UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number 000-30651
INDUSTRIAL MINERALS, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 11-3763974
-------------------------- --------------------------------
(State or other jurisdiction (IRS Employer of incorporation or
organization) Identification No.)
346 Waverley Street, Ottawa, Ontario, Canada K2P 0W5
----------------------------------------
(Address of principal executive offices)
(613) 288-4288
---------------------------
(Issuer's telephone number)
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 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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer |_| Accelerated Filer |_|
Non-accelerated Filer |_| Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [_]No [_]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: July 31, 2009: 160,748,416 shares
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, 2008, included in the Company's Form 10-K.
INDUSTRIAL MINERALS, INC.
And Subsidiary
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
June 30, 2009 and December 31, 2008
June 30 December 31
ASSETS 2009 2008
(unaudited) (unaudited)
------------ ------------
CURRENT ASSETS
Cash $ 148 $ 307
Receivables 3,750 15,420
Deposits 10,000 12,026
------------ ------------
Total Current Assets 13,898 27,753
LONG-TERM DEPOSITS 230,000 230,000
FIXED ASSETS
Building and Equipment 2,158,876 2,158,876
Asset retirement obligations 230,000 230,000
Less accumulated depreciation (1,169,926) (1,097,209)
------------ ------------
1,218,950 1,291,667
------------ ------------
TOTAL ASSETS $ 1,462,846 $ 1,549,420
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 311,306 $ 270,150
Accrued interest payable 82,378 65,317
Loans payable - current 422,116 416,274
Due to related party 106,886 28,472
Other current liabilities 89,502 53,105
------------ ------------
Total Current Liabilities 1,012,188 833,318
OTHER LIABILITIES
Asset retirement obligations 230,000 230,000
Loans payable - Due beyond one year 350,788 334,714
------------ ------------
1,592,976 1,398,032
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, 200,000,000 shares authorized, $0.0001
par value; 160,748,416 and 160,748,416 shares
issued and outstanding, respectively 16,072 16,072
Additional paid-in capital 10,061,825 9,972,214
Accumulated other comprehensive income (105,985) (105,985)
Deficit accumulated during exploration stage (10,102,042) (9,730,913)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (130,130) 151,388
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,462,846 $ 1,549,420
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
INDUSTRIAL MINERALS, INC
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Three and Six Month periods ended
June 30, 2009 and 2008 and for the period
from November 6, 1996 (date of inception) to June 30, 2009
Period from
November 6, 1996
Three Months Ended Six Months Ended (Inception of
(unaudited) (unaudited) Exploration Stage)
June 30, June 30, (unaudited)
------------ ------------ ------------ ------------ To
2009 2008 2009 2008 June 30, 2009
REVENUE -- -- -- -- $ 19,337
------------ ------------ ------------ ------------ ------------
EXPENSES
Cost of Revenue -- -- -- -- 86,901
Professional fees 2,089 20,533 21,639 107,425 1,677,091
Royalty fees 899 604 11,618 13,743 159,055
Depreciation and amortization 36,358 50,461 72,717 100,922 1,252,198
Impairment of long-lived assets -- -- -- -- 582,176
Loss on disposal of assets -- -- -- -- 11,920
Management fees and salaries 90,233 203,278 165,030 502,713 3,535,065
General exploration expense 790 1,749 956 42,555 469,120
Other general and administrative 35,378 53,976 51,028 134,903 5,051,435
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES 165,747 330,601 322,988 902,261 12,824,961
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS 165,747 330,601 322,988 902,261 (12,805,624)
OTHER INCOME (EXPENSE)
Interest income -- -- -- -- 3,172
Gain from extinguishment of debt -- -- -- -- 1,047,634
Foreign currency gain (loss) (68,809) (42,157) (48,140) 5,156 (105,735)
Other income -- -- -- -- 594
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME (68,809) (42,157) (48,140) 5,156 945,665
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS 234,556 372,758 371,128 897,105 11,879,296
INCOME TAXES -- -- -- -- --
------------ ------------ ------------ ------------ ------------
NET LOSS 234,556 372,758 371,128 897,105 11,879,296
============ ============ ============ ============ ============
NET LOSS PER SHARE, BASIC AND DILUTED (0.01) (0.01) (0.01) (0.01)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
STOCK SHARES OUTSTANDING, BASIC AND DILUTED: 160,748,416 139,754,771 160,748,416 138,998,977
============ ============ ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
INDUSTRIAL MINERALS, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
November 6, 1996
(Inception of
Six Months Ended Exploration Stage)
---------------------------- (unaudited)
June 30 June 30 To
2009 2008 June 30, 2009
(unaudited) (unaudited)
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (371,128) $ (897,105) $(11,799,023)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation 72,717 100,922 1,243,906
Provision for bad debts -- -- 49,676
Stock issued for services 89,611 138,090 2,216,814
Impairment of long-lived assets -- -- 297,882
Loss on disposal of assets -- -- 66,170
Accrued interest payable -- 6,401 --
Gain on extinguishment of debt -- -- (1,047,634)
Changes in:
Receivables 11,670 9,437 (7,919)
Inventory -- -- (5,527)
Prepaid expenses -- -- (540)
