the  participating  shareholders of IMI  representing  31,511,750  common shares
(91%) for the  exchange  of shares of IMI for common  shares of PNW on a one for
one basis.

     In the transaction IMI became a wholly owned subsidiary of PNW. The Company
nor  its  subsidiary  currently  have  any  revenue  producing  operations.  The
stockholders of IMI became stockholders of PNW, and their rights as stockholders
are governed by the PNW articles of  incorporation  and bylaws,  as currently in
effect, and the laws of the State of Delaware. Following the acquisition, PNW is
continuing  on  IMI's  operations  under  the  changed  Company  name-Industrial
Minerals Inc. PNW's then current board of directors  resigned and a new board of
directors was appointed  after Notice  pursuant to Section 14f of the Securities
and Exchange Act of 1934 was mailed to  shareholders.  Shareholders did not vote
on this appointment of directors.

     The class of persons to whom the common  shares of issuer  were  issued was
the holders of 91% of the common  stock of  Industrial  Minerals,  Inc. A Nevada
Corporation.  The consideration for the issuance of isuers shares was to acquire
(by  exchange)  91%  of  the  shares  of  industrial  Minerals,  Inc.  a  Nevada
Corporation. Subsequently, in May 2002 the subsidiary, Industrial Minerals, Inc.
was merged  into  issuer in a statutory  merger of a  subsidiary  in to a parent
pursuant to Section 253 of Delaware General Corporation Law.

                                       20

<PAGE>


Item 13 - Exhibits and Reports on Form 8-K
------------------------------------------

(a)     Exhibits filed with this annual report.
        16.1    Consent Letter (Michael Johnson & Co., LLC.)
        99.14   Sarbanes Oxley (CEO)
        99.14   Sarbanes Oxley (CFO)

(b)     Reports on Form 8-K

        The Company filed reports on Form 8Ks in 2002 as follows:

        8-K filed September 12, 2002
        8-K filed August 12, 2002
        8K12g3/a filed August 8, 2002
        8-K filed July 9, 2002
        8-K filed July 3, 2002
        8-K filed May 5, 2002
        8K12g3 filed April 8, 2002
        8-K filed April 4, 2002
        8-K filed March 14, 2002
        8-K March 6, 2002
        8-K/A filed March 6, 2002
        8-K filed February 27, 2002
        8-K filed February 13, 2002

Item 14 - Procedures and Controls
---------------------------------

     The  management  of the  Company has  evaluated  the  effectiveness  of the
issuer's disclosure controls and procedures as of a date within 90 days prior to
the filing  date of the report  (evaluation  date) and have  concluded  that the
disclosure  controls and procedures are adequate and effective  based upon their
evaluation as of the evaluation date.

     There were no significant  changes in internal controls or in other factors
that could significantly  affect internal controls subsequent to the date of the
most recent evaluation of such,  including any corrective actions with regard to
significant deficiencies and material weaknesses.


                                       21

<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:  May 13, 2003                       By: /s/ Edward V. Verby
                                              ---------------------------------
                                              Edward V. Verby, President, Chief


     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:  May 13, 2003            By: /s/ Edward V. Verby
       --------------          ----------------------------------------
                               Edward V. Verby, President, Chief Executive
                               Officer and Chairman


Date:  May 13, 2003             /s/ John Melnyk
       --------------           -----------------------------------------
                                John Melnyk, Chief Financial Officer & Secretary


                                DIRECTORS:


Date:  May 13, 2003             /s/ Edward V. Verby
                                -------------------------------------------
                                Edward V. Verby


Date:  May 13, 2003             /s/ John Melnyk
                                -------------------------------------------
                                John Melnyk


Date:  May 13, 2003             /s/ Stephen Weathers
                                -------------------------------------------
                                Stephen Weathers



                                       22
<PAGE>

                       CERTIFICATION PURSUANT TO SECTION
                         302 OF THE SARBANES OXLEY ACT


I, John Melnyk, CFO, certify that:


1. I have  reviewed  this  amended  annual  report on Form 10-KSB of  Industrial
Minerals, Inc.;


2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

                                       23

<PAGE>

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  May 13, 2003



/s/ John Melnyk
-----------------------
John Melnyk, CFO


                                       24

<PAGE>


                       CERTIFICATION PURSUANT TO SECTION
                         302 OF THE SARBANES OXLEY ACT


I, Edward Verby, CEO, certify that:


1. I have  reviewed  this  amended  annual  report on Form 10-KSB of  Industrial
Minerals, Inc.;


2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

                                       25

<PAGE>

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  May 13, 2003



/s/ Edward Verby
-----------------------
Edward Verby, CEO





                                       26


<PAGE>

                                PNW CAPITAL, INC.
                    (Formerly Winchester Mining Corporation)
                          (A Development Stage Company)
                              FINANCIAL STATEMENTS
                                December 31, 2001





