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


                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2003


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

<TABLE>
<CAPTION>
<S>                                      <C>                                   <C>
======================================== ===================================== =====================================
               Delaware                               000-30651                             06-1474412
                                                      ---------                             ----------
---------------------------------------- ------------------------------------- -------------------------------------
    (State or other jurisdiction of            (Commission File Number)         (IRS Employer Identification No.)
            incorporation)
======================================== ===================================== =====================================
</TABLE>


                       2 Robert Speck Parkway, Suite #750,
                      Mississauga, Ontario, Canada L4Z 1H8
                 -----------------------------------------------
                    (Address of principal executive offices)

Issuer's telephone number:       (905) 306-3451
                                 --------------

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. [ ]



<PAGE>


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

As of December 31, 2003, 54,386,896 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, 2003, of $3.29 had a value of $178,932,888.

The  number  of  shares  of Common  Stock of the  registrant  outstanding  as of
December 31, 2003, were 72,003,896.























                                       2
<PAGE>


                                TABLE OF CONTENTS

PART I                                                                      PAGE

   Item 1.  Description of Business                                           4
   Item 2.  Description of Property                                           7
   Item 3.  Legal Proceedings                                                 8
   Item 4.  Submission of Matters to a Vote of Security Holders               8


PART II

   Item 5.  Market for Common Equity and Related Stockholder Matters          8
   Item 6.  Management's Discussion and Analysis or Plan of Operation         10
   Item 7.  Financial Statements                                              15
   Item 8.  Changes in and Disagreements With Accountants on Accounting       16
                  and Financial Disclosure
   Item 8a. Controls and Procedures                                           16


PART III

   Item 9.  Directors, Executive Officers, Promoters and Control Persons;
                  Compliance with Section 16(a) of the Exchange Act           16
   Item 10. Executive Compensation                                            21
   Item 11. Security Ownership of Certain Beneficial Owners and Management    23
   Item 12. Certain Relationships and Related Transactions                    24
   Item 13. Exhibits and Reports on Form 8-K                                  24
   Item 14. Principal accountant fees and services                            25

SIGNATURES                                                                    27











                                       3
<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 foreign  investors.  The Company has since  divested  itself of
these  acquisitions  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  attracting  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.

                                       4
<PAGE>

         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  Messrs.  Silva &  McFarlane  became
officers, directors, and affiliates of the company after the PB&J transaction.

         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 management  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
shareholder  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 to  Industrial

                                       5
<PAGE>

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
Environmental 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 totaling  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, Incorporated,
a Nevada  Corporation.  The consideration for the issuance of issuers shares was
to acquire (by exchange) 91% of the shares of Industrial Minerals, Incorporated,
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.

         On June 13, 2003, the officers and directors of the Company  approved a
resolution to forward split the common shares of the Company on a two shares for
one basis,  and a majority of the  shareholders  have  indicated  their  written
consent to such action.

            On July 24, 2003,  Industrial Minerals Canada,  Inc., a wholly owned
subsidiary  of  Industrial  Minerals,  Inc.,  and  Mohawk  Investment  Group and
Community of Southend Reserve No. 200 and 209 and Southend Reindeer  Development
Corporation  signed a memorandum  of  understanding.  The parties have agreed to
form a limited  partnership  for the purpose of conducting a business  involving
the mining,  milling,  transportation,  and the sale of graphite  located on the
reserve.  The  community of Southend  would have 50%  interest  while the Mohawk
Investment Group and Industrial Minerals Canada, Inc. would each have 25% of the
partnership.



                                       6
<PAGE>


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 (March 25, 2004) 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  before the end of
its current  fiscal  year,  which is December  31,  2004,  at its Bissett  Creek
mineral  prospect,  subject  to the  approval  of the mine  closure  plan by the
Ministry of Mines and  Northern  Development  in the  Province  of  Ontario.  In
addition the Corporation must obtain a Certificate of Approval from the Ministry
of Environment  concerning water management.  The Company has held meetings with
the Ministries and  anticipates  receiving these approvals in the second quarter
ending June 30,  2004.  (Please see "Plan of  Operation"  as contained in Item 6
hereof.)

ITEM 2 - DESCRIPTION OF PROPERTY

         After December 31, 2001 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 a measurement 564.569 hectares, be the same more or less,
composed of those parts of lots 21, 22, 23, 24 and 25, Concessions IV and V, and
part of the bed of Mag Lake and the bed of the unnamed lake, and lots 23, 24 and
25 and the north half of lots 21 and 22,  Concession III as shown on the plan of
the  geographic  Township of Maria,  designated as parts 1, 2, 3 and 5 on a plan
and a field  notes  deposited  in the Land  Registry  Office at Pembroke as Plan
49R_11203,  comprising mining claims EO 608306, EO 608346, EO 608347, EO 608374,
EO 608348, EO 608373, EO 608349, EO 608372, EO 608369, SO 998760, SO 1084577, EO
800884,  EO 800880,  EO 800881,  EO 608350,  EO 608371, EO 608367, EO 608370, EO
608376, EO 608368, EO 608302, SO 1117797,  SO 998754, SO 1117798,  SO 998755, SO
1117799, SO 998756 and SO 998757.

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

                                       7
<PAGE>

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.

         The Company's  mailing  address is 2 Robert Speck Parkway,  Suite #750,
Mississauga, Ontario, Canada L4Z 1H8.

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

         At the annual  meeting of  shareholders  held in Toronto on October 24,
2003 the shareholders elected John Melnyk, Robert Stoutley, Stephen Weathers and
Larry Van Tol directors of the Corporation.  The shareholders  also approved the
appointment  of Toski,  Schaefer & Co.,  P.C.  as  auditors  for the fiscal year
ending  December 31, 2003.  There were 20,000 shares  represented  in person and
42,979,592  shares  represented by proxy. Each of the directors elected received
100% of the votes of the shares  present.  There were no votes recorded  against
any of the directors elected at the meeting.



                                     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 IDLM (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.  (NOTE:
Price adjusted for 2 for 1 forward split.)

       2003                                 High                         Low
       ----                                 ----                         ---
     1st quarter                            1.01                         0.83
     2nd quarter                            1.53                         0.63
     3rd quarter                            3.03                         1.40
     4th quarter                            3.33                         2.08

                                       8
<PAGE>


         2002                               High                         Low
         ----                               ----                         ---
     1st quarter                            0.80                         0.12
     2nd quarter                            0.77                         0.37
     3rd quarter                            1.02                         0.60
     4th quarter                            1.05                         0.73

         (b) As of December 31, 2003,  there were 288  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.

         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.



                                       9
<PAGE>


ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

       Twelve month period ending December 31, 2003 and December 31, 2002

         During the twelve-month period ending December 31, 2003 the Company had
no  revenues.  The Company had no revenue  during the same  twelve-month  period
ending December 31, 2002.

         The Company incurred  expenses for  professional  fees in the amount of
$91,858  during the  twelve-month  period  ending  December 31, 2003 compared to
$86,275  during the  twelve-month  period ending  December 31, 2002.  This is an
increase of $5,583. This increase is due to an increase in activity  surrounding
the operations of the company during the twelve-month period ending December 31,
2003 compared to the same twelve-month period ending December 31, 2002.

         The Company  incurred  royalty expenses in the amount of $18,775 during
the twelve-month  period ending December 31, 2003. These expenses are the result
of the Bissett Creek Graphite property. The Company is required to pay a minimum
yearly royalty of $18,775 whether  graphite is produced or not. The Company paid
royalty payments of $17,550 during the  twelve-month  period ending December 31,
2002. This represents an increase of $1,225.  This increase is due to the recent
strength of the Canadian dollar versus the United States dollar.  The Company is
required to pay the royalty due in Canadian  dollars and that minimum royalty is
$27,000 annually.

         Depreciation  and  amortization  expense  for the  twelve-month  period
ending  December  31,  2003  totaled   $68,717   compared  to  $56,193  for  the
twelve-month period ending December 31, 2002. This represents a $12,524 increase
in the twelve-month  period ending December 31, 2003 over the same 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,
2003 compared to the same  twelve-month  period ending  December 31, 2002.  This
increase in activity is due to the companies' 100% interest in the Bissett Creek
Graphite  property.  It should  also be noted  that the  Company  has  purchased
equipment and buildings  that have yet to be depreciated as these assets are not
yet fully constructed or installed. It is expected that all construction will be
completed  in the  first  half of  fiscal  2004 and  these  assets  will then be
depreciated.

         The Company had  management  fees and salaries in the amount of $56,127
for the  twelve-month  period ending December 31, 2003 compared to no management
fees or salaries  during the same twelve month period ending  December 31, 2002.
This  represents an increase of 100% and is due to the  increased  operations of
the Company during the twelve-month  period ending December 31, 2003 as compared
to the same  twelve-month  period ending December 31, 2002.  During 2003 the CEO
was paid a salary of $48,127 and the CFO was paid  management fees in the amount
of $8,000.

                                       10
<PAGE>

         Other general and administrative  expenses for the twelve-month  period
ending  December  31,  2003  totaled  $897,804  compared  to  $360,227  for  the
twelve-month  period  ending  December  31,  2002.  This  represents  a $537,577
increase  in the  twelve-month  period  ending  December  31, 2003 over the same
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, 2003 compared to the same  twelve-month  period ending December 31,
2002.  This increase in activity is due to the  companies'  100% interest in the
Bissett Creek Graphite property.

         The  Company  has had a net  loss of  $1,133,197  for the  twelve-month
period  ending  December  31, 2003 as compared to a net loss of $520,242 for the
twelve-month  period ending  December 31, 2002.  This  represents an increase of
$612,955 for the twelve-month  period ending December 31, 2003. This increase is
due to an increase in activity  surrounding the operations of the company during
the  twelve-month   period  ending  December  31,  2003  compared  to  the  same
twelve-month period ending December 31, 2002.

                         Liquidity and Capital Resources

         The  Company  has  cash on  hand of  $585,934  and a  receivable  as at
December 31, 2003 of $40,267. The receivable of $40,267 is a result of tax input
credits owed to the company by the Government of Canada.

         The Company has prepaid expenses of $10,462. This represents the unused
portion of an  insurance  policy that the company  carries for its  building and
equipment. This policy expires September 6, 2004.

         The Company has total  deposits in the amount of $65,242 as of December
31, 2003 compared to $796 for the twelve-month  period ending December 31, 2002.
This  represents  an increase of  $64,446.  The Company has on deposit  with its
landlord $1,521 which represents one-month rent and common costs associated with
its  premises  located  at 2 Robert  Speck  Parkway,  Suite  #750,  Mississauga,
Ontario,  Canada L4Z 1H8. The Company has entered into a lease, which expires on
August 31, 2004 at which time the Company will  continue to rent office space on
a month- to-month basis. The Company has on deposit with the Minister of Finance
for the province of Ontario  $55,093 to secure a portion of the  Company's  mine
closure plan surrounding the construction of the Company's infrastructure on its
Bissett Creek Property. The Company also has a deposit on future marketing costs
in the amount of $4,000,  legal costs $4,258 and a telephone  security  deposit,
$370.

         The  Company  had no revenue  during  the  twelve-month  period  ending
December  31,  2003  and  expects  to  have  no  revenue  in  each  of the  next
three-quarters  ending March 31, 2004, June 30, 2004 and September 30, 2004. 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.

                                       11
<PAGE>

         The Company has total  current  liabilities  in the amount of $167,897,
which is made up of accounts payable, $165,753 and current portion of a mortgage
payable in the amount of $2,144.  The Company has the funds on hand to pay these
current liabilities in an orderly fashion.

         During the fiscal year ending  December 31, 2002 the Company  secured a
first  mortgage  which has a balance  outstanding  of $16,476 as of December 31,
2003.  Included in this balance is the current  principal  payments  required in
fiscal 2004 of $2,144. A monthly payment of $296 is required including principal
and interest  for the next 4 years.  The balance of $9,568 on August 29, 2007 is
then due and payable.  This  mortgage  carries an interest rate of 7% compounded
semi-annually not in advance.

         The Company had current  loans  payable of $775,372 as of December  31,
2002 and has no current loans  payable as of December 31, 2003.  The Company was
granted  an  extension   regarding  this  debt  to  July  31,  2005  during  the
twelve-month period ending December 31, 2003. Investors should be cautioned that
virtually 100% of the Company's debt is due and payable on July 31, 2005.  While
this  debt is  considered  long  term debt  investors  should be aware  that the
Company has not begun any  discussions to negotiate  terms more favorable to the
Company concerning this debt. Should the Company not be able to retire this debt
on July 31, 2005  investors  should be cautioned  that the Company  might not be
able to continue to operate.

         During the twelve-month period ending December 31, 2003 the Company has
been able to secure additional debt financing in the amount of $2,283,335 from a
non-affiliated  shareholder.  This debt now  totals  $3,058,707  for the  period
ending  December  31, 2003.  Interest in the amount  $83,579 has accrued on this
debt to December 31, 2003.  This interest will continue to accrue at the rate of
7% per annum until July 31, 2005 when the total  principal of  $3,058,707  along
with any  accrued  interest  will  become due and  payable.  The  interest  rate
associated with this debt will be 7% yearly. Subsequent to December 31, 2003 the
company has arranged an additional debt financing in the amount of $250,000 at a
rate of 7% from a non-affiliated  shareholder.  This additional financing in the
amount of $250,000  along with the accrued  interest at the rate of 7% per annum
is due and payable on July 31, 2005.

         During fiscal year ending  December 31, 2003, the Company has completed
work on it's Bissett Creek Graphite Property as follows:

1        Two small electrical  buildings that store the motor control center and
         the two generators.
2        The  Company  has taken  delivery  of a  pre-engineered  building.  The
         foundations for this building were built and the concrete poured during
         fiscal year end December 31, 2003.
3        The company has added  conveyors  and ore  collection  bins to its main
         crushing and screening  plant during the  Company's  fiscal year ending
         December 31, 2003.  The main  crushing  and  screening  plant are still
         under  construction  and this plant is expected to be completed  during
         the second quarter of 2004.
4        All underground  electrical  wiring from the motor control  building to
         all of the equipment and the process building has been completed.  This
         totals approximately 7,000 feet of underground wiring.

                                       12
<PAGE>

         While the Company  has  completed  the above work on its Bissett  Creek
Property the Company must still complete the following work:

1        Process building                                     $ 157,860
2        Main crushing and screening plants                   $  53,625
3        Equipment purchases, additional loader               $  40,000
4        Equipment, used excavator                            $  55,000
5        Blasting equipment (dynamite)                        $  46,000
6        Mine closure plan                                    $ 250,000
7        Placing of equipment in process building             $ 157,900
8        Equipment, dryer                                     $  60,000
9        Equipment for quality control procedures             $  60,000
10       Final screening equipment                            $  60,000
                                                              ---------
Total funds required to complete construction                 $ 940,385

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

Regarding  point  number 6 above  concerning  the mine closure  plan,  investors
should be aware that this is an estimate.  The final figure may be substantially
higher.  Management  does not believe the figure will be lower.  The Province of
Ontario requires  financial  assurances to be in place before mining  commences.
The Company has filed a mine  closure  plan with the  Province and is now in the
process of responding to the comments received from the Ministry of Mines. It is
expected this process will be complete during the second quarter of 2004.

In  addition to the above funds  required to complete  construction  of the mill
site the Company has budgeted for the following:

1.       Professional fees                                             $  90,000
2.       Royalty Payments                                              $  20,000
3.       Management fees and salaries                                  $ 123,000
4.       General & Administrative Expenses                             $ 427,000
5.       Mining Costs for 1000 tons of graphite                        $ 200,000
                                                                       ---------
Total Operating Budget                                                 $ 860,000


         Through  December  31,  2003,  the company has been able to obtain debt
financing in the amount of:  $3,058,707.  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, 2005.

         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  during the fiscal year ending December 31, 2002. The balance

                                       13
<PAGE>

of this mortgage was $16,476 at December 31, 2003. The payments on this mortgage
are $296 monthly at an interest rate of 7% per annum,  calculated  semi-annually
not in advance. This mortgage matures August 29, 2007.

         Subsequent to December 31, 2003 the company  secured debt  financing in
the amount of  $250,000  at an  interest  rate of 7%  calculated  annually.  The
principal and accrued  interest is due and payable on July 31, 2005. These funds
were advanced by a non-affiliated shareholder.

         In addition to the Company's  cash on hand of $585,934,  receivables of
$40,267 at December 31, 2003 and subsequent  financing secured by the Company in
the amount of $250,000,  the Company requires additional financing in the amount
of  $1,092,081.  These  additional  funds  along  with  the  Company's  cash and
receivables totaling $876,201 will be used as follows:

1.       Process building                                     $ 157,860
2.       Main crushing and screening plants                   $  53,625
3.       Equipment purchases, additional loader               $  40,000
4.       Equipment, used excavator                            $  55,000
5.       Blasting equipment (dynamite)                        $  46,000
6.       Mine closure plan                                    $ 250,000
7.       Placing of equipment in process building             $ 157,900
8.       Equipment, dryer                                     $  60,000
9.       Equipment for quality control procedures             $  60,000
10.      Final screening equipment                            $  60,000
11.      Professional fees                                    $  90,000
12.      Royalty Payments                                     $  20,000
13.      Management fees and salaries                         $ 123,000
14.      General & Administrative Expenses                    $ 427,000
15.      Mining Costs for 1000 tons of graphite               $ 200,000
16       Current Liabilities at December 31, 2003             $ 167,897


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

Loans Due

         There are no loans due during  fiscal year ending  December  31,  2004.
However, it should be noted that virtually 100% of the Company's debt is due and
payable on July 31, 2005. While this debt is considered long term debt investors
should be aware that the  Company  has not begun any  discussions  to  negotiate
terms more favorable to the Company concerning this debt. Should the Company not
be able to retire this debt on July 31, 2005 investors  should be cautioned that
the Company might not be able to continue to operate.


                                       14
<PAGE>


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

Capital Commitments: NONE

Equipment: NONE

Office Premises

         The Company  leases its  premises  located at 2 Robert  Speck  Parkway,
Suite #750,  Mississauga,  Ontario, Canada L4Z 1H8. This lease expires on August
31, 2004 at which time the Company expects to continue to rent office space on a
month-to-month basis. The Company pays rent in the amount of $726 USD monthly.

Mortgage Payable

         The Company has committed to a payment of $296 (USD) monthly throughout
2004 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  December  31,  2003 in the  amount of
$3,058,707 and subsequent to December 31, 2003  additional debt financing in the
amount of $250,000.  The Company may not be successful in obtaining satisfactory
additional  financing  in the  amount  of  $1,092,081.  There  are no  financing
commitments  currently  in  place  for  the  required  funds  in the  amount  of
$1,092,081.  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.

ITEM 7 - FINANCIAL STATEMENTS

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

                                       15
<PAGE>

ITEM 8 -  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

         None.

ITEM 8a - CONTROLS AND PROCEDURES

         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.



                                    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, 2003 are:

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

         Robert A. Stoutley         President and CEO         Annual
         John Melnyk                CFO, Secretary/Treasurer  Annual

The persons who are directors of the Registrant at December 31, 2003 are:

         NAME                               AGE

         Robert A. Stoutley                 50
         John Melnyk                        54
         Stephen W. Weathers                43
         Thomas S. Bamford                  54
         Larry Van Tol                      60
         Richard H. Woodhead                51
         (resigned 3/15/04)


                                       16
<PAGE>


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.

         MR. R.A. (BOB) STOUTLEY,  age 50, was most recently  Vice-President  of
Air  Products  Canada  Ltd,  a  wholly  owned  subsidiary  of Air  Products  and
Chemicals.  Air Products is a leading  global  supplier of industrial  gases and
chemicals  operating in 32 countries.  Mr. Stoutley left Air Products at the end
of March 2003 after a career spanning twenty years. During Mr. Stoutley's twenty
year career he was given increasing roles of responsibility. Initially, hired to
establish sales and operations in Western Canada,  Mr. Stoutley advanced through
positions  in sales,  sales  management,  business and project  development  and
finally  Vice  President  and a member of the board of directors of Air Products
Canada Ltd. Mr. Stoutley was appointed President of the Company on June 30, 2003
and elected a Director in October 2003.

         JOHN MELNYK,  age 54, 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.

         STEPHEN W.  WEATHERS,  age 43,  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.

         THOMAS S. BAMFORD, age 54, obtained a Bachelor of Science in Geological
Engineering  from the  University  of  Saskatchewan  in 1971,  Master of Science
(Geology/Geophysics)  from the University of Saskatchewan in 1973, and a Masters
of Business Administration from the University of Saskatchewan in 1978.

         Mr. Bamford is a member of the  Association of  Professional  Engineers
and  Geoscientists of Saskatchewan  (APEGS).  He became affiliated with APEGS in
1975. Mr.  Bamford has held since 1996 an APEGS license to consult.  In 1995 Mr.
Bamford  established  and operated a  Calgary-based  management  consulting  and
database/software development practice with emphasis on the process of analyzing

                                       17
<PAGE>

operational and economic performance for the oil and gas industry. Current focus
of this  consulting  practice is to design and organize  private  financing  and
structuring for tax-effective and traditional oil and gas investment vehicles in
western Canada.

         Mr.  Bamford held the  positions of President and CEO  (1998-1999)  and
Chief Financial Officer  (1997-1998) of Westlinks Resources Ltd. Mr. Bamford was
a director of Westlinks  Resources Ltd. from 1997 to 2000.  Westlinks  Resources
Ltd. was an Alberta Stock Exchange traded junior oil and Gas Company, which grew
through acquisition, merger and amalgamation.

         Mr.  Bamford  began his  career in 1975 with  Saskatchewan  Oil and Gas
Corporation  (Saskoil)  and remained  with  Saskoil  (now  Wascana  Energy Inc.)
through 1995. He participated  in various  aspects of the technical,  operating,
administration  and  financial  growth  of  a  start-up,  private,  oil  company
(Saskoil) through its transition to a publicly traded senior production  company
(Wascana Energy).  Career  development  during this period focused on the design
and development of new business opportunities, processes, methods and systems as
well as providing special project leadership to these initiatives.

         He held the  following  positions  at  Wascana  Energy  Inc.  (formerly
askoil), Reserves and Evaluations Engineer (04/1975-09/1977),  Educational Leave
(09/1977_04/1978),  Reservoir Engineer (04/1978-12/1979),  Director Planning and
Special   Projects    (01/1980-04/1983),    Acting    Vice-President,    Finance
(11/1981-04/1982),  Manager,  Exploration  Geology  (04/1983-11/1985),  Manager,
Business   Development    (11/1985-06/1987),    Manager,    Corporate   Planning
(06/1987-08/1989),   Manager,  Research   (05/1992-04/1994),   Manager,  Special
Projects (05/1992-04/1994) and Manager, Budgets and Reserves, (05/1994-12/1995).

         Mr.  Bamford was appointed a Director of Industrial  Minerals,  Inc. on
October 24, 2003.

         LARRY VAN TOL, age 60,  graduated  with a Bachleor of Science degree in
Business  Administration and Economics from the University of Minnesota in 1967.
From 1976 to present Mr. Van Tol has been the owner operator of Hilltop  Florist
and  Greenhouse  in  Mankato,  Minnesota.  Mr.  Van Tol has been a  director  of
Security State Bank in Mankato.  He has held this  directorship  since 1999. Mr.
Van Tol is a member of the audit, company policy,  compensation,  investment and
loan  approval  committees  of  Security  State  Bank.  Security  State  bank is
privately  held and the 3rd largest of Mankato's 28 Banks.  Security  State bank
has one location  and $100 million in assets.  Mr. Van Tol is also a director of
Bancommunity Service Corp. Bancommunity is the privately held holding company of
First National Bank of St. Peter, MN and Security State Bank of Mankato. Mr. Van
Tol has held this  position  since  1999.  Mr. Van Tol was elected a Director of
Industrial Minerals, Inc. on October 24, 2003.

         RICHARD H. WOODHEAD,  age 51, obtained a BA (English) with  distinction
from the University of Calgary in 1973 and a B.Sc. (Psychology) with distinction
from the  University  of Calgary in 1975,  Masters  of  Business  Administration
(Finance)  from the  University of British  Columbia in 1981.  Mr.  Woodhead was
ranked first in the MBA program at the University of British Columbia.

                                       18
<PAGE>

         In 2003  Mr.  Woodhead  joined  TD  Canada  Trust  and is the  regional
manager,  builder  development  for Western  Canada.  Mr.  Woodhead  manages the
builder capped rate mortgage  program for new  construction  throughout  Western
Canada.

         In 1992 Mr.  Woodhead  joined the  Canadian  Imperial  Bank of Commerce
(CIBC) and remained  with them through 2002.  Mr.  Woodhead was the Director and
business head for the Western Canada Real Estate Group for the CIBC (2000-2002).
During  this  period he managed  the  financial  performance  of a $500  million
portfolio  (as  measured  by  ROE)  capital  usage,   new  deal  generation  and
cross-selling,  including mezzanine financing.  Mr. Woodhead was Director,  Real
Estate  (1997-2000) and a senior manager of Real Estate (1992-1997) at the CIBC.
During this period he managed a $200 million commercial  construction  portfolio
in central Canada until 1996, with British Columbia being added thereafter.

         Manvest Ltd.  (1990-1992) of Calgary,  AB employed Mr. Woodhead as Vice
President,  Corporate  Development.  He managed existing real estate investments
and evaluated potential real estate investment opportunities for Manvest Ltd.

         The Bank of  Montreal  (Petroleum  and Mining  Division)  employed  Mr.
Woodhead (1983 - 1990) in Calgary,  AB. He was Senior Account manager  Corporate
and Government  Banking He prepared and recommended  major corporate  credits in
the energy and mining sectors, based on financial/risk  analysis and engineering
evaluations.

         He served as a Petroleum Finance Officer  (1982-1983) with the Canadian
Imperial Bank of Commerce in Calgary.

         Mr. Woodhead joined Trizec Corporation  (1981-1982) as a Retail Leasing
Representative  in  Calgary.  There he worked  with the Vice  President,  Retail
Leasing in  implementation  of corporate retail leasing plans and policies in 12
regional shopping centers across Canada and multi-use office developments.

         Mr.  Woodhead was elected a Director of  Industrial  Minerals,  Inc. on
October 24, 2003.  Mr.  Woodhead  resigned his position of Director on March 15,
2004 to pursue other interests.

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

         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.

                                       19

<PAGE>


         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:


Stephen W. 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.

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.








                  [Remainder of page left blank intentionally]


                                       20
<PAGE>


ITEM 10- EXECUTIVE COMPENSATION
                             EXECUTIVE COMPENSATION

Cash Compensation.

         Compensation paid for all services provided up to December 31, 2003 (1)
to each of our executive officers and (2) to all officers as a group.
<TABLE>
<CAPTION>
<S>                      <C>       <C>        <C>      <C>            <C>         <C>              <C>
======================== ========= ========== ======== ============== =========== ================ =========================
Name and Principal       Year      Salary     Bonus    Consulting     Number of   Securities       Long Term Compensation/
Position                                               Fees/Other     Shares      Underlying       Option
                                                       Fees ($)                   Options/
                                                                                  SARS (#)
======================== ========= ========== ======== ============== =========== ================ =========================
Edward Verby             2001              0        0              0           0                0                         0
(Resigned President
2003)
                         --------- ---------- -------- -------------- ----------- ---------------- -------------------------
                         2002              0        0              0           0                0                         0
                         --------- ---------- -------- -------------- ----------- ---------------- -------------------------
                         2003              0        0              0           0                0                         0
------------------------ --------- ---------- -------- -------------- ----------- ---------------- -------------------------
Robert A. Stoutley,      2001              0        0              0           0                0                         0
President & CEO
                         --------- ---------- -------- -------------- ----------- ---------------- -------------------------
                         2002              0        0              0           0                0                         0
                         --------- ---------- -------- -------------- ----------- ---------------- -------------------------
                         2003        $48,127        0              0           0                0                         0
------------------------ --------- ---------- -------- -------------- ----------- ---------------- -------------------------
John Melnyk, CFO         2001              0        0              0           0                0                         0
Secretary/Treasurer
                         --------- ---------- -------- -------------- ----------- ---------------- -------------------------
                         2002              0        0              0           0                0                         0
                         --------- ---------- -------- -------------- ----------- ---------------- -------------------------
                         2003              0        0         $8,000           0                0                         0
======================== ========= ========== ======== ============== =========== ================ =========================
Officers as a Group      2001              0        0              0           0                0                         0
                         --------- ---------- -------- -------------- ----------- ---------------- -------------------------
                         2002              0        0              0           0                0                         0
                         --------- ---------- -------- -------------- ----------- ---------------- -------------------------
                         2003        $48,127        0         $8,000           0                0                         0
======================== ========= ========== ======== ============== =========== ================ =========================
</TABLE>

                     SUMMARY COMPENSATION TABLE OF DIRECTORS
                             (to December 31, 2003)
<TABLE>
<CAPTION>
<S>                     <C>          <C>            <C>           <C>             <C>                  <C>

======================= ============ ============== ============= =============== ==================== ===========================
Name                    Year         Annual         Meeting       Consulting      Number of Option     Securities Underlying
                                     Retainer       Fees ($)      Fees/Other      Shares Exercised     Options/SARS (#)
                                     Fees ($)                     Fees ($)
======================= ============ ============== ============= =============== ==================== ===========================
Edward Verby            2001                     0             0               0                    0                           0
(not re-elected 2003)
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2002                     0             0               0                    0                           0
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2003                     0             0               0                    0                           0
----------------------- ------------ -------------- ------------- --------------- -------------------- ---------------------------
Robert A. Stoutley,     2001                     0             0               0                    0                           0
Director
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2002                     0             0               0                    0                           0
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2003                     0             0               0                    0                           0
----------------------- ------------ -------------- ------------- --------------- -------------------- ---------------------------
John Melnyk, Director   2001                     0             0               0                    0                           0
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2002                     0             0               0                    0                           0
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2003                     0             0               0                    0                           0
----------------------- ------------ -------------- ------------- --------------- -------------------- ---------------------------
Stephen W. Weathers,    2001                     0             0               0                    0                           0
Director
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2002                     0             0               0                    0                           0
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2003                     0             0               0                    0                           0
----------------------- ------------ -------------- ------------- --------------- -------------------- ---------------------------
Thomas S. Bamford,      2001                     0             0               0                    0                           0
Director
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2002                     0             0               0                    0                           0
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2003                     0             0               0                    0                           0
----------------------- ------------ -------------- ------------- --------------- -------------------- ---------------------------

                                       21
<PAGE>



======================= ============ ============== ============= =============== ==================== ===========================
Name                    Year         Annual         Meeting       Consulting      Number of Option     Securities Underlying
                                     Retainer       Fees ($)      Fees/Other      Shares Exercised     Options/SARS (#)
                                     Fees ($)                     Fees ($)
======================= ============ ============== ============= =============== ==================== ===========================
Richard H. Woodhead,    2001                     0             0               0                    0                           0
(Resigned Director -
3/15/04)
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2002                     0             0               0                    0                           0
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2003                     0             0               0                    0                           0
----------------------- ------------ -------------- ------------- --------------- -------------------- ---------------------------
Larry Van Tol,          2001                     0             0               0                    0                           0
Director
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2002                     0             0               0                    0                           0
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2003                     0             0               0                    0                           0
----------------------- ------------ -------------- ------------- --------------- -------------------- ---------------------------

======================= ============ ============== ============= =============== ==================== ===========================
Directors as a Group    2001                     0             0               0                    0                           0
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2002                     0             0               0                    0                           0
                        ------------ -------------- ------------- --------------- -------------------- ---------------------------
                        2003                     0             0               0                    0                           0
======================= ============ ============== ============= =============== ==================== ===========================
</TABLE>


         The Company  formed an Audit  Committee on March 18, 2004.  Members are
Larry Van Tol and Thomas S.  Bamford.  All  Committee  Members  are  independent
Directors as defined by the Sarbanes-Oxley Act of 2002.

           The Corporation is a small business filer and has until July 31, 2005
to form an audit  committee as defined by the  Sarbanes-Oxley  Act of 2002.  The
Audit committee has yet to elect a chairperson but both Larry Van Tol and Thomas
S.  Bamford  could act as the  "qualified  financial  expert"  as defined by the
Sarbanes-Oxley Act of 2002.

         As of December 31, 2003,  the Company  adopted an Integrity  and Ethics
Policy as filed in an 8K dated January 6, 2004 and which is incorporated  herein
by reference.









                  [Remainder of page left blank intentionally]

                                       22
<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 as of December 31, 2003.
<TABLE>
<CAPTION>
<S>                                                        <C>                           <C>
---------------------------------------------------------- ----------------------------- -----------------------------
        Name and Address of Beneficial Ownership               Amount and Nature of            Percent of Class
                                                               Beneficial Ownership
---------------------------------------------------------- ----------------------------- -----------------------------
Edward V. Verby                                                                 400,000                 Less than .1%
(former President & director)
2 Robert Speck Parkway, Suite #750, Mississauga,
Ontario, Canada L4Z 1H8
---------------------------------------------------------- ----------------------------- -----------------------------
Robert A. Stoutley, President and CEO                                                 0                            0%
2 Robert Speck Parkway, Suite #750, Mississauga,
Ontario, Canada L4Z 1H8
---------------------------------------------------------- ----------------------------- -----------------------------
John Melnyk, CFO Secretary/Treasurer                                          3,850,800(1)                       5.3%
2 Robert Speck Parkway, Suite #750, Mississauga,
Ontario, Canada L4Z 1H8
---------------------------------------------------------- ----------------------------- -----------------------------
Stephen W. Weathers, Director                                                    15,400                 Less than .1%
2 Robert Speck Parkway, Suite #750, Mississauga,
Ontario, Canada L4Z 1H8
---------------------------------------------------------- ----------------------------- -----------------------------
Thomas S. Bamford, Director                                                     300,000(2)              Less than .1%
2 Robert Speck Parkway, Suite #750, Mississauga,
Ontario, Canada L4Z 1H8
---------------------------------------------------------- ----------------------------- -----------------------------
Richard H. Woodhead, (resigned Director)                                         30,000                 Less than .1%
2 Robert Speck Parkway, Suite #750, Mississauga,
Ontario, Canada L4Z 1H8
---------------------------------------------------------- ----------------------------- -----------------------------
Larry Van Tol, Director                                                         425,000                 Less than .1%
2 Robert Speck Parkway, Suite #750, Mississauga,
Ontario, Canada L4Z 1H8
---------------------------------------------------------- ----------------------------- -----------------------------
Krystar International                                                        12,996,000                           18%
P.O. Box N-8198
East Bay Street
Management International Building
Nassau, Bahamas BWI
========================================================== ============================= =============================
Directors as a Group                                                          5,021,200                          5.4%
---------------------------------------------------------- ----------------------------- -----------------------------
</TABLE>

(1)  Includes   Murphy's   Investment   Corp.   and  Olympic  View   Investments
(beneficially John Melnyk's wife)
(2) Includes 100,000 shares through the Bamford Family Trust



                                       23
<PAGE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         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 issuers 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.

         The officers  and  directors  of the Company  approved a resolution  to
forward  split the  common  shares of the  Company on a two shares for one basis
effective June 13, 2003 based upon a majority of the  shareholders  giving their
written consent to such action.

ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits filed with this annual report.
 Exhibit No.               Description
 -----------               -----------
3.1                        Bylaws (1)
14.1                       Code of Ethics (2)
21                         Subsidiaries of the Corporation
31.1                       Section 302 Certification (CEO)
31.2                       Section 302 Certification (CFO)
32.1                       Section 906 Certification (CEO)
32.2                       Section 906 Certification (CFO)

                                       24
<PAGE>

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

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

(b)   Reports on Form 8-K

    The Company filed reports on Form 8Ks in 2003 as follows:

        8K12g3/A filed 4/1/03
        8K12g3/A filed 4/10/03
        8K filed 5/27/03
        8K filed 6/24/03
        8K filed 7/30/03
        8K filed 9/15/03
        8K filed 10/29/03

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

         General.  Toski,  Schaefer,  &  Co.,  P.C.  ("TSC")  is  the  Company's
principal  auditing  accountant  firm.  The  Company's  Board of  Directors  has
considered   whether  the  provision  of  audit  services  is  compatible   with
maintaining TSC's independence.

         Audit  Fees.  TSC billed the  Company  for the  following  professional
services:  $5,834  for  the  restatement  of  audited  financial  statements  of
Industrial  Minerals  Incorporated  for the fiscal periods ending  September 30,
2001,  and  December  31,  2001;  $9,000 for the audit of the  annual  financial
statement of the Company for the fiscal year ended December 31, 2002.

         Michael  Johnson & Co.  ("MJC")  billed the Company  for the  following
professional services: $1,500 for the audit of the annual financial statement of
the Company for the fiscal year ended December 31, 2001.

         Audit  Related   Fees.   MJC  billed  the  Company  for  the  following
professional services: $1,500 for the review of the interim financial statements
included in  quarterly  reports on Form  10-QSB for the periods  ended March 31,
2001, June 30, 2001 and September 30, 2001.

         TSC billed the Company for the following professional services:  $4,800
for the review of the interim financial statements included in quarterly reports
on Form  10-QSB  for the  periods  ended  March 31,  2002,  June 30,  2002,  and
September  30,  2002;  $1,450 for the review of the restated  interim  financial
statements included in amended quarterly reports on Form 10QSB/A for the periods
ended March 31, 2002,  June 30, 2002 and September 30, 2002. TSC also billed the

                                       25
<PAGE>

Company  the fee of $4,800 for the review of the  interim  financial  statements
included in  quarterly  reports on Form  10-QSB for the periods  ended March 31,
2003, June 30, 2003 and September 30, 2003.

         All Other Fees.  There were no tax fees or other fees in 2001,  2002 or
2003.

         The   Company's   Board  acts  as  the  audit   committee  and  had  no
"pre-approval  policies and  procedures" in effect for the auditors'  engagement
for the audit year 2002 and 2003.

         The auditors' full time employees performed all audit work.














                  [Remainder of page left blank intentionally]
















                                       26
<PAGE>


                                   Signatures

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

                                                   Industrial Minerals, Inc.

         Date: March 25, 2004                      By:/s/Robert A. Stoutley
                                                   -----------------------------
                                                   Robert A. Stoutley, President

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

         Date: March 25, 2004              By:/s/Robert A. Stoutley
                                           -------------------------------------
                                           Robert A. Stoutley, President and CEO

         Date: March 25, 2004              By:/s/John Melnyk
                                           -------------------------------------
                                           John Melnyk, Secretary/Treasurer, CFO

                                   DIRECTORS:

         Date: March 25, 2004              By:/s/Robert A. Stoutley
                                           -------------------------------------
                                           Robert A. Stoutley

         Date: March 25, 2004              By:/s/John Melnyk
                                           -------------------------------------
                                           John Melnyk

         Date: March 25, 2004              By:/s/Stephen W. Weathers
                                           -------------------------------------
                                           Stephen W. Weathers

         Date: March 25, 2004              By:/s/Thomas S. Bamford
                                           -------------------------------------
                                           Thomas S. Bamford

         Date: March 25, 2004              By:/s/Larry Van Tol
                                           -------------------------------------
                                           Larry Van Tol

                                       27
<PAGE>
                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
                              FINANCIAL STATEMENTS
                                December 31, 2003







                                                                          PAGE
                                                                          ----

Report of Independent Auditors........................................     F-1

Consolidated Balance Sheets...........................................     F-2

Consolidated Statements of Operations.................................     F-3

Consolidated Statements of Cash Flows.................................     F-4

Consolidated Statements of Changes in Shareholders'
 Equity...............................................................     F-6

Notes to Consolidated Financial Statements ............................    F-7





<PAGE>

                          TOSKI, SCHAEFER & CO., P.C.
                          CERTIFIED PUBLIC ACCOUNTANTS
                            555 International Drive
                         Williamsville, New York 14221
                                     ------
                            Telephone (716) 634-0700
                               Fax (716) 634-0764

                          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  sheets of  Industrial
Minerals, Inc. and Subsidiary (formerly PNW Capital, Inc.) (An Exploration Stage
Company)  as of  December  31,  2003  and  2002,  and the  related  consolidated
statements of  operations,  stockholders'  equity and cash flows for each of the
two  years  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 audits.  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 audits 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
audits provide 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, 2003 and 2002,  and the results of their
operations and their cash flows for the two years 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
March 8, 2004

                                       F-1

<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
                           Consolidated Balance Sheets
                     December 31, 2003 and December 31, 2002

<TABLE>
<CAPTION>
<S>                                                                                 <C>             <C>
                                                                                        2003             2002
                                                                                    -------------   ---------------
Assets

Current Assets:
    Cash                                                                            $     585,934   $       5,537
    Receivables                                                                            40,267          19,594
    Prepaid Expenses                                                                       10,462           6,400
    Deposits                                                                               65,242             796
                                                                                    -------------   ---------------
                           Total current assets                                           701,905          32,327

Building and equipment, at cost, less
   accumulated depreciation of $124,493 in 2003,
    and  $56,193 in 2002                                                                  911,652         366,014
                                                                                    -------------   ---------------

                           Total assets                                             $   1,613,557   $     398,341
                                                                                    =============   ===============

Liabilities and Stockholders' Equity

Current Liabilities:
     Accounts payable:
        Non-related parties                                                         $     165,753   $       3,845
        Related parties                                                                        --         180,000
                                                                                    -------------   ---------------

                           Total accounts payable                                         165,753         183,845

     Loans payable                                                                              -         775,372
     Current installments of mortgage payable                                               2,144           1,999
                                                                                    -------------   ---------------
                           Total current liabilities                                      167,897         961,216

Accrued interest payable                                                                   83,579               -
Loans payable                                                                           3,058,707               -
Mortgage payable, excluding current installments                                           14,332          14,886
                                                                                    -------------   ---------------

                           Total liabilities                                            3,324,515         976,102
                                                                                    -------------   ---------------

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;
         72,063,896 shares issued and outstanding for 2003 and
         36,031,621 shares issued and outstanding for 2002                                   3,600           3,600
     Additional paid-in capital                                                            14,142          14,142
     Deficit accumulated during development stage                                      (1,728,700)       (595,503)
                                                                                    -------------   ---------------

                           Total stockholders' equity  (deficit)                       (1,710,958)       (577,761)
                                                                                    -------------   ---------------
Commitments (note 6)
--------------------

     Total liabilities and stockholders' equity                                     $   1,613,557   $       398,341
                                                                                    =============   ===============
</TABLE>
See accompanying notes to consolidated financial statements

                                      F-2
<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
                      Consolidated Statements of Operations
               Twelve months ended December 31, 2003 and 2002 and
            the period from November 6, 1996 (Date of Inception) to
                                December 31, 2003

<TABLE>
<CAPTION>
<S>                                                                <C>              <C>              <C>
                                                                          Twelve Months Ended
                                                                             December 31,            November 6, 1996
                                                                             -----------              (inception) to
                                                                         2003              2002        Dec. 31, 2003
                                                                   -------------    -------------    ----------------

Revenue                                                            $           -                -            15,537
                                                                   -------------    -------------    --------------
Expenses:
              Cost of revenues                                                 -                -            76,201
              Professional fees                                           91,858           86,275         1,111,662
              Royalty fees                                                18,775           17,550            36,325
              Depreciation and amortization                               68,717           56,193           133,202
              Impairment of long-lived assets                                  -                -           582,176
              Management fees and salaries                                56,127                -            56,127
              Other general and administrative                           897,804          360,227         1,448,931
                                                                   -------------    -------------    --------------

                           Total expenses                              1,133,281          520,245         3,444,624
                                                                   -------------    -------------    --------------

                           Loss from operations                       (1,133,281)        (520,245)       (3,429,087)
                                                                   -------------    -------------    --------------

Other income:
     Interest income                                                          84                3             2,811
     Other income                                                              -                -               594
                                                                   -------------    -------------    --------------
              Total other income                                              84                3             3,405
                                                                   -------------    -------------    --------------

              Net loss                                             $  (1,133,197)        (520,242)       (3,425,682)
                                                                   =============    =============    ==============

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

Weighted average common shares outstanding                            55,549,253       31,810,566
                                                                   =============    =============
</TABLE>










See accompanying notes to consolidated financial statements

                                      F-3
<PAGE>

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

                      Consolidated Statements of Cash Flows

                      Twelve months ended December 31, 2003
                    and 2002 and for the period from November
                         6, 1996 (Date of Inception) to
                                December 31, 2003

<TABLE>
<CAPTION>
<S>                                                                <C>              <C>               <C>
                                                                                Twelve months
                                                                                    ended
                                                                                  Dec. 31,             November 6, 1996
                                                                                  --------             (inception) to
                                                                            2003           2002         Dec. 31, 2003
                                                                    ------------    -------------     ------------------
Cash flows from operating activities:
     Net loss                                                      $  (1,133,197)   $    (520,242)       (3,425,682)
     Adjustments to reconcile net loss to net cash
           used in operating activities activities:
         Depreciation and amortization                                    68,717           56,193           124,910
         Provision for bad debts                                               -                -            49,676
         Stock issued for services                                             -                -           414,606
         Impairment of long-lived assets                                       -                -           297,882
         Changes in:
              Receivables                                                (20,673)         (19,594)          (44,436)
              Inventory                                                        -                -            (5,527)
              Prepaid expenses                                            (4,062)          (6,400)          (11,001)
              Deposits                                                   (64,446)            (796)          (65,242)
              Accounts payable and accrued expenses                      161,908          (38,243)           77,725
              Due to related parties                                    (180,000)         (20,000)          395,000
                                                                    ------------    -------------     -------------

                           Net cash used in
                               operating activities                  ( 1,171,753)        (549,082)       (2,192,089)
                                                                    ------------    -------------     -------------

Cash flows from investing activities:
     Purchase of building and equipment                                 (614,355)        (217,207)         (835,722)
     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                     (614,355)        (217,207)       (1,105,286)
                                                                    ------------    -------------     -------------

</TABLE>
See accompanying notes to consolidated financial statements

                                      F-4
<PAGE>

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

<TABLE>
<CAPTION>
<S>                                                                <C>              <C>               <C>
                                                                                Twelve months
                                                                                    ended
                                                                                  Dec. 31,             November 6, 1996
                                                                                  --------             (inception) to
                                                                            2003           2002         Dec. 31, 2003
                                                                    ------------    -------------     ------------------
Cash flows from financing activities:
     Proceeds from sale of common stock                            $           -    $           -           744,859
     Net proceeds from loans payable                                   2,283,335          754,920         3,038,255
     Proceeds from mortgage                                                    -           17,000            17,000
     Principal payments on mortgage                                         (409)            (115)             (524)
     Accrued interest payable                                             83,579                -            83,579
     Cash acquired in acquisition of Peanut
         Butter & Jelly, Inc.                                                  -                -               140
                                                                    ------------    -------------     -------------

                           Net cash provided by
                               financing activities                    2,366,505          771,805         3,883,309
                                                                    ------------    -------------     -------------

Net increase in (decrease) in cash                                       580,397            5,516           585,934

Cash beginning of period                                                   5,537               21                 -
                                                                    ------------    -------------     -------------

Cash end of period                                                  $    585,934    $       5,537           585,934
                                                                    ============    =============     =============

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                                 $          -                -           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-5
<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
                 Consolidated Statement of Stockholders' Equity
                                December 31, 2003
<TABLE>
<CAPTION>
<S>                                      <C>            <C>            <C>               <C>              <C>
                                                                                           Deficit
                                                                                         Accumulated
                                                   Common Stock         Additional       During the
                                          ---------------------------     Paid-In        Exploration
                                         # of Shares        Amount        Capital          Stage            Totals
                                        -------------   -----------    ------------      ------------     ----------
Inception - November 6, 1996                        -   $         -               -                 -              -
Balance at December 31, 1998                  252,500            25         505,143          (750,830)      (245,662)
Issuance of stock for cash                     30,000             3         146,618                 -        146,621
Issuance of stock for services                 55,000             6         274,994                 -        275,000
Net loss                                            -             -               -          (259,404)      (259,404)
                                        -------------   -----------    ------------      ------------     ----------

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

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

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

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

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

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

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

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

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

Balance at December 31, 2003               72,063,896   $     3,600          14,142        (1,728,700)   (1,710,958)
                                        =============   ===========    ============      ============     ==========
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002

Note 1 - Organization and Summary of Significant Accounting policies

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

        (b) Nature of Operations
The Company 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 during fiscal 2004.

        (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.

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


                                      F-7
<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
              Notes to Consolidated Financial Statements, continued
                           December 31, 2003 and 2002

Note 1 - Organization and Summary of Significant Accounting policies - continued

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, 2003, 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, 2003 and 2002.

        (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, 2003, the Company has net loss carry forwards of $3,425,682,  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, 2003.

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



                                      F-8
<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
              Notes to Consolidated Financial Statements, continued
                           December 31, 2003 and 2002

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

        (n) Recent Pronouncements
In  January  2003,  the  FASB  issued  FASB  Interpretation  No.  46 or FIN  46,
"Consolidation of Variable Interest Entities,".  A variable interest entity is a
legal  structure  used for  business  purposes  that either does not have equity
investors  with  voting  rights  or has  equity  investors  that do not  provide
sufficient  financial  resources  for the entity to support its  activities.  In
December 2003, the FASB issued a revision to the interpretation. The guidance in
this FIN is effective on December 31, 2004 for the Company.

In  April  2003,  the  FASB  issued  SFAS No.  149 -  "Amendment  of SFAS 133 on
Derivative  Instruments  and  Hedging  Activities."  This  statement  amends and
clarifies financial accounting and reporting for derivative instruments embedded
in other contracts  (collectively  referred to as  derivatives)  and for hedging
activities  under SFAS 133,  Accounting for Derivative  Instruments  and Hedging
Activities.  SFAS No. 149 is effective  for  contracts  entered into or modified
after June 30, 2003.

In May 2003,  the FASB issued SFAS No. 150-  "Accounting  for Certain  Financial
Instruments with Characteristics of Both Liabilities and Equity." This statement
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with characteristics of both liabilities and equity. This
Statement is effective for financial  instruments entered into or modified after
May 31,2003.

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



Note 2 -  Building and Equipment

Building and equipment are recorded at cost. A summary of building and equipment
at December 31, 2003 are as follows:

Building and improvements                            $   222,666
Equipment                                                813,479
                                                     ------------
Total building and equipment                           1,036,145
Less accumulated depreciation                            124,493
                                                     ------------
Net building and equipment                           $   911,652
                                                     ============


                                      F-9
<PAGE>
                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
              Notes to Consolidated Financial Statements, continued
                           December 31, 2003 and 2002

Note 3- Loans Payable
<TABLE>
<CAPTION>
All loans  payable were issued in 2002 and 2003.  Loans  payable at December 31,
2003 and 2002 consist of the following:
<S>                                                                                    <C>               <C>
                                                                                          2003               2003
Non-affiliated shareholder, unsecured, interest at 7%.                                    ----               ----
No monthly installments are required.
Principal and accrued interest due July 2005.                                          $ 2,967,911       $  654,499

Non-affiliated shareholder,  unsecured,  interest at 7%.
No monthly installments are required.
Principal and accrued interest due July 2005.                                               90,796            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                                                                    $ 3,058,707           775,372
                                                                                        ==========          ==========
</TABLE>


Note-4 Mortgage Payable
<TABLE>
<CAPTION>
<S>                                                                     <C>            <C>
Mortgage payable, seller, monthly payments of $296
with interest at 7% beginning September  2002  through                    2003           2002
August 2007 and a balloon  payment  for the  remaining                    ----           ----
balance due at August 2007.  Secured by real property
located in Bissett Creek, Ontario, Canada.                              $ 16,476       $16,885

                           Less current installments                       2,144         1,999
                                                                        --------       -------
                           Mortgage payable, less current installments  $ 14,332       $14,886
                                                                        ========       =======
</TABLE>

The  aggregate  maturity of the  mortgage  payable for the four years  following
December 31, 2003 is as follows:

2004     $ 2,144
2005       2,299
2006       2,465
2007       9,568
         -------
         $16,476

                                      F-10
<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
              Notes to Consolidated Financial Statements, continued
                           December 31, 2003 and 2002

Note-5 Related Party Transaction

The Company was 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.  During  2003 the  Company  paid  $180,000  to  Krystar
International  leaving no  liability  to Krystar  International  at December 31,
2003.

Note-6 Commitments

(a) Office Space

The Company is obligated under the terms of a lease for its Toronto office space
for monthly  rent of $726 until August 31,  2004.  After  August 31,  2004,  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.

(c) Employment

In  connection  with the  employment of the CEO, the Company is required to make
payments  in the  amount of  $125,000  (Canadian  Dollars)  annually  or $10,417
(Canadian Dollars) monthly to the CEO through June 30, 2004.  Subsequent to June
30, 2004 the compensation paid to the CEO will be on a month to month basis. The
CEO's  expected  earnings in each twelve  month period over the next 4 years are
set out below:

12 month period beginning July 1,  2004            $ 145,000 (Canadian Dollars)
12 month period beginning July 1,  2005            $ 165,000 (Canadian Dollars)
12 month period beginning July 1,  2006            $ 185,000 (Canadian Dollars)
12 month period beginning July 1,  2007            $ 205,000 (Canadian Dollars)

(d) Marketing

The Company is committed to pay to $4,000 monthly for marketing  services.  This
commitment ends on May 31, 2004.


                                      F-11
<PAGE>

                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
             Notes to Consolidated Financial Statements, continued
                           December 31, 2003 and 2002

(e) Mine Closure Plan

The Company has deposited with the Minister of Finance,  Province of Ontario the
amount  $55,093  to  secure  a  portion  of  the  Company's  mine  closure  plan
surrounding  the  construction  of the Company's  infrastructure  on its Bissett
Creek Property. The Company is committed to restore the site and the Province of
Ontario required a deposit equal to the restoration costs.

Note-7 Capital Stock

The Company issued  36,031,948 shares of common stock as the result of a 2 for 1
forward  stock split.  The forward  stock split was  effective on June 13, 2003.
Shares and per share amounts were restated to reflect this forward stock split.

The Company  issued an additional  327 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 reverse stock split.

Note 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.  Even though the  Company's  current  asset's  exceed
current  liabilities by $534,008,  the Company  recorded a net loss amounting to
$1,133,197  during the year ended  December 31, 2003.  The Company's  ability to
continue, as a going concern is dependent upon its ability to develop additional
sources of capital  to operate  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.

Note 9- Translation of Foreign Currencies

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

Note 10- Subsequent Event

During the first quarter of the Company's  fiscal year ending December 31, 2004,
additional  financing in the amount of $250,000 at an annual interest rate of 7%
has been obtained.  The principal along with accrued interest is due and payable
on July 31, 2005. A non-affiliated shareholder has advanced these funds.



                                      F-12
<PAGE>


                            INDUSTRIAL MINERALS, INC.
                                 AND SUBSIDIARY
                         (An Exploration Stage Company)
              Notes to Consolidated Financial Statements, continued
                           December 31, 2003 and 2002

Note 11-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 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 liabilities.

The net deferred  income tax asset  consisted  of the  following  components  at
December 31, 2003 and 2002:

                                                        2003             2002
                                                        ----             ----
         Deferred tax asset:
           Net operating loss carryforwards         $3,425,682        2,292,485

            Valuation allowance                     (3,425,682)      (2,292,485)
                                                    -----------      -----------

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


At December  31,  2003,  the Company had net  operating  loss  carryforwards  of
approximately $3,425,682 for federal income tax purposes. These carryforwards if
not utilized to offset taxable income will begin to expire in 2009.







                                      F-13