Deposits 2,026 (15) (10,000)
Accounts payable and accrued expenses 41,156 238,289 152,878
Accrued interest payable 17,061 -- 350,659
Customer deposit -- 50,900 53,105
Due to related parties 78,414 27,232 741,492
------------ ------------ ------------
Net cash used in operating activities (58,473) (325,849) (7,698,060)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of building and equipment -- -- (2,116,266)
Advance received for sale of Equipment 36,397 -- (38,603)
Investment in Multiplex -- -- --
Acquisition of goodwill -- -- (149,057)
Loan to related party -- -- (50,000)
Loan Repayments -- --
(51,165)
Long-term deposits -- -- (159,600)
------------ ------------ ------------
Net cash used in investing activities 36,397 -- (2,564,691)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock -- 385,200 4,747,267
Net proceeds from loans payable -- -- 7,272,185
Loan repayments -- (5,839) (1,843,610)
Proceeds from mortgage -- -- 17,000
Principal payments on mortgage -- -- (17,000)
Stock issued in settlement of debt -- -- 65,000
Cash acquired in acquisition of
Peanut Butter & Jelly, Inc. -- -- 140
------------ ------------ ------------
Net cash provided by financing activities -- 379,361 10,240,982
------------ ------------ ------------
Effect of Exchange Rate on Changes in Cash 21,916 -- 21,621
NET INCREASE (DECREASE) IN CASH (160) 53,512 148
Cash, beginning of period 307 104,236 --
------------ ------------ ------------
Cash, end of period $ 148 $ 157,748 $ 148
============ ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ -- $ --
============ ============
Income taxes paid $ -- $ --
============ ============
Non-cash investing and financing activities:
Shares issued for related party debt -- -- 61,200
Shares issued for debt -- -- 11,437,279
=========== ===========
Shares issued for services 642,617
Shares issued for investment 200,030
Shares issued for accrued interest 651,702
Long term deposit 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 --
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements Three month period
and Six months ended June 30, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION
The financial statements have been prepared in accordance with generally
accepted accounting principles for the interim financial information with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of only normal accruals)
considered necessary for a fair presentation have been included.
We translate all assets and liabilities using period-end exchange rates. We
translate statements of operations items using average exchange rates for the
period. We record the resulting translation adjustment within accumulated other
comprehensive loss, a separate component of stockholders' equity. We recognize
foreign currency transaction gains and losses in our consolidated statements of
operations, including unrealized gains and losses on short-term inter-company
obligations using period-end exchange rates. We recognize unrealized gains and
losses on long-term inter-company obligations within accumulate other
comprehensive loss, a separate component of stockholders' equity.
We recognize exchange gains and losses primarily as a result of fluctuations in
currency rates between the U.S. dollar (the functional reporting currency) and
the Canadian dollar (currencies of our subsidiaries), as well as their effect on
the dollar denominated inter-company obligations between us and our foreign
subsidiaries. All inter-company balances are revolving in nature and we do not
deem them to be long-term balances. For the six months ended June 30, 2009 and
2008, we recognized foreign currency (loss) gain of ($48,140)) and $5,156,
respectively.
For further information, refer to the financial statements and notes thereto
included in the Company's Annual Report on Form 10K for the year ended December
31, 2008.
The Company's fiscal year-end is December 31.
NOTE 2 - ACCOUNTING POLICIES
This summary of significant accounting policies of Industrial Minerals, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
financial statements.
5
Recently Issued Accounting Standards
- ------------------------------------
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events," which
establishes general standards for accounting for and disclosure of events that
occur after the balance sheet date but before the financial statements are
issued or are available to be issued. The pronouncement requires the disclosure
of the date through which an entity has evaluated subsequent events and the
basis for that date, whether that date represents the date the financial
statements were issued or were available to be issued. SFAS 165 is effective
with interim and annual financial periods ending after June 15, 2009. Management
has evaluated the impact of the adoption of SFAS 165 and it has had no impact
the Company's results of operations, financial position or cash flows.
In July 2009, the FASB issued SFAS No. 168, "FASB Accounting Standards
Codification" ("SFAS 168"), as the single source of authoritative
nongovernmental U.S. generally accepted accounting principles (GAAP). The
Codification is effective for interim and annual periods ending after September
15, 2009. All existing accounting standards are superseded as described in SFAS
168. All other accounting literature not included in the Codification is
non-authoritative. Management is currently evaluating the impact of the adoption
of SFAS 168 but does not expect the adoption of SFAS 168 to impact the Company's
results of operations, financial position or cash flows.