<PAGE>


                           Michael Johnson & Co., LLC
                          Certified Public Accountants
                        9175 East Kenyon Ave., Suite 100
                             Denver, Colorado 80237


Michael B. Johnson C.P.A.                             Telephone:  (303) 796-0099
Member:  A.I.C.P.A.                                         Fax:  (303) 796-0137
Colorado Society of C.P.A.s





                          INDEPENDENT AUDITOR'S REPORT


Board of Directors
PNW Capital, Inc.
Denver, CO


We have  audited  the  accompanying  balance  sheets of PNW  Capital,  Inc.,  (A
Development Stage Company) as of December 31, 2001 and the related statements of
operations, stockholders' equity, and cash flows for the year ended December 31,
2001,  and for the period  November 6, 1996  (Inception)  to December  31, 2001.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of PNW Capital,  Inc.,  as of
December 31, 2001, and the results of their  operations and their cash flows for
the year ended December 31, 2001, and the period November 6, 1996 (Inception) to
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America.

The financial statements for the year ended December 31, 2000 and for the period
November  6, 1996  (Inception)  to  December  31,  2000,  were  audited by other
accountants, whose report dated May 4, 2001, expressed an unqualified opinion on
those  statements.  They have not performed any auditing  procedures  since that
date.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  described  in  Note 1 to the
financial statements,  the Company is in the development stage, conditions exist
which raise substantial doubt about the Company's ability to continue as a going
concern  unless  it is  able to  generate  sufficient  cash  flows  to meet  its
obligations and sustain its operations. The Company lost $67,251 from operations
in the year ended December 31, 2001. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Michael Johnson & Co., LLC
Michael Johnson & Co., LLC
Denver, Colorado
February 13, 2002

<PAGE>

<TABLE>
<CAPTION>

                                       PNW CAPITAL, INC.
                               (Formerly Winchester Mining Corp.)
                                 (A Development Stage Company)
                                         Balance Sheets
                                          December 31,


                                                                                  2001                      2000
                                                                            -----------------         ------------------
<S>                                                                               <C>                        <C>
ASSETS:
Current Assets:
   Cash                                                                                 $ 21                      $ 102
                                                                            -----------------         ------------------

      Total current assets                                                                21                        102
                                                                            -----------------         ------------------

TOTAL ASSETS                                                                            $ 21                      $ 102
                                                                            =================         ==================


LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
   Accounts Payable and Accrued Expenses                                            $ 17,629                   $ 10,459
                                                                            -----------------         ------------------

     Total Current Liabilities                                                        17,629                     10,459
                                                                            -----------------         ------------------

Stockholders' Equity:
Preferred Stock, par value $0.01 per share; 50,000,000
 shares authorized; no shares issued and outstanding                                       -                          -
Common Stock, par value $.0001; 100,000,000 shares authorized;
   1,000,863 shares issued and outstanding for 2001,                                  10,000                      9,700
   and 970,000 shares issued and outstanding for 2000
Additional paid-in Capital                                                         1,744,635                  1,684,935
Deficit accumulated during the development stage                                  (1,772,243)                (1,704,992)
                                                                            -----------------         ------------------

Total Stockholders' Equity                                                           (17,608)                   (10,357)
                                                                            -----------------         ------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                              $ 21                      $ 102
                                                                            =================         ==================


</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       F-2

<PAGE>

<TABLE>
<CAPTION>

                                          PNW CAPITAL, INC.
                                  (Formerly Winchester Mining Corp.)
                                    (A Development Stage Company)
                                       Statements of Operations

                                                                                                   November 6, 1996
                                                                   Year Ended                      (Inception) to
                                                                  December 31,                     December 31,
                                                              2001             2000                2001
                                                             ------           ------               ----------------
<S>                                                           <C>              <C>                 <C>
Revenue
    Sales                                                           $ -              $ -               $ 15,537
    Cost of Goods Sold                                                -                -                 76,201
                                                          --------------   --------------     ------------------
Gross Profit                                                          -                -                (60,664)
                                                          --------------   --------------     ------------------
Expenses:
   Consulting and management fees                                60,000          293,003                933,529
   Depreciation and amortization                                      -            7,753                  8,292
   Impairment of long-lived assets                                    -          306,176                582,176
   Other general and administrative                               7,371           88,606                190,900
                                                          --------------   --------------     ------------------
Total Expenses                                                   67,371          695,538              1,714,897
                                                          --------------   --------------     ------------------
Other Income
   Interest income                                                    -              419                  2,724
   Foreign exchange                                                   -              474                    474
   Other income                                                     120              113                    594
                                                          --------------   --------------     ------------------
 Total Other Income                                                 120              780                  3,318
                                                          --------------   --------------     ------------------
Net Loss                                                      $ (67,251)       $(694,758)          $ (1,772,243)
                                                          ==============   ==============     ==================

Per Share Information:

   Weighted average number of
     common shares outstanding                                  970,863          530,554

Net Loss per Common Share                                         (0.07)           (1.31)
                                                          ==============   ==============


</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       F-3

<PAGE>

<TABLE>
<CAPTION>

                                   PNW CAPITAL, INC.
                           (Formerly Winchester Mining Corp.)
                             (A Development Stage Company)
                                Statements of Cash Flows

                                    Indirect Method


                                                                                         November 6, 1996
                                                            Year Ended                   (Inception) to
                                                           December 31,                     December 31,
                                                             2001            2000             2001
                                                          ------------    -----------   -----------------
<S>                                                         <C>            <C>              <C>
Cash Flows from Operating Activities:
Net Loss                                                    $ (67,251)     $(694,758)       $ (1,772,243)
  Adjustments to reconcile net loss to cash used in
   operating activities:
   Provision for bad debts                                          -          4,169              49,676
   Issuance of common stock for services                       60,000        354,696             414,606
   Impairment of long-lived assets                                  -        306,174             306,174
   Increase in accounts payable                                 7,170        (40,778)             17,629
   (Increase) in accounts receivable                                -         (4,169)             (4,169)
   Decrease (increase) in prepaid expenses                          -            970                (539)
   Decrease (increase) due to related parties                       -        (36,332)            595,000
   (Increase) in inventory                                          -         (2,592)             (5,527)
                                                          ------------    -----------   -----------------
Net Cash Used for Operations                                      (81)      (112,620)           (399,393)
                                                          ------------    -----------   -----------------
Cash Flows from Investing Activities:
   Purchase of equipment                                            -         (4,699)             (4,160)
   Investment in Multiplex                                          -        (75,000)            (75,000)
   Website development costs                                        -        (71,861)            (71,861)
   Acquisition of goodwill                                          -       (149,057)           (149,057)
   Loan to related parties                                          -              -             (50,000)
   Loan repayments                                                  -              -               4,493
                                                          ------------    -----------   -----------------
Net Cash Used for Investing Activities                              -       (300,617)           (345,585)

Cash Flows from Financing Activities:
   Acquisition of Peanut Butter & Jelly, Inc.                       -             50                 140
   Issuance of common stock                                         -        413,070             744,859
                                                          ------------    -----------   -----------------
Net Cash Provided by Financing Activities                           -        413,120             744,999

Net Increase (decrease) in cash and cash equivalents              (81)          (117)                 21
                                                          ------------    -----------   -----------------
Cash and cash equivalents - Beginning of period                   102            219                   -
                                                          ------------    -----------   -----------------
Cash and cash equivalents - End of period                        $ 21          $ 102                $ 21
                                                          ============    ===========   =================

Supplemental Disclosure of Cash Flow Information
   Cash Paid During the Year for:
      Interest                                                    $ -            $ -               $ 113
                                                          ============    ===========   =================
      Income Taxes                                                $ -            $ -                 $ -
                                                          ============    ===========   =================

NON-CASH TRANSACTIONS
    Common stock issued in exchange for services             $ 60,000      $ 354,696             414,646
                                                          ============    ===========   =================
    Common stock issued for debt                                  $ -            $ -           $ 595,000
                                                          ============    ===========   =================
    Common stock issued for investment                            $ -            $ -                $ 30
                                                          ============    ===========   =================

</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       F-4

<PAGE>

<TABLE>
<CAPTION>

                                               PNW CAPITAL, INC.
                                       (Formerly Winchester Mining Corp.)
                                         (A Development Stage Company)
                                  Statement of Stockholders' Equity (Deficit)
                                               December 31, 2001


                                                                                                       Deficit
                                                                                                     Accumulated
                                                                                  Additional         During the
                                                      Common Stock                  Paid-In          Development
                                            # of Shares          Amount             Capital             Stage             Totals
                                          ---------------    --------------     --------------     --------------     --------------
<S>                                             <C>                 <C>            <C>                <C>                <C>
Inception  - November 6, 1996                           -               $ -                $ -                $ -              $ -

Balance -  December 31, 1998                   25,250,000              2525            502,643           (750,830)        (245,662)
Issuance of stock for cash                      3,000,000               300            146,321                  -          146,621
Issuance of stock for services                  5,500,000               550            274,450                  -          275,000
Net Loss                                                -                 -                  -           (259,404)        (259,404)
                                           ---------------    --------------     --------------     --------------   --------------
Balance - December 31, 1999                    35,750,000             3,375            923,414         (1,010,234)         (83,445)
                                           ---------------    --------------     --------------     --------------   --------------
Issuance of stock for cash                      8,490,000               849            412,221                  -          413,070
Issuance of stock for services                    700,000               700            349,300                  -          350,000
Issuance of stock for Multiplex Stock             300,000                30                  -                  -               30
Issuance of stock for acquisition              47,460,000             4,746                  -                  -            4,746
Net Loss for year                                       -                 -                  -           (694,758)        (694,758)
                                           ---------------    --------------     --------------     --------------   --------------
Balance - December 31, 2000                       970,863                97          1,684,935         (1,704,992)         (10,357)
                                           ---------------    --------------     --------------     --------------   --------------
Issuance of stock for compensation              3,000,000               300             59,700                  -           60,000
Net Loss for year                                       -                 -                  -            (67,251)         (67,251)
                                           ---------------    --------------     --------------     --------------   --------------
Balance - December 31, 2001                   100,000,000           $10,000        $ 1,744,635        $(1,772,243)       $ (17,608)
                                           ===============    ==============     ==============     ==============   ==============

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-5

<PAGE>


                                PNW CAPITAL, INC.
                    (Formerly Winchester Mining Corporation)
                          (A Development Stage Company)
                          Notes to Financial Statements
                                December 31, 2001


Note 1 - Organization and Summary of Significant Accounting Policies:
         ------------------------------------------------------------

Organization:
----------

The Company was incorporated on November 6, 1996, as Winchester Mining
Corporation in the state of Delaware. The Company is in the development stage
and was organized for the purpose of raising capital in organizing and
developing internet business. 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. The Company's fiscal year end is December 31.

Basis of Presentation - Development Stage Company:
-----------------------------------------------

The Company has not earned significant revenues from limited principal
operations. Accordingly, the Company" activities have been accounted for as
those of a "Development Stage Enterprise" as set forth in Financial Accounting
Standards Board Statement No. 7 ("SFAS 7"). Among the disclosures required by
SFAS 7 are that the Company's financial statements be identified as those of a
development stage Company, and that the statements of operations, stockholders'
equity (deficit) and cash flows disclose activity since the date of the
Company's inception.

Basis of Accounting:
-----------------

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

Cash and Cash Equivalents:
-----------------------

The Company considers all highly liquid debt instruments, purchased with an
original maturity of three months or less, to be cash equivalents.

Use of Estimates:
--------------

The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

Net Loss Per Share:
----------------

Net loss per share is based on the weighted average number of common shares and
common shares equivalents outstanding during the period.


                                       F-6

<PAGE>


                                PNW CAPITAL, INC.
                    (Formerly Winchester Mining Corporation)
                          (A Development Stage Company)
                          Notes to Financial Statements
                                December 31, 2001



Other Comprehensive Income
------------------------

The Company has no material components of other comprehensive income (loss), and
accordingly, net loss is equal to comprehensive loss in all periods.

Note 2 - Federal Income Taxes:
         --------------------

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

The Financial Accounting Standards Board (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 enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities.

Deferred tax assets
         Net operating loss carryforwards                $   1,722,243
         Valuation allowance                                (1,722,243)
                                                         --------------
         Net deferred tax assets                         $           0
                                                         ==============

At December 31, 2001, the Company had net operating loss carryforwards of
approximately $1,772,243 for federal income tax purposes. These carryforwards if
not utilized to offset taxable income will begin to expire in 2008.

Note 3 - Capital Stock Transactions:
         --------------------------

The authorized capital stock of the Company is 100,000,000 shares of common
stock at $.0001 par value. During the period ended December 31, 2001, the
Company issued 3,000,000 shares of common stock for services.




                                       F-7

<PAGE>


                                PNW CAPITAL, INC.
                    (Formerly Winchester Mining Corporation)
                          (A Development Stage Company)
                          Notes to Financial Statements
                                December 31, 2001




Note 4 - Going Concern:
         -------------

The Company's financial statements have been presented on the basis that it is a
going concern.

The Company is in the development stage and has not earned any revenues from
operations. The Company's current liabilities exceed current assets by $17,608
and the Company recorded a loss of $67,251 in the current year. The Company's
ability to continue as a going concern is dependent upon its ability to develop
additional sources of capital or locate a merger candidate and ultimately,
achieve profitable operations. The accompanying financial statements do not
include any adjustments that might result from the outcome of these
uncertainties. Management's plan is to obtain sufficient additional debt or
equity financing to finance operations, capital improvements and other necessary
activities or to acquire a profitable business.

Note 5 - Prior Period Restatement
         ------------------------

On March 18, 1999, the Company entered into an Internet casino license agreement
for a period of three years. Under the license agreement the Company was
committed to make fee payments over the next three years in the amount of
$25,000. In 1999 the Company accrued a provision of $25,000 to provide for these
payments, as of December 31, 2001 these payments are no longer due. Consulting
fees and Accounts Payable in the amount of $52,492 were overstated in the year
ended 2000.

Note 6 - Related Party Transactions:
         --------------------------

The Company paid Management and Consulting fees of $146,078 in 2000 and $31,663
in 1999, to current or former officers and directors or companies controlled by
current or former officers and directors. The current and former officers and
directors were issued 7,000,000 shares of common stock valued at $.05 per share
in September 2000 for compensation. In December 2001, an issuance of 3,000,000
shares of common stock, having a stipulated value of $.02 per share were issued
for consulting fees to directors and officers of the Company.

Note 7 - Segment Information
         -------------------

PNW Capital,  Inc. operates primarily in a single operating segment, the capital
raising business.





                                       F-8


<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

                        Consolidated Financial Statements

                           December 31, 2002 and 2001

                   (With Independent Auditor's Report Thereon)





<PAGE>



                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

                                Table of Contents









                                                                    Page

Independent Auditor's Report                                         F-9

Financial Statements:
   Consolidated Balance Sheets                                       F-10

   Consolidated Statements of Operations                             F-11

   Consolidated Statements of Stockholders' Equity                   F-12

   Consolidated Statements of Cash Flows                          F-13 to F-14

Notes to Consolidated Financial Statements                        F-15 to F-20


                                    * * * * *




<PAGE>










                          INDEPENDENT AUDITOR'S REPORT


The Board of Directors and Stockholders
Industrial Minerals, Inc. and Subsidiary
(An Exploration Stage Company):


We have  audited  the  accompanying  consolidated  balance  sheet of  Industrial
Minerals, Inc. and Subsidiary (formerly PNW Capital, Inc.) (An Exploration Stage
Company) as of December 31, 2002,  and the related  consolidated  statements  of
operations,  stockholders'  equity and cash flows for the year then ended. These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial  statements  based  on our  audit.  The  financial  statements  of PNW
Capital,  Inc. as of December 31, 2001,  including the amounts presented for the
period from inception  (November 6, 1996) to December 31, 2001,  were audited by
other auditors whose report dated February 13, 2002 on those statements included
an explanatory  paragraph that described the Company's  ability to continue as a
going concern as discussed in note 8 to the financial statements.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We believe that our
audit provides a reasonable basis of 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, 2002, and the results of their operations
and their cash flows for the year then  ended,  in  conformity  with  accounting
principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  note 8 to the
financial statements, the Company is in the exploration stage and has not earned
revenues from operations.  Those conditions  raise  substantial  doubt about its
ability to continue  as a going  concern.  Management's  plans  regarding  those
matters are also  described in note 8. The  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.

                                                 /s/ TOSKI, SCHAEFER & CO., P.C.
                                                 TOSKI, SCHAEFER & CO., P.C.

Williamsville, New York
April 3, 2003

                                       F-9

<PAGE>
<TABLE>
<CAPTION>


                                    INDUSTRIAL MINERALS, INC.
                                         AND SUBSIDIARY

                                 (An Exploration Stage Company)

                                   Consolidated Balance Sheets

                                   December 31, 2002 and 2001

         Assets                                                                      2002                2001
         ------                                                                      ----                ----
<S>                                                                             <C>            <C>
Current Assets:
     Cash                                                                       $       5,537                21
     Receivable - GST refunds                                                          19,594             -
     Prepaid expenses                                                                   6,400             -
     Deposits                                                                             796             -
                                                                                   ----------  ----------------
                  Total current assets                                                 32,327             -

Building and equipment, at cost, less
   accumulated depreciation of $56,193                                                366,014             -
                                                                                      -------  ----------------

                  Total assets                                                  $     398,341                21
                                                                                      =======    ==============
         Liabilities and Stockholders' Equity

Current Liabilities:
     Accounts payable:
         Non-related parties                                                            3,845            17,629
         Related parties                                                              180,000             -
                                                                                      -------  ----------------
                  Total accounts payable                                              183,845            17,629

     Notes payable                                                                    775,372             -
     Current installments of mortgage payable                                           1,999             -
                                                                                    ---------  ----------------
                  Total current liabilities                                           961,216             -

Mortgage payable, excluding current installments                                       14,886             -
                                                                                     --------  ----------------
                  Total liabilities                                                   976,102            17,629
                                                                                      -------       -----------

Stockholders' equity:
     Preferred stock, par value $0.01 per share; 50,000,000
         shares authorized; no shares issued and outstanding
     Common stock, par value $.0001; 100,000,000 shares authorized;           -         -
         36,031,621 shares issued and outstanding for 2002 and
         1,000,863 shares issued and outstanding for 2001                               3,600               100
     Additional paid-in capital                                                        14,142         1,754,535
     Deficit accumulated during exploration stage                                    (595,503)       (1,772,243)
                                                                                      -------         ---------

                  Total stockholders' equity (deficit)                               (577,761)          (17,608)
                                                                                      -------       -----------

Commitments (note 6)
                                                                                -------------  ----------------
                  Total liabilities and stockholders' equity                    $     398,341                21
                                                                                      =======    ==============
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-10

<PAGE>
<TABLE>
<CAPTION>


                                    INDUSTRIAL MINERALS, INC.
                                         AND SUBSIDIARY

                                 (An Exploration Stage Company)

                              Consolidated Statements of Operations

                             Years ended December 31, 2002 and 2001
                   and the period from November 6, 1996 (Date of Inception) to
                                        December 31, 2002




                                                                                                     November 6, 1996
                                                                                                          (inception) to
                                                                                                           December 31,
                                                                          2002             2001                    2002
                                                                          ----             ----                    ----
<S>                                                               <C>                 <C>                <C>
Revenue                                                           $        -                -                    15,537
                                                                   -------------      -----------           -----------
Expenses:
     Cost of revenues                                                      -                -                    76,201
     Professional fees                                                    86,275           60,000             1,019,804
     Royalty fees                                                         17,550            -                    17,550
     Depreciation and amortization                                        56,193            -                    64,485
     Impairment of long-lived assets                                       -                -                   582,176
     Other general and administrative                                    360,227            7,371               551,127
                                                                         -------          -------            ----------

                           Total expenses                                520,245           67,371             2,311,343
                                                                         -------           ------             ---------

                           Loss from operations                         (520,245)         (67,371)           (2,295,806)
                                                                         -------           ------             ---------
Other income:
     Interest income                                                           3            -                     2,727
     Other income                                                          -                  120                   594
                                                                   -------------         --------        --------------

                           Total other income                                  3              120                 3,321
                                                                    ------------         --------         -------------

                           Net loss                               $     (520,242)         (67,251)           (2,292,485)
                                                                         =======           ======             =========

Net loss per common share issued                                  $         (.02)            (.07)
                                                                      ===========        ==========

Weighted average common shares outstanding                            31,810,566          970,863
                                                                      ==========          =======
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-11

<PAGE>
<TABLE>
<CAPTION>

                                    INDUSTRIAL MINERALS, INC.
                                         AND SUBSIDIARY

                                 (An Exploration Stage Company)

                         Consolidated Statement of Stockholders' Equity

                                        December 31, 2002



                                                                                                Deficit
                                                                                              Accumulated
                                                                              Additional      During the
                                                     Common Stock             Paid-In         Exploration
                                            # of shares          Amount       Capital            Stage          Total
                                            -----------          ------       ----------      -----------       -----
<S>                                   <C>                     <C>       <C>                  <C>              <C>
Inception - November 6, 1996                      -           $   -                -               -              -

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

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

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

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


See accompanying notes to consolidated financial statements.


                                      F-12

<PAGE>
<TABLE>
<CAPTION>

                                    INDUSTRIAL MINERALS, INC.
                                         AND SUBSIDIARY

                                 (An Exploration Stage Company)

                              Consolidated Statements of Cash Flows

                           Years ended December 31, 2002 and 2001 and
                   for the period from November 6, 1996 (Date of Inception) to
                                        December 31, 2002


                                                                                                              November 6, 1996
                                                                                                               (inception) to
                                                                                                                 December 31,
                                                                2002                         2001                   2002
                                                                ----                         ----                   ----
<S>                                                    <C>                        <C>                <C>
Cash flows from operating activities:
     Net loss                                                (520,242)                (67,251)           (2,292,485)
     Adjustments to reconcile net loss
        to net cash used in operating activities:
     Depreciation and amortization                             56,193                   -                    56,193
     Provision for bad debts                                    -                       -                    49,676
     Stock issued for services                                  -                      60,000               414,606
     Impairment of long-lived assets                            -                       -                   297,882
     Changes in:
         Receivables                                          (19,594)                  -                   (23,763)
         Inventory                                              -                       -                    (5,527)
         Prepaid expenses                                      (6,400)                  -                    (6,939)
         Deposits                                                (796)                  -                      (796)
         Accounts payable and accrued expenses                (38,243)                  7,170               (84,183)
         Due to related parties                               (20,000)                  -                   575,000
                                                             --------             -----------            ----------
                           Net cash used in
                              operating activities           (549,082)                    (81)           (1,020,336)
                                                              -------               ---------             ---------
Cash flows from investing activities:
     Purchase of building and equipment                      (217,207)                  -                  (221,367)
     Investment in Multiplex                                    -                       -                   (75,000)
     Acquisition of goodwill                                    -                       -                  (149,057)
     Loan to related party                                      -                       -                   (50,000)
     Loan repayments                                            -                       -                     4,493
                                                         ------------             -----------          ------------
                           Net cash used in
                              investing activities           (217,207)                  -                  (490,931)
                                                              -------             -----------             ----------
                                                                                                                    (Continued)




See accompanying notes to consolidated financial statements.


                                      F-13

<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

                Consolidated Statements of Cash Flows, continued



                                                                                                        November 6, 1996
                                                                                                        (inception) to
                                                                                                          December 31,
                                                                2002                         2001             2002
                                                                ----                         ----             ----

Cash flows from financing activities:
     Proceeds from sale of common stock                $        -                       -                   744,859
     Net proceeds from notes payable                          754,920                   -                   754,920
     Proceeds from mortgage                                    17,000                   -                    17,000
     Principal payments on mortgage                              (115)                  -                      (115)
     Cash acquired in acquisition of Peanut
         Butter & Jelly, Inc.                                   -                       -                       140
                                                         ------------             -----------         -------------

                           Net cash provided by
                              financing activities            771,805                   -                 1,516,804
                                                              -------             -----------             ---------

Net increase (decrease) in cash                                 5,516                     (81)                5,537

Cash beginning of period                                           21                     102                 -
                                                          -----------               ---------        --------------

Cash end of period                                     $        5,537                      21                 5,537
                                                            =========              ==========            ==========

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

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

Non-cash investing and financing activities:
     Shares issued for debt                            $        -                       -                   595,000
                                                        =============             ===========               =======
     Shares issued for services                        $        -                      60,000               414,606
                                                        =============                  ======               =======
     Shares issued for investment                      $        -                       -                        30
                                                        =============             ===========           ===========

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

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

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



See accompanying notes to consolidated financial statements.


                                      F-14

<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

                   Notes to Consolidated Financial Statements

                           December 31, 2002 and 2001





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

     (b) Nature of Operations
     ------------------------
         The Company is in the graphite mining industry, and has mineral rights
              on the Company's Bissett Creek Graphite property in Ontario,
              Canada. It is expected to start production in the second quarter
              of 2003.

     (c) Basis of Presentation - Exploration Stage Company
     -----------------------------------------------------
         The Company has not earned significant revenues from limited principal
              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) Estimates
     -------------
         The preparation of financial statements in conformity with general
              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.



                                      F-15

<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

              Notes to Consolidated Financial Statements, Continued




(1)  Organization and Summary of Significant Accounting Policies, Continued
---------------------------------------------------------------------------

     (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 7 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. At
              December 31, 2002, no impairment in value has been recognized.

     (h) Net loss Per Share
     ----------------------
         Net loss per share is based on the weighted average number of common
              shares and common share equivalents outstanding during the year.

     (i) Other Comprehensive Income
     ------------------------------
         The Company has no material components of comprehensive income (loss)
              and accordingly, net loss is equal to comprehensive loss in all
              periods.

     (j) Fair Value of Financial Instruments
     ---------------------------------------
         The fair value of the Company's financial instruments approximated
              their carrying values at December 31, 2002 and 2001.

     (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 large crystalline flake
              graphite.

     (l) Income Taxes
     ----------------
         The Company is liable for income taxes on future taxable income
              generated. As of December 31, 2002, the Company has net loss
              carryforwards of $2,292,485, 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, 2002.

     (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 interCompany
              transactions have been eliminated.


                                      F-16

<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

              Notes to Consolidated Financial Statements, Continued




(1)  Organization and Summary of Significant Accounting Policies, Continued
---------------------------------------------------------------------------

     (n) Recent Pronouncements
     -------------------------
         In June 2001, the Financial Accounting Standards Board (FASB) issued
              Statement of Financial Accounting Standards (SFAS) No. 143,
              "Accounting for Asset Retirement Obligations." Under SFAS No. 143,
              the fair value of a liability for an asset retirement obligation
              must be recognized in the period in which it is incurred if a
              reasonable estimate of fair value can be made. The associated
              asset retirement costs are capitalized as part of the carrying
              amount of the related long-lived asset. SFAS No. 143 is effective
              for fiscal years beginning after June 15, 2002.

         In  April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
              Statements No. 4, 44, 64, Amendment of FASB Statement No. 13, and
              Technical Corrections." SFAS No. 145 eliminates extraordinary
              accounting treatment for reporting a gain or loss on debt
              extinguishments and amends other existing authoritative
              pronouncements to make various technical corrections, clarify
              meanings, and describe applicability under changed conditions.
              Debt extinguishments reported as extraordinary items prior to
              scheduled adoption of SFAS No. 145 would be reclassified in most
              cases following adoption. SFAS No. 145 is effective for fiscal
              years beginning after May 15, 2002.

         In  June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
              Associated with Exit or Disposal Activities." SFAS No. 146
              requires the recording of costs associated with exit or disposal
              activities at their fair values when a liability has been
              incurred. Under previous guidance, certain exit costs were accrued
              upon management's commitment to an exit plan, which is generally
              before an actual liability has been incurred. SFAS No. 146 is
              effective for fiscal years beginning after December 31, 2002.

         In  December 2002, the FASB issued SFAS No. 148, "Accounting for
              Stock-Based Compensation - Transition and Disclosure - an
              Amendment of SFAS No. 123." SFAS No. 148 amends SFAS No. 123,
              "Accounting for Stock-Based Compensation," to provide alternative
              methods of transition for a voluntary change to the fair value
              based method of accounting for stock-based employee compensation.
              In addition, SFAS No. 148 amends the disclosure requirements of
              SFAS No. 123 to require prominent disclosures in both annual and
              interim financial statements about the method of accounting for
              stock-based employee compensation and the effect of the methods
              used on reported results.

         The Company does not believe that these pronouncements will have a
              material impact on its financial position, cash flows, or results
              of operations.







                                      F-17

<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

              Notes to Consolidated Financial Statements, Continued





(2)  Building and Equipment
---------------------------

     Building and equipment are recorded at cost. A summary of building and
equipment at December 31, 2002 are as follows:

         Building and improvements                                 $    45,192
         Equipment                                                     377,015
                                                                       -------


                           Total building and equipment                422,207

                           Less accumulated depreciation                56,193
                                                                      --------

                           Net building and equipment              $   366,014
                                                                       =======
<TABLE>
<CAPTION>

(3)  Notes Payable
------------------

     All notes payable were issued in 2002. Notes payable at December 31, 2002
consists of the following:

<S>                                                                                      <C>
         Non-affiliated shareholder, unsecured, interest at 7%. No monthly
              installments are required.
              Principal and accrued interest due July 2003.                              $   654,499

         Non-affiliated shareholder, unsecured, interest at 7%. No monthly
              installments are required.
              Principal and accrued interest due July 2003.                                   90,796

         Non-affiliated shareholder, unsecured, interest at 7%. No monthly
              installments are required.
              Principal and accrued interest due July 2003.                                   27,952

         Former officer and director, unsecured, has no
              provision for interest and no specific
              repayment terms.                                                                 2,125
                                                                                           ---------


                           Total notes payable                                           $   775,372
                                                                                             =======
</TABLE>



                                      F-18

<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>

(4)  Mortgage Payable
---------------------

<S>                                                                             <C>
     Mortgage payable, seller, monthly payments of $260 with interest at 7%
         beginning September 2002 through August 2007 and a balloon payment for
         the remaining balance due at August 2007. Secured by real property
         located in Bissett Creek, Ontario, Canada.                             $    16,885


                           Less current installments                                  1,999
                                                                                    -------

                           Mortgage payable, less current installments          $    14,886
                                                                                     ======
</TABLE>

     The aggregate maturity of the mortgage payable for the five years following
December 31, 2002 is as follows:

                           2003                           $     1,999
                           2004                                 2,144
                           2005                                 2,299
                           2006                                 2,465
                           2007                                 7,978
                                                              -------

                                                          $    16,885

(5)  Related Party Transaction
------------------------------

     The Company is liable to Krystar International, an 18% shareholder, for the
         purchase of equipment. The balance of this accounts payable amounted to
         $180,000 at December 31, 2002.

(6)  Commitments
----------------

     (a) Office Space
     ----------------

         The Company is obligated under the terms of a lease for its Toronto
              office space for monthly rent of $455 until April 30, 2003. After
              April 30, 2003, the Company will occupy the premises on a
              month-to-month basis.

     (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.




                                      F-19

<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY

                         (An Exploration Stage Company)

              Notes to Consolidated Financial Statements, Continued


(7)  Capital Stock
------------------

     The Company issued 35 million shares of common stock in an exchange share
         agreement with Industrial Minerals, Inc.. The Company issued additional
         30,758 shares so that no individual shareholder would have less than 50
         shares as a result of a consolidation of the Company's capital stock.
         This consolidation was on a one share for 100-share basis. The
         consolidation was effective on January 7, 2002. Shares and per share
         amounts were restated to reflect this revenue stock split.

(8)  Going Concern
------------------

     The Company's financial statement have been presented on the basis that it
         is a going concern. The Company is in the exploration stage and has not
         earned any revenues from operations. The Company's current liabilities
         exceed current assets by $928,889 and the Company recorded a net loss
         amounting to $520,242 during the year ended December 31, 2002. The
         Company's ability to continue, as a going concern is dependent upon its
         ability to develop additional sources of capital to finish the
         construction of it's Bissett Creek Property and ultimately, achieve
         profitable operations. Management plans 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.

(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.

(10) Subsequent Event
---------------------

     During the first quarter of the Company's fiscal year ending December 31,
         2003, additional financing in the amount of $181,200 at an annual
         interest rate of 7% has been obtained. The principal along with accrued
         interest is due and payable on July 31, 2003. A non-affiliated
         shareholder has advanced these funds.










                                      F-20