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 SEPTEMBER 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 September 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 September 30, 2005
(unaudited) and December 31, 2004 (audited)..................... 2
Consolidated Statements of Operations (unaudited) for the
Three and Nine Months ended September 30, 2005 and 2004
and for the period November 6, 1996 (date of inception),
to September 30, 2005........................................... 3
Consolidated Statements of Cash Flows (unaudited) for the
Nine Months ended September 30, 2005 and 2004 and for the
period November 6, 1996 (date of inception)
to September 30, 2005 .......................................... 4
Consolidated Statement of Stockholders' Equity (unaudited)
as of September 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...... 13
Item 4. Controls and Procedures......................................... 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 15
Item 3. Defaults upon Senior Securities................................. 15
Item 4. Submission of Matters to a Vote of Security Holders............. 15
Item 5. Other Information............................................... 15
Item 6. Exhibits and Reports on Form 8-K................................ 15
Signatures............................................................... 16
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
September 30, 2005 and December 31, 2004
Sept. 30, December 31,
2005 2004
(Unaudited) (Audited)
------------- ------------
ASSETS
Current assets:
Cash $ 129,816 $ 27,726
Receivables 28,306 105,925
Prepaid expenses 23,933 15,540
Deposits 32,674 11,789
------------- ------------
Total current assets 214,729 160,980
Long-term deposits 230,000 230,000
Building and equipment, at cost, less accumulated
depreciation of $421,920 in 2005 and $256,167 in 2004 1,832,000 1,778,462
------------- ------------
Total assets $ 2,276,729 $ 2,169,442
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 97,430 $ 120,326
Accrued interest payable 53,689 12,711
Loans payable 1,543,763 90,796
Due to related parties 4,000 11,787
Current installments of mortgage payables 2,763 2,763
------------- ------------
Total current liabilities 1,701,645 238,383
Mortgage payable, excluding current installments 10,100 12,632
------------- ------------
Total liabilities 1,711,745 251,015
------------- ------------
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 (3,643,296) (2,289,853)
------------- ------------
Total stockholders' equity 564,984 1,918,427
------------- ------------
Total liabilities and stockholders' equity $ 2,276,729 $ 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 nine month periods ended September 30, 2005 and 2004 and for
the period from November 6, 1996 (Date of Inception) to
September 30, 2005
Three months ended Nine months ended November 6, 1996
Sept. 30, Sept. 30, (inception) to
--------- --------- Sept. 30, 2005
2005 2004 2005 2004
---- ---- ---- ---- ----------------
Revenue $ - - - - 15,537
Expenses:
Cost of revenues - - - - 76,201
Professional fees 24,814 26,473 68,836 76,921 1,267,430
Royalty fees 5,292 1,665 15,930 11,665 68,915
Depreciation and amortization 55,328 32,164 165,753 81,425 430,629
Impairment of long-lived assets - - - - 582,176
Management fees and salaries 123,704 5,948 338,614 66,568 519,141
Other general and administrative 347,957 416,734 764,327 950,476 3,462,476
---------- ---------- ----------- ----------- ------------
Total expenses 557,095 482,984 1,353,460 1,187,055 6,406,968
---------- ---------- ----------- ----------- ------------
Loss from operations (557,095) (482,984) (1,353,460) (1,187,055) (6,391,431)
---------- ---------- ----------- ----------- ------------
Other income:
Interest income 10 15 17 86 2,925
Gain from extinguishment of debt - - - - 1,047,634
Other income - - - - 594
---------- ---------- ----------- ----------- ------------
Total other income 10 15 17 86 1,051,153
---------- ---------- ----------- ----------- ------------
Net loss $ (557,085) (482,969) (1,353,443) (1,186,969) (5,340,278)
========== ========== =========== =========== ============
Net loss per common share $ (.01) - (.01) (.01)
========== ========== =========== ===========
Weighted average common shares outstanding 111,587,966 72,630,502 111,587,966 72,589,910
========== ========== =========== ===========
See accompanying notes to consolidated financial statements.
3
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2005 and 2004 and for the period
from November 6, 1996 (Date of Inception) to
September 30, 2005
Nine months
ended November 6, 1996
Sept. 30, (inception) to
2005 2004 Sept. 30, 2005
----------- ----------- ------------------
Cash flows from operating activities:
Net loss $ (1,353,443) (1,186,969) (5,340,278)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 165,753 81,425 422,337
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 77,619 (38,043) (32,475)
Inventory - - (5,527)
Prepaid expenses (8,393) (10,073) (24,473)
Deposits (20,885) (164,942) (32,674)
Accounts payable and accrued expenses (22,896) 18,277 (60,998)
Due to related parties (7,787) - 399,000
----------- ----------- ------------------
Net cash used in operating
activities (1,170,032) (1,300,325) (4,960,558)
----------- ----------- ------------------
Cash flows from investing activities:
Purchase of building and equipment (219,291) (884,165) (2,053,497)
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 (219,291) (884,165) (2,482,661)
----------- ----------- ------------------
(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
Nine month
period ended November 6, 1996
Sept. 30, (inception) to
2005 2004 Sept. 30, 2005
---- ---- --------------
Cash flows from financing activities:
Net proceeds form sale of common stock $ - - 744,859
Net proceeds from loans payable 1,452,967 1,498,980 6,493,202
Proceeds from mortgage - - 17,000
Principal payments on mortgage (2,532) (2,530) (4,137)
Accrued interest payable 40,978 196,679 321,971
Cash acquired in acquisition of Peanut
Butter & Jelly, Inc. - - 140
------------ ------------- -------------
Net cash provided by
financing activities 1,491,413 1,693,129 7,573,035
------------ ------------- -------------
Net increase (decrease) in cash 102,090 (491,361) 129,816
Cash, beginning of period 27,726 585,934 -
------------ ------------- -------------
Cash, end of period $ 129,816 94,573 129,816
============ ============= =============
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)
September 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 - - - (1,353,443) (1,353,443)
------------- ----------- ------------ ------------ ----------
Balance at September 30, 2005 111,587,966 $ 3,949 4,204,331 (3,643,296) 564,984
============= =========== ============ ============ ==========
See accompanying notes to consolidated financial statements.
6
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements Nine months period
ended September 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 September 30, 2005 and
the results of operations and cash flows for the nine months ended September 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 SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004
During the three-month period ending September 30, 2005 the Company had
no revenues. The Company had no revenue during the same three-month period
ending September 30, 2004.
The Company incurred expenses for professional fees in the amount of
$24,814 during the three-month period ending September 30, 2005 compared to
$26,473 during the three-month period ending September 30, 2004. This is a
decrease of $1,659.
Depreciation and amortization expense for the three-month period ending
September 30, 2005 totaled $55,328, compared to $32,164 for the three-month
period ending September 30, 2004. This represents an increase of $23,164. This
increase is the result of additional asset purchases involving the Company's
Bissett Creek Graphite Property.
Management fees and salaries during the three-month period ending
September 30, 2005 totaled $123,704 compared to $5,948 for the same three-month
period ending September 30, 2004. The Company incurred $30,000 in management
fees to the CEO and President of the Company and $12,000 in management fees and
salary to the Chief Financial Officer. Of these monies the Company paid $30,000
to the CEO and President and $8,000 to the CFO. The Company still owes $4,000 to
the CFO. These monies due to the CFO in the amount of $4,000 are reflected on
the balance sheet as a liability due to related parties, which is discussed
elsewhere in this report. The balance of $81,704 in management fees and salaries
was paid to employees at the Bissett Creek Graphite Property during the
three-month period ending September 30, 2005. The increase in the amount of
$117,756 in management fees and salaries during the period ending September 30,
2005 compared to the period ending September 30, 2004 is because the Company had
employees on site during the quarter ending September 30, 2005 and had no
employees on site during the three-month period ending September 30, 2004 as the
Company used a sub-contractor during the three-month period ending September 30,
2004.
Other general and administrative expenses for the three-month period
ending September 30, 2005 totaled $347,957 compared to $416,734 for the same
three-month period ending September 30, 2004. This represents a decrease in the
three-month period ending September 30, 2005 of $68,777 over the same period
ending September 30, 2004.
The Company had a net loss of $557,085 for the three-month period
ending September 30, 2005 as compared to a net loss of $482,969 for the
three-month period ending September 30, 2004. This represents an increase of
$74,116 in losses for the three-month period ending September 30, 2005 compared
to the same three-month period ending September 30, 2004. This increase is due
to an increase in activity surrounding the operations of the Company during the
three-month period ending September 30, 2005 compared to the same three-month
period ending September 30, 2004.
The Company began producing graphite during the quarter endingSeptember
30, 2005 and is continuing to market graphite that will be available from the
Bissett Creek Graphite Property. Several Companies have expressed interest in
the graphite from the Company's Bissett Creek Graphite Property. The Company has
received two orders totaling twenty-five tons of graphite from two customers.
The Company considers these orders as pre contract orders based on
8
customer quality evaluations. These orders will generate an insignificant amount
of revenue for the Company. These two Companies previously received small
samples of graphite from the Company; they performed an analysis and ordered
larger samples so that they could conduct further tests. The Company is pleased
with this response but cautions investors that there are no firm orders for the
Company's graphite at this time, other then the two orders totaling twenty-five
tons. As production continued during the quarter ending September 30, 2005 it
became apparent to management that a number of changes to the mill had to be
made. The large flake graphite (mesh size -12 to +35) is the most valuable and
it was discovered during initial production that a portion of the large flake
size graphite was being destroyed at certain stages of production. An analysis
was and is being performed at every stage of production. The analysis that has
been conducted resulted in management deciding to make some changes to the
process which involves the relocating of some equipment that is currently
installed to a different position in the line and to purchase additional
equipment. At this writing these steps are at a work in progress stage and the
management estimates that an additional $500,000 in capital expenditures will be
required. This is discussed in the section of this report under liquidity and
capital resources contained in the management discussion and analysis section of
this Form 10-Q.
NINE-MONTHS ENDING SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004
During the nine-month period ending September 30, 2005 the Company had
no revenues. The Company had no revenue during the same nine-month period ending
September 30, 2004.
The Company incurred expenses for professional fees in the amount of
$68,836 during the nine-month period ending September 30, 2005 compared to
$76,921 during the nine-month period ending September 30, 2004. This is a
decrease of $8,085.
The Company incurred royalty expenses in the amount of $15,930 during
the nine-month period ending September 30, 2005 compared to $11,665 for the
nine-month period ending September 30, 2004. This is an increase of $4,265. 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 nine-month period ending
September 30, 2005 totaled $165,753, compared to $81,425 for the nine-month
period ending September 30, 2004. This represents an increase of $84,328. 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.
Management fees and salaries during the nine-month period ending
September 30, 2005 totaled $338,614 compared to $66,568 for the same nine-month
period ending September 30, 2004. The Company incurred $90,000 in management
fees to the CEO and President of the Company and $36,000 in management fees and
salary to the Chief Financial Officer. Of these monies the Company paid $90,000
to the CEO and President and $32,000 to the CFO. The Company still owes $4,000
to the CFO. These monies in the amount of $4,000 are reflected on the balance
sheet as a liability due to related parties, which is discussed elsewhere in
this report. The balance of $212,614 in management fees and salaries was paid to
9
employees at the Bissett Creek Graphite property during the nine-month period
ending September 30, 2005. This represents an increase in the amount of $272,046
in management fees and salaries during the period ending September 30, 2005
compared to the period ending September 30, 2004. The Company had employees on
site during the nine-month period ending September 30, 2005 and had no employees
on site during the nine-month period ending September 30, 2004 as the Company
used a sub-contractor during the nine-month period ending September 30, 2004.
Other general and administrative expenses for the nine-month period
ending September 30, 2005 totaled $764,327 compared to $950,476 for the same
nine-month period ending September 30, 2004. This represents a decrease in the
nine-month period ending September 30, 2005 of $186,149 over the same period
ending September 30, 2004.
The Company had a net loss of $1,353,443 for the nine-month period
ending September 30, 2005 as compared to a net loss of $1,186,969 for the
nine-month period ending September 30, 2004. This represents an increase of
$166,474 in losses for the nine-month period ending September 30, 2005 compared
to the same nine-month period ending September 30, 2004. This increase is due to
an increase in activity surrounding the operations of the Company during the
nine-month period ending September 30, 2005 compared to the same nine-month
period ending September 30, 2004.
The Company began producing graphite during the quarter ending
September 30, 2005 and is continuing to market graphite that will be available
from the Bissett Creek Graphite Property. Several Companies have expressed
interest in the graphite from the Company's Bissett Creek Graphite Property. The
Company has received two orders totaling twenty-five tons of graphite from two
customers. The Company considers these orders as pre contract orders based on
customer quality evaluations. These orders will generate an insignificant amount
of revenue for the Company. These two Companies previously received small
samples of graphite from the Company; they performed an analysis and ordered
larger samples so that they could conduct further tests. The Company is pleased
with this response but cautions investors that there are no firm orders for the
Company's graphite at this time, other then the two orders totaling twenty-five
tons. As production continued during the quarter ending September 30, 2005 it
became apparent to management that a number of changes to the mill had to be
made. The large flake graphite (mesh size -12 to +35) is the most valuable and
it was discovered during initial production that a portion of the large flake
size graphite was being destroyed at certain stages of production. An analysis
was and is being performed at every stage of production. This analysis that has
been conducted has resulted in management deciding to make some changes to the
process which involves the relocating of some equipment that is currently
installed to a different position in the line and to purchase additional
equipment. At this writing these steps are at a work in progress stage and the
management estimates that an additional $500,000 in capital expenditures will be
required. This is discussed in the section of this report under liquidity and
capital resources contained in the management discussion and analysis section of
this Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
The Company has cash on hand at September 30, 2005 of $129,816 and a
receivable of $28,306 as a result of tax input credits owed to the Company by
the Government of Canada.
The Company has prepaid expenses of $23,933. This represents the unused
portion of an insurance policy that the Company carries for its building and
10
equipment in the amount of $14,933. This policy expires September 6, 2006. The
balance in the amount of $9,000 represents a prepaid royalty expense.
The Company has total deposits in the amount of $32,674 as of September
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 an advance against expenses to two employees in the amount of $4,700
and $26,453 for the purchase of equipment.
The Company has total current liabilities due and payable in the amount
of $1,701,645 due and payable over the next twelve months. The Company has total
accounts payable of $97,430. The Company has the cash on hand in order to pay
these accounts payable in an orderly fashion. The Company also owes $53,689 in
accrued interest payable. Interest payable in the amount of $243 is currently
due, $2,420 is payable on or before November 15, 2005, $33,495 is payable on or
before December 31, 2005 and $17,531 is payable on or before July 31, 2006.
Total loans in the amount of $1,543,763 are due and payable as follows; $96,000
on or before November 15, 2005, $1,356,967 on or before December 31, 2005 and
$90,796 on or before July 31, 2006. The Company owes $4,000 to the CFO and this
amount carries no interest. There are currently no payment terms regarding the
amount owed to the CFO. Investors should be aware that management is currently
in discussions with a creditor concerning the loan due in the amount of
$1,356,967 on December 31, 2005. While management believes the creditor will
extend the payment terms of this debt investors should be cautioned that there
are no agreements in place at this time either verbally or in writing.
The Company has secured a first mortgage in the amount of $17,000
during fiscal year 2002 which requires a payment of $320 (Canadian $400 monthly)
monthly for five years and the balance is then due and payable at the end of
five years. This mortgage carries an interest rate of 7% annually. The Company
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. The Company currently owes for the months of July through
September 2005 in the amount of $960; this amount is included in the Company's
accounts payable as presented in the accompanying financial statements filed
with this report on Form 10-Q for the period ending September 30, 2005.
Subsequent to September 30, 2005 this mortgage payment has been made and the
payments are now current.
During the nine-month period ending September 30, 2005 the Company has
been able to secure debt financing in the amount of $1,452,967 from two
non-affiliated shareholders. Total loans payable now amount to $1,543,763 as of
the period ending September 30, 2005. Interest has accrued on this debt in the
amount of $53,689. Debt in the amount of $90,796 is due payable on July 31, 2006
and the interest rate accruing on this portion of the debt is 7% annually. The
balance of the debt in the amount of $1,452,967 is due and payable on November
15, 2005 in the amount of $96,000 and December 31, 2005 in the amount of
$1,356,967. Any interest accrued is also due and payable on these dates.
The Company owes $4,000 to an officer in management fees and salaries
that were due and payable in the quarter ending September 30, 2005. There are no
provisions to repay these monies at this time.
11
Cash requirements for the balance of fiscal year ending December 31,
2005 are as follows:
1. Professional fees $ 30,000
2. Management fees and salaries 150,000
3. General & Administrative Expenses 350,000
-------
Total Operating Budget $530,000
Investors should be aware that the above are estimates only and may
change. The above is the Company's total operating budget only. The Company
began producing graphite during the quarter ending September 30, 2005 and is
continuing to market graphite that will be available from the Bissett Creek
Graphite Property. Several Companies have expressed interest in the graphite
from the Company's Bissett Creek Graphite Property. The Company has received two
orders totaling twenty-five tons of graphite from two customers. The Company
considers these orders as pre contract orders based on customer quality
evaluations. These orders will generate an insignificant amount of revenue for
the Company. These two Companies previously received small samples of graphite
from the Company; they performed an analysis and ordered larger samples so that
they could conduct further tests. The Company is pleased with this response
butcautions investors that there are no firm orders for the Company's graphite
at this time, other then the two orders totaling twenty-five tons. As production
continued during the quarter ending September 30, 2005 it became apparent to
management that a number of changes to the mill had to be made. The large flake
graphite (mesh size -12 to +35) is the most valuable and it was discovered
during initial production that a portion of the large flake size graphite was
being destroyed at certain stages of production. An analysis was and is being
performed at every stage of production. This analysis that has been conducted
has resulted in management deciding to make some changes to the process which
involves the relocating of some equipment that is currently installed to a
different position in the line and to purchase additional equipment. At this
writing these steps are at a work in progress stage and the management estimates
that an additional $500,000 in capital expenditures will be required.
The Company requires $2,640,849 in order to continue operations through
December 31, 2005. The Company's operational budget for the three-month period
beginning October 1, 2005 in the amount of $530,000 or a monthly operational
cost of $176,666 for each of the months of October 1, 2005 through December 31,
2005. Estimated capital expenditures in the amount of $500,000 will be required.
Total funds in the amount of $1,610,849 are required to pay the current
liabilities due. These liabilities include loans and accrued interest payable in
the amount of $1,506,656, accounts payable of $97,430, mortgage payable of
$2,763 and $4,000 due to related parties. Subsequent to September 30, 2005 the
Company obtained financing in the amount of $75,000 from a non-affiliated
shareholder. This financing in the amount of $75,000 accrues interest at the
rate of 10% per annum and the principal in the amount of $75,000 along with
accrued interest is due on July 31, 2006. Since the Company has cash of $129,816
and has a receivable of $28,306 on hand as of September 30, 2005 and subsequent
to September 30, 2005 has received an additional $75,000, the Company requires
additional financing in the amount of $2,407,727. 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.
12
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
entity to provide financing. Management has no plan to overcome the
uncertainties surrounding the Company's ability to continue as a going concern
for a reasonable period of time extending beyond December 31, 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.
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.
13
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 weakness.
During the first nine months 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 nine months 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 third 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 August 15, 2005
15
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: November 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: November 9, 2005 INDUSTRIAL MINERALS, INC.
By: /s/John Melnyk
-------------------------------------
John Melnyk, Chief Financial Officer,
Secretary/Treasurer and Director
16