Basic and Diluted Loss Per Share
- --------------------------------
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding. Basic and diluted loss
per share are the same, as inclusion of common stock equivalents would be
anti-dilutive.
Going Concern
- -------------
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has suffered material
recurring losses from operations since inception. At June 30, 2009, the Company
had a negative working capital of $998,291, recurring losses, and an accumulated
deficit of $10,012,042 and negative cash flow from operations. These factors
raise substantial doubt about the Company's ability to continue as a going
concern.
Continuation of the Company is dependent on achieving sufficiently profitable
operations and possibly obtaining additional financing. Management has and is
continuing to raise additional capital from various sources. The Company's
website contains all news releases in the past year as well as detailed
descriptions and analysis of the Company's mineral property. There can be no
assurance that the Company will be successful in raising additional capital as
and when it is required.
The financial statements do not include any adjustment relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern.
6
NOTE 3 - 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.
NOTE 4 - 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, 2009 and the
results of operations and cash flows for the six month period ended June 30,2009
and 2008. 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 include information included in the Company's audited financial
statements and notes for the year ended December 31, 2008.
NOTE 5 - COMMON STOCK OPTIONS AND WARRANTS
The Company adopted SFAS 123, "Accounting for Stock-Based Compensation",
effective April 1, 2007. Compensation cost for the Company's stock option plans
had been determined in accordance with the fair value based method prescribed is
SFAS 123. The fair value of option grants is estimated on the date of grant
utilizing the Black-Scholes option pricing model.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for option granted during the nine months ended September 30,
2008: expected volatility of 88%; risk-free interest rate ranging from 4.93% to
5.18%; and an expected term of up to 6 years.
The following table summarizes stock option activity for the six months ended
June 30, 2009:
Number of securities to be Weighted-average Weighted
Equity compensation plans issued exercise price Average
not approved by security upon exercise of of outstanding Fair
holders outstanding options options Value
- --------------------------- ---------------------------- ----------------- --------
Outstanding Dec 31, 2008 7,799,999 $ 0.106 $0.09
Granted 0
Exercised 0 $ 0.00 $0.00
Cancelled or expired
---------------------------- --------
Total 7,799,999
============================
Exercisable at June 30, 2009 6,799,999
The difference of 1,000,000 has not yet vested.
7
The difference of 1,000,000 has not yet vested.
Using the Black-Scholes option pricing model, the Company had stock compensation
expense for the six months ending June 30, 2009 of $89,605. There remains a
balance of $134,276 to be expensed over the vesting period of the options.
Note 6 - ASSET RETIREMENT OBLIGATION
SFAS No. 143 "Accounting for Asset Retirement Obligations" (ARO) addresses
financial accounting and reporting obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No
143 requires that the fair value of a liability for an ARO be recognized in the
period in which it is incurred and the corresponding cost capitalized by
increasing the carrying amount of the long-lived asset.
In March 2005, the FASB issued interpretation 47, "Accounting for Conditional
Assets Retirement Obligations (FIN 47). This interpretation clarifies the term
conditional asset retirement obligation as used in SFAS No 143. Conditional
asset retirement obligation refers to a legal obligation to perform as asset
retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of the
entity. Accordingly, an entity is required to recognize a liability for the fair
value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. In conjunction with FIN 47, an ARO
liability of $230,000 has been recorded and the capitalized costs are included
in "Property and Equipment".
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Lease
- ---------------
The Company relocated its head office to 346 Waverley Street, Ottawa Ontario,
Canada, K2P 0W5 effective September 30, 2008. There is no lease arrangement at
the present time and the premises are occupied on a month to month basis.
Note 8 - Subsequent Events
Subsequent events were evaluated through August 14, 2009, the date the financial
statements were issued.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
- -------
Industrial Minerals, Inc. ("the Company"), a Delaware Corporation, was
incorporated on November 6, 1996 under the name Winchester Mining Corp. The name
of the Company was subsequently 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 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.
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. 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. As a result of the transaction, IMI became a wholly owned
subsidiary of PNW and changed its company name to Industrial Minerals, Inc.
On June 13, 2003, the directors 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 consented in writing to the forward split. This resulted in the
issuance of an additional 36,031,948 shares of common stock.
The Ministry of Environment of the Province of Ontario has requested a
storm water management plan from the Company. The Company has retained Knight
Piesold to author this plan and that this plan will be submitted to the Ministry
of Environment when completed.
In August 2004, the Company through its wholly owned subsidiary, Industrial
Minerals Canada, Inc. received notice from the Ministry of Northern Development
and Mines for the Province of Ontario that the Bissett Creek Graphite Project
Certified Closure Plan as per Subsection 141(3)(a) of the Mining Act for the
Province of Ontario is now considered filed.
In March, 2007, a significant management change occurred when three of the
existing board members resigned and two new directors were appointed. Mr.
William Thomson was appointed a director and Chairman of the Board, and Mr.
William Booth was appointed a director. They joined Mr. Robert Dinning C.A. who
continued as CFO, secretary, and a director of the Company.
9
On April 3, 2007, Mr. Dick van Wyck was appointed interim President and
CEO. Mr. van Wyck is a practicing lawyer with over 20 years of business and
commercial law, mergers and acquisitions, and intellectual property matters, and
was formerly in-house counsel with the Department of Justice, as well as with
two large Corporations. Mr. van Wyck resigned July 9, 2007 and provides legal
opinions from time to time when requested.
On July 9, 2007, Mr. David Wodar was appointed President and CEO. Mr. Wodar
is a private business consultant and an Economics graduate from University of
Western Ontario. Mr. Wodar operated his own Consulting business, Vantage Point
Capital for the past 11 years, specializing in Marketing and Communications for
private and public entities. Mr. Wodar resigned his position with the Company on
June 12, 2008.
The former Chairman and Director, Mr. William Thomson resigned as Chairman
and a Director of the Company, effective June 20, 2008.
On June 23, 2008, Mr. Chris Crupi C.A. and Mr. Gregory Bowes, MBA joined
the Board of Directors. Mr. Robert Dinning C.A. continued as a director and was
appointed President, CEO and CFO effective June 23, 2008.
On July 9, 2008, Mr. William Booth resigned as a director of the Company.
The Board Of Directors is comprised of Mssrs' Dinning, Crupi and Bowes.
The Company signed a contract with Geostat International Inc on May 22,
2007 Regarding the preparation of a technical report NI-43101 on the Bissett
Creek Project. The Geostat work program included a site visit and independent
certification of resources, estimation of resources and classification of
resources, certification and validation of the database, verification and
validation of the interpretation of ore zones, and an assessment of the mill and
processing procedures, the market, the Capex, and related operating costs. The
process included the drilling of an additional 6 holes for just under 300 meters
in order to assist in verification of previously obtained data. The specific
drill targets have been determined by Geostat following their review of the
original drill target data prepared by Kilborn Engineering. These samples have
been analyzed for verification and validation of the graphite ore zones. The
report was finalized and the NI-43101 technical report was issued on December
27, 2007.
As previously outlined, the Company has a 100% undivided interest in the
mineral lease. The property consists of 28 claims covering 1,400 acres (566
hectares) plus 900 acres (364 hectares) which are contiguous to its mine
property. In July, 2007, the Company completed the staking of an additional 950
acres (384 hectares), for a total area available for development of
approximately 3,250 acres (1,315 hectares). The Bissett Creek mine site is
located in Maria Township, about 180 miles (300 km) north-northeast of Toronto
Ontario and about 8 miles (14 km) south of Highway 17 in Northern Ontario
Canada.
The Company has continued work at the mine site, including various meetings with
Knight-Piesold (environmental consulting firm) to review and update
environmental Monitoring requirements under the Mine Closure Plan (MCP), initial
meetings with the Area First Nations communities (Algonquin)including an
inter-ministerial meeting to work towards a Memorandum of understanding between
the Company, Government agencies, and First Nations leaders, general site
cleaning, building repairs.
The Company is continuing to evaluate its plans to install a one (1) metric
ton per hour pilot plant at the mine site while it explores different options
available, including financial options, regarding the production of product
samples for prospective customers.
The Company has also completed a comprehensive program of metallurgical
testing to identify the key liberation and classification characteristics of the
ore body. This review included a general review of existing dry process at
Bissett Creek and existing processes used elsewhere for the liberation and
extraction of graphite. The dry process has many shortcomings which would
require a complete re-engineering and rebuild at great risk to stakeholders
whereas the froth flotation system is used extensively elsewhere in the world
and is proven. The Company selected Process Research Ortech (Mississauga
Ontario) and Actlabs (of Ancaster Ontario) as its processing and Assaying
entities. Both were approved by Geostat and they provided the necessary data for
the completion of the NI 43101 that was been prepared by Geostat. The positive
preliminary assessment was completed and filed with Sedar on December 27, 2007.
On September 22, 2008, the Company moved its headquarters from its previous
premises in Oakville Ontario to 346 Waverley Street, Ottawa Ontario, Canada, K2P
0W5.
10
On October 27, 2008, the Company engaged RBC Capital Markