UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 2005
Commission file number: 000-30651
---------
INDUSTRIAL MINERALS, INC.
-------------------------------
(Exact name of Registrant as Specified in its Charter)
Delaware 06-1474412
- -------------- ------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2500 One Dundas Street West, Toronto, Ontario, Canada M5G 1Z3
---------------------------------------------
(Address of principal executive offices) (Zip Code)
(416) 979-4621
-------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _______
-----------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No _______
-----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
As of June 30, 2005 the number of shares outstanding of the
registrant's only class of common stock was 111,587,966.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004 (audited).......... 2
Consolidated Statements of Operations (unaudited) for the Three and Six Months ended
June 30, 2005 and 2004 and for the period November 6, 1996 (date of inception),
to June 30, 2005..................................................................................... 3
Consolidated Statements of Cash Flows (unaudited) for the Six Months
ended June 30, 2005 and 2004 and for the period November 6, 1996 (date
of inception) to June 30, 2005 ...................................................................... 4
Consolidated Statement of Stockholders' Equity (unaudited) as of June 30, 2005....................... 6
Notes to Consolidated Financial Statements (unaudited)............................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................................ 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 12
Item 4. Controls and Procedures.............................................................................. 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................................................... 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.......................................... 14
Item 3. Defaults upon Senior Securities...................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 14
Item 5. Other Information.................................................................................... 14
Item 6. Exhibits and Reports on Form 8-K..................................................................... 14
Signatures.................................................................................................... 15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
For financial information, please see the financial statements and the
notes thereto, attached hereto and incorporated by this reference.
The financial statements have been adjusted with all adjustments which,
in the opinion of management, are necessary in order to make the financial
statements not misleading.
The financial statements have been prepared by Industrial Minerals,
Inc. without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnotes disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted as allowed by such rules
and regulations, and management believes that the disclosures are adequate to
make the information presented not misleading. These financial statements
include all the adjustments which, in the opinion of management, are necessary
for a fair presentation of financial position and results of operations. All
such adjustments are of a normal and recurring nature. These financial
statements should be read in conjunction with the audited financial statements
at December 31, 2004, included in the Company's Form 10-K.
1
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Balance Sheets
June 30, 2005 and December 31, 2004
June 30, December 31,
2005 2004
------------- ------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 16,846 $ 27,726
Receivables 26,636 105,925
Prepaid expenses 15,702 15,540
Deposits 17,421 11,789
------------- ------------
Total current assets 76,605 160,980
Long-term deposits 230,000 230,000
Building and equipment, at cost, less accumulated
depreciation of $366,592 in 2005 and $256,167 in 2004 1,885,535 1,778,462
------------- ------------
Total assets $ 2,192,140 $ 2,169,442
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 269,874 $ 120,326
Accrued interest payable 28,610 12,711
Loans payable 733,763 90,796
Due to related parties 24,000 11,787
Current installments of mortgage payables 2,763 2,763
------------- ------------
Total current liabilities 1,059,010 238,383
Mortgage payable, excluding current installments 11,061 12,632
------------- ------------
Total liabilities 1,070,071 251,015
------------- ------------
Stockholders' equity:
Common Stock, par value $.0001; 200,000,000 shares authorized;
111,587,966 shares issued and outstanding 3,949 3,949
Additional paid-in capital 4,204,331 4,204,331
Deficit accumulated during exploration stage (3,086,211) (2,289,853)
------------- ------------
Total stockholders' equity 1,122,069 1,918,427
------------- ------------
Total liabilities and stockholders' equity $ 2,192,140 $ 2,169,442
============ ============
See accompanying notes to consolidated financial statements.
2
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statements of Operations (Unaudited)
Three and six month periods ended June 30, 2005 and 2004 and
for the period from November 6, 1996 (Date of Inception) to
June 30, 2005
Three months ended Six months ended November 6, 1996
June 30, June 30, (inception) to
2005 2004 2005 2004 June 30, 2005
----------- ----------- ----------- ---------- ------------
Revenue $ - - - - 15,537
----------- ----------- ----------- ---------- ------------
Expenses:
Cost of revenues - - - - 76,201
Professional fees 28,687 13,475 44,022 50,448 1,242,616
Royalty fees 5,238 - 10,638 10,000 63,623
Depreciation and amortization 55,330 26,307 110,425 49,261 375,301
Impairment of long-lived assets - - - - 582,176
Management fees and salaries 124,785 29,794 214,910 60,620 395,437
Other general and administrative 245,867 282,924 416,370 533,742 3,114,519
----------- ----------- ----------- ---------- ------------
Total expenses 459,907 352,500 796,365 704,071 5,849,873
----------- ----------- ----------- ---------- ------------
Loss from operations (459,907) (352,500) (796,365) (704,071) (5,834,336)
----------- ----------- ----------- ---------- ------------
Other income:
Interest income 3 31 7 71 2,915
Gain from extinguishment of debt - - - - 1,047,634
Other income - - - - 594
----------- ----------- ----------- ---------- ------------
Total other income 3 31 7 71 1,051,143
----------- ----------- ----------- ---------- ------------
Net loss $ (459,904) (352,469) (796,358) (704,000) (4,783,193)
=========== =========== =========== ========== ============
Net loss per common share $ (.01) (.00) (.01) (.01)
=========== =========== =========== ==========
Weighted average common shares outstanding 111,587,966 72,063,896 111,587,966 72,063,896
=========== =========== =========== ==========
See accompanying notes to consolidated financial statements.
3
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2005 and 2004 and
for the period from November 6, 1996 (Date of Inception) to
June 30, 2005
Six months
ended
June 30, November 6, 1996
-------- (inception) to
2005 2004 June 30, 2005
--------- ---------- ---------
Cash flows from operating activities:
Net loss $ (796,358) (704,000) (4,783,193)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 110,425 49,261 367,009
Provision for bad debts - - 49,676
Stock issued for services - - 414,606
Impairment of long-lived assets - - 297,882
Gain on extinguishment of debt - - (1,047,634)
Changes in:
Receivables 79,289 3,747 (30,805)
Inventory - - (5,527)
Prepaid expenses (162) - (16,242)
Deposits (5,632) (115,849) (17,421)
Accounts payable and accrued expenses 149,548 (107,517) 111,446
Due to related parties 12,213 - 419,000
--------- ---------- ---------
Net cash used in operating
activities (450,677) (874,358) (4,241,203)
--------- ---------- ---------
Cash flows from investing activities:
Purchase of building and equipment (217,498) (490,931) (2,051,704)
Investment in Multiplex - - (75,000)
Acquisition of goodwill - - (149,057)
Loan to related party - - (50,000)
Loan repayments - - 4,493
Long-term deposits - - (159,600)
--------- ---------- ---------
Net cash used in
investing activities (217,498) (490,931) (2,480,868)
--------- ---------- ---------
(Continued)
See accompanying notes to consolidated financial statements.
4
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statements of Cash Flows (Unaudited), Continued
Six months
ended
June 30, November 6, 1996
-------- (inception) to
2005 2004 June 30, 2005
--------- ---------- ---------
Cash flows from financing activities:
Net proceeds form sale of common stock $ - - 744,859
Net proceeds from loans payable 642,967 878,980 5,683,202
Proceeds from mortgage - - 17,000
Principal payments on mortgage (1,571) (2,822) (3,176)
Accrued interest payable 15,899 122,004 296,892
Cash acquired in acquisition of Peanut
Butter & Jelly, Inc. - - 140
--------- ---------- ---------
Net cash provided by
financing activities 657,295 998,162 6,738,917
--------- ---------- ---------
Net decrease in cash (10,880) (367,127) 16,846
Cash, beginning of period 27,726 585,934 -
--------- ---------- ---------
Cash, end of period $ 16,846 218,807 16,846
========= ========== =========
Supplemental cash flow disclosures:
Cash paid for interest $ - - 113
========= ========== =========
Cash paid for income taxes $ - - -
========= ========== =========
Non cash investing and financing activities:
Shares issued for debt $ - - 5,564,891
========= ========== =========
Shares issued for services $ - - 414,606
========= ========== =========
Shares issued for investment $ - - 30
========= ========== =========
Shares issued for accrued interest $ - - 268,281
========= ========== =========
Long term deposits financed by accounts payable $ - - 70,400
========= ========== =========
Property costs financed by issuance
of common stock $ - - 30,000
========= ========== =========
Equipment financed by:
Accounts payable - - 200,000
Issuance of common stock - - 5,000
--------- ---------- ---------
$ - - 205,000
========= ========== =========
See accompanying notes to consolidated financial statements.
5
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statement of Stockholders' Equity (Unaudited)
June 30, 2005
Deficit
Accumulated
Common Stock Additional During the
--------------------------- Paid-In Exploration
# of Shares Amount Capital Stage Totals
------------- ----------- ------------ ------------ ----------
Inception - November 6, 1996 - $ - - - -
Balance at December 31, 1998 252,500 25 505,143 (750,830) (245,662)
Issuance of stock for cash 30,000 3 146,618 - 146,621
Issuance of stock for services 55,000 6 274,994 - 275,000
Net loss - - - (259,404) (259,404)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 1999 337,500 34 926,755 (1,010,234) (83,445)
Issuance of stock for cash 84,900 8 413,062 - 413,070
Issuance of stock for services 70,000 7 349,993 - 350,000
Issuance of stock for Multiplex
stock 3,000 1 29 - 30
Issuance of stock for acquisition 475,463 47 4,699 - 4,746
Net loss - - - (694,758) (694,758)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 2000 970,863 97 1,694,538 (1,704,992) (10,357)
Issuance of stock for
compensation 30,000 3 59,997 - 60,000
Net loss - - - (67,251) (67,251)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 2001 1,000,863 100 1,754,535 (1,772,243) (17,608)
Issuance of stock in connection
with acquisition of Industrial
Minerals Incorporated 35,000,000 3,500 (1,740,393) 1,696,982 (39,911)
Minimum 50 shares
post-split allocation 30,758 - - - -
Net loss - - - (520,242) (520,242)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 2002 36,031,621 3,600 14,142 (595,503) (577,761)
Minimum 50 shares
post-split allocation 327 - - - -
2-for-1 split 36,031,948 - - - -
Net loss - - - (1,133,197) (1,133,197)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 2003 72,063,896 3,600 14,142 (1,728,700) (1,710,958)
3-for-2 split 36,031,948 - - - -
Allocation on round-up of shares 7 - - - -
Issuance of stock in settlement of debt 3,492,115 349 4,190,189 - 4,190,538
Net loss - - - (561,153) (561,153)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 2004 111,587,966 $ 3,949 4,204,331 (2,289,853) 1,918,427
============= =========== ============ ============ ==========
Net loss - - - (796,358) (796,358)
------------- ----------- ------------ ------------ ----------
Balance at June 30, 2005 111,587,966 $ 3,949 4,204,331 (3,086,211) 1,122,069
============= =========== ============ ============ ==========
See accompanying notes to consolidated financial statements.
6
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Six months period ended June 30, 2005 and 2004
ORGANIZATION
The Company was incorporated on November 6, 1996, as Winchester Mining
Corporation in the State of Delaware. On May 13, 2000, in connection with its
merger with Hi-Plains Energy Corp. the Company changed its name from Winchester
Mining Corporation to PNW Capital, Inc. On January 31, 2002, the Company
acquired 91% of the outstanding shares of Industrial Minerals, Inc. On May 2,
2002, the Company merged the remaining 9% of Industrial Minerals, Inc. into PNW
Capital, Inc. and changed its name to Industrial Minerals, Inc.
PRESENTATION OF INTERIM INFORMATION
The accompanying interim financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and, in the opinion of management, include all normal adjustments considered
necessary to present fairly the financial position as of June 30, 2005 and the
results of operations and cash flows for the six months ended June 30, 2005 and
2004. Interim results are not necessarily indicative for results for a full
year.
The financial statements and notes are presented as permitted by Form 10-Q, and
do not contain certain information included in the Company's audited financial
statements and notes for the year ended December 31, 2004.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE-MONTHS ENDING JUNE 30, 2005 AND JUNE 30, 2004
During the three-month period ending June 30, 2005 the Company had no
revenues. The Company had no revenue during the same three-month period ending
June 30, 2004.
The Company incurred expenses for professional fees in the amount of
$28,687 during the three-month period ending June 30, 2005 compared to $13,475
during the three-month period ending June 30, 2004. This is an increase of
$15,212.
Depreciation and amortization expense for the three-month period ending
June 30, 2005 totaled $55,330, compared to $26,307 for the three-month period
ending June 30, 2004. This represents an increase of $29,023. This increase is
the result of additional asset purchases involving the Company's Bissett Creek
Graphite property.
Other general and administrative expenses for the three-month period
ending June 30, 2005 totaled $245,867 compared to $282,924 for the same
three-month period ending June 30, 2004. This represents a decrease in the
three-month period ending June 30, 2005 of $37,057 over the same period ending
June 30, 2004.
The Company has begun and is continuing to market graphite that will be
available from the Bissett Creek Graphite Property. Several Companies have
expressed interest in the graphite from the Company's Bissett Creek Graphite
Property. The Company is pleased with this response but cautions investors that
there are no firm orders for the Company's graphite at this time. Investors
should be further cautioned that the Company might not be successful in its
marketing efforts.
Management fees and salaries during the three-month period ending June
30, 2005 totaled $124,785 compared to $29,794 for the same three-month period
ending June 30, 2004. The Company incurred $30,000 in management fees to the CEO
and President of the Company and $12,000 in salary to the Chief Financial
Officer. Of these monies the Company paid $10,000 to the CEO and President and
$8,000 to the CFO. The Company still owes $20,000 to the CEO and President and
$4,000 to the CFO. These monies in the amount of $24,000 are reflected on the
balance sheet as a liability due to related parties, which is discussed
elsewhere in this report. The balance of $82,785 in management fees and salaries
was paid to employees at the Bissett Creek Graphite property during the
three-month period ending June 30, 2005. The increase in the amount of $94,991
in management fees and salaries during the period ending June 30, 2005 compared
to the period ending June 30, 2004 is because the Company had employees on site
during the quarter ending June 30, 2005 and had no employees on site during the
three-month period ending June 30, 2004 as the Company used a sub-contractor
during the three-month period ending June 30, 2004.
The Company had a net loss of $459,904 for the three-month period
ending June 30, 2005 as compared to a net loss of $352,469 for the three-month
period ending June 30, 2004. This represents an increase of $107,435 for the
three-month period ending June 30, 2005 compared to the same three-month period
ending June 30, 2004. This increase is due to an increase in activity
surrounding the operations of the company during the three-month period ending
June 30, 2005 compared to the same three-month period ending June 30, 2004. The
loss per share for the quarter in 2005 was $.01 compared to nominal in the same
period in 2004.
8
SIX-MONTHS ENDING JUNE 30, 2005 AND JUNE 30, 2004
During the six-month period ending June 30, 2005 the Company had no
revenues. The Company had no revenue during the same six-month period ending
June 30, 2004.
The Company incurred expenses for professional fees in the amount of
$44,022 during the six-month period ending June 30, 2005 compared to $50,448
during the six-month period ending June 30, 2004. This is a decrease of $6,426.
The Company incurred royalty expenses in the amount of $10,638 during
the six-month period ending June 30, 2005 compared to $10,000 for the six-month
period ending June 30, 2004. This is an increase of $638. The company is
required to pay a minimum yearly royalty of $21,600 ($27,000 CDN dollars)
whether the Company is producing graphite or not. The weakness of the United
States dollar in relation to the Canadian dollar over the past year has resulted
in an increased cost in US dollars to the Company. If the United States dollar
remains at the current level in relation to the Canadian dollar the royalty
payment in subsequent years will remain at $21,600 US dollars.
Depreciation and amortization expense for the six-month period ending
June 30, 2005 totaled $110,425, compared to $49,261 for the six-month period
ending June 30, 2004. This represents an increase of $61,164. This increase is
the result of additional asset purchases involving the Company's Bissett Creek
Graphite property and more of the Company's assets being put into service.
Other general and administrative expenses for the six-month period
ending June 30, 2005 totaled $416,370 compared to $533,742 for the same
six-month period ending June 30, 2004. This represents a decrease in the
six-month period ending June 30, 2005 of $117,372 over the same period ending
June 30, 2004.
The Company has begun and is continuing to market graphite that will be
available from the Bissett Creek Graphite Property. Several Companies have
expressed interest in the graphite from the Company's Bissett Creek Graphite
Property. The Company is pleased with this response but cautions investors that
there are no firm orders for the Company's graphite at this time. Investors
should be further cautioned that the Company might not be successful in its
marketing efforts.
Management fees and salaries during the six-month period ending June
30, 2005 totaled $214,910 compared to $60,620 for the same six-month period
ending June 30, 2004. The Company incurred $60,000 in management fees to the CEO
and President of the Company and $24,000 in salary to the Chief Financial
Officer. Of these monies the Company paid $40,000 to the CEO and President and
$20,000 to the CFO. The Company still owes $20,000 to the CEO and President and
$4,000 to the CFO. These monies in the amount of $24,000 are reflected on the
balance sheet as a liability due to related parties, which is discussed
elsewhere in this report. The balance of $130,910 in management fees and
salaries was paid to employees at the Bissett Creek Graphite property during the
six-month period ending June 30, 2005. This represents an increase in the amount
of $154,290 in management fees and salaries during the period ending June 30,
2005 compared to the period ending June 30, 2004. The Company had employees on
site during the six-month period ending June 30, 2005 and had no employees on
site during the six-month period ending June 30, 2004 as the Company used a
sub-contractor during the six-month period ending June 30, 2004.
The Company had a net loss of $796,358 for the six-month period ending
June 30, 2005 as compared to a net loss of $704,000 for the six-month period
ending June 30, 2004. This represents an increase of $92,358 for the six-month
period ending June 30, 2005 compared to the same six-month period ending June
30, 2004. This increase is due to an increase in activity surrounding the
operations of the Company during the six-month period ending June 30, 2005
compared to the same six-month period ending June 30, 2004. The loss per share
was $.01 in the six-month period in 2005 and 2004.
9
LIQUIDITY AND CAPITAL RESOURCES
The Company has cash on hand at June 30, 2005 of $16,846 and a
receivable of $26,636 as a result of tax input credits owed to the company by
the Government of Canada.
The Company has prepaid expenses of $15,702. This represents the unused
portion of an insurance policy that the Company carries for its building and
equipment in the amount of $12,210. This policy expires September 6, 2005. The
balance in the amount of $3,492 represents a prepaid royalty expense.
The Company has total deposits in the amount of $17,421 as of June 30,
2005. The Company has on deposit with its landlord $1,521 which represents
one-month rent and common costs associated with its premises located at 2500 One
Dundas Street West, Suite 2500, Toronto, Ontario, Canada M5G 1Z3. The Company
has entered into a lease, which expired on April 30, 2005 at which time the
Company continues to rent office space on a month- to-month basis. The Company
also has a deposit on future professional fees in the amount of $4,000, an
advance against expenses to two employees in the amount of $1,900 and $10,000
for the purchase of equipment.
The Company had no revenue during three-month period ending June 30,
2005 and expects to have some revenue during the quarter ending September 30,
2005. The Company expects to complete commissioning its Bissett Creek graphite
plant and begin production during the quarter ending September 30, 2005.
Management believes production will begin sometime during the quarter ending
September 30, 2005 and the Company will have some revenue. Investors should be
cautioned that the commissioning of the graphite plant might extend beyond
September 30, 2005 thus delaying planned production of graphite. As of the date
of this filing the Bissett Creek Graphite Project Closure Plan has been
considered filed as per subsection 141 (3)(a) of the Mining Act in the Province
of Ontario. Investors should be cautioned that the company is currently seeking
customers for its graphite. Discussions are on going with potential customers
for graphite but there are no contracts concluded at this time. There can be no
guarantee that the company will be successful in obtaining a contract for its
graphite.
The Company has total accounts payable of $269,874. The Company does
not have the cash on hand in order to pay these accounts payable in an orderly
fashion. The Company also owes $28,610 in accrued interest payable. Interest in
the amount of $12,744 is due on December 31, 2005 and the balance of interest in
the amount of $15,866 due was payable on July 31, 2005. The Company is seeking a
one-year extension on the interest that was due on July 31, 2005. The Company
has received verbal confirmation that the interest in the amount of $15,866 due
on July 31, 2005 will be extended to July 31, 2006.
The Company has secured a first mortgage in the amount of $17,000
during fiscal year 2002 which requires a payment of $260 (Canadian $400 monthly)
monthly for five years and the balance is then due and payable at the end of
five years. This mortgage carries an interest rate of 7% annually. The Company
does not have the cash on hand to pay these payments in an orderly fashion.
These payments were originally $260 monthly however due to the weakness of the
United States dollar in relation to the Canadian dollar they are $320 as of the
date of this report.
During the three-month period ending June 30, 2005 the Company has been
able to secure debt financing in the amount of $362,967 from two non-affiliated
shareholders. Total loans payable now amount to $733,763 as of the period ending
June 30, 2005. Interest has accrued on this debt in the amount of $28,610. The
interest rate associated with this debt will be 7% yearly. Debt in the amount of
$90,796 was due and payable on July 31, 2005 and the Company has received verbal
confirmation that this portion of the debt payment has been extended to July 31,
2006. The Company is waiting for written confirmation of this extension and
management expects to receive this confirmation shortly. However, investors
10
should be cautioned that the Company might not receive this written
confirmation. The balance of the debt in the amount of $642,967 is due and
payable on November 15, 2005 in the amount of $96,000 and December 31, 2005 in
the amount of $546,967. Any interest accrued is also due and payable on these
dates.
The Company owes $24,000 to two officers in management fees and
salaries that were due and payable in the quarter ending June 30, 2005. There
are no provisions to repay these monies at this time.
Industrial Minerals has completed the construction of the crushing and
processing facility located at Bissett Creek. During the second quarter ending
June 30, 2005 work has continued at the Bissett Creek Graphite Mine. As of the
date of this filing, commissioning of the mill is at various stages of
completion and an insignificant amount of graphite has been produced. Investors
should be aware that during the commissioning process management decided to
upgrade certain screens and crushing of the ore as this will enhance production
capabilities as the Company expands graphite production. This is expected to be
complete by August 15, 2005.
Cash requirements for the balance of fiscal year ending December 31, 2005 are as
follows:
1 Professional fees $30,000
2 Royalty Payments 10,800
3 Management fees and salaries 245,000
4 General & Administrative Expenses 445,200
5 Environmental testing (ongoing) 37,000
6 Mine closure plan (ongoing) 65,000
--------
Total Operating Budget $833,000
========
Investors should be aware that the above are estimates only and could
change as production begins during the quarter ending September 30, 2005.
The Company requires $1,892,010 in order to continue operations through
December 31, 2005. The Company's operational budget for the six-month period
beginning July 1, 2005 in the amount of $833,000 or a monthly operational cost
of $138,833 for each of the months of July 1, 2005 through December 31, 2005.
Total funds in the amount of $1,059,010 are required to pay the current
liabilities due. These liabilities include loans and accrued interest payable in
the amount of $762,373, accounts payable of $269,874, mortgage payable of $2,763
and $24,000 due to related parties. Subsequent to June 30, 2005 the Company
obtained financing in the amount of $40,000 from a non-affiliated shareholder
and $135,000 from an officer of the Company. This financing in the amount of
$175,000 accrues interest at the rate of 10% per annum and the principal in the
amount of $175,000 along with accrued interest is due on December 31, 2005.
Since the Company has cash of $16,846 and has a receivable of $26,636 on hand as
of June 30, 2005 and subsequent to June 30, 2005 has received an additional
$175,000, the Company requires additional financing in the amount of $1,673,528.
While management believes the Company will be successful in obtaining
satisfactory financing to begin operations and continue operating throughout the
balance of the fiscal year ending December 31, 2005, investors should be
cautioned that the Company currently has no commitments of any type made by any
person or entity to provide financing. Investors and potential investors should
be aware that the Company might not be able to continue to operate throughout
the current fiscal year ending December 31, 2005 without sales of its graphite
or additional financing.
Investors and potential investors should be aware that Company does not
have the necessary funds to operate throughout its fiscal year ending December
31, 2005. Even if the Company is successful in obtaining the necessary financing
there is no guarantee that the Company will be successful in marketing graphite.
The company intends to continue to seek debt financing to ensure its ability to
operate throughout 2005 from non-affiliates, and possibly officers, directors
and shareholders. No commitments of any type have been made by any person or
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entity to provide financing. Management has no plan to overcome the
uncertainties surrounding the Company's ability to continue as a going concern
for a reasonable period of time extending beyond September 30, 2005 unless the
Company obtains additional financing or begins production and successfully
obtains a contract for graphite. Management will deal with issues as they arise
but as a "start up" company in a graphite mining attempt, the Company can
neither predict nor solve, in anticipation, the uncertainties of mining, capital
raising, marketing or operations. All risks and uncertainties inherent in any
start up company exist in the chosen area of the Company. The Company does not
have any other plan in place to provide capital or financing for its operations.
Should the Company complete the mine and begin production investors
should be further cautioned that there might not be a market for the Company's
graphite. The Company is currently seeking customers for its graphite.
Discussions are on going with potential customers for graphite but there are no
contracts concluded at this time. There can be no guarantee that the Company
will be successful in obtaining a contract for its graphite.
Investors and potential investors should be further cautioned that the
ultimate success of the Company relies on the Company's ability to successfully
mine and market its graphitic resource at a profit.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have any market risk sensitive instruments. Since operations
in Canada are in Canadian dollar denominated accounts, we do believe that we
have foreign currency risk in that as the Canadian dollar increases in value
against the United States dollar our operating costs increase when reported in
United States dollars.
Our product is quoted for sale in United States dollars.
Item 4. CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
it is able to collect the information it is required to disclose in the reports
it files with the SEC, and process, summarize, and disclose this information
within the time periods specified in the rules of the SEC. The Company's Chief
Executive and Chief Financial Officers are responsible for establishing and
maintaining these procedures and, as required by the rules of the SEC, evaluate
their effectiveness.
Our Chief Executive Officer and Chief Financial Officer, have evaluated
the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) as of the end of the period covered by
this report. The evaluation included control areas in which we intend to make
changes to improve and enhance controls. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end
of such period, our disclosure controls and procedures were not effective
because of a material weakness as discussed below.
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INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company maintains a system of internal controls designed to provide
reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; transactions are recorded as
necessary (1) to permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) to maintain accountability for
assets; access to assets is permitted only in accordance with management's
general or specific authorization; and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
MATERIAL WEAKNESS IN DISCLOSURE CONTROLS
A material weakness is a condition in which the design or operation of
one or more of the internal control components does not reduce to a relatively
low level the risk that misstatements caused by error or fraud in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions.
The Securities and Exchange Commission rule making for the
Sarbanes-Oxley Act of 2002 Section 404 requires that a company's internal
controls over financial reporting be based upon a recognized internal control
framework. While the Company has an internal control and procedures manual in
place and management believes the controls and procedures are effective, the
manual is not based upon a recognized internal control framework, because we
have not found one that fits the limited scope of operations of our small
Company. Accordingly, we conclude that we have a material weaknesses.
During the first half of the Company's fiscal year ending December 31,
2005 management has begun revising the Company's internal and controls and
procedures document basing this revision upon a model framework created by the
Committee of Sponsoring Organizations of the Treadway Commission (or "COSO") as
is appropriate to our operations. This framework is entitled Internal
Control-Integrated Framework. The COSO Framework, which is the common shortened
title, was published in 1992 and we believe, will satisfy the Securities and
Exchange Commission requirements of Section 404 of the Sarbanes-Oxley Act of
2002.
To address this material weakness management has begun re-writing its
internal controls and procedures manual based upon the Treadway Commission
report as is appropriate to our operations during the first half of fiscal year
ending December 31, 2005 and hopes to complete this by December 31, 2005.
Except as noted above, there have not been any changes in our internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during our second fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, nor does
management believe that any such proceedings are contemplated.
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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
31.1 Section 302 Certification - CEO
31.2 Section 302 Certification - CFO
32.1 Section 906 Certification - CEO
32.2 Section 906 Certification - CFO
(b) The following is a list of Current Reports on Form 8-K filed by the Company
during and subsequent to the quarter for which this report is filed.
Form 8-K Report filed on April 28, 2005
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 9, 2005 INDUSTRIAL MINERALS, INC.
By: /s/Larry Van Tol
________________________________________________
Larry Van Tol, Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Dated: August 9, 2005 INDUSTRIAL MINERALS, INC.
By:/s/John Melnyk
________________________________________________
John Melnyk, Chief Financial Officer,
Secretary/Treasurer and Director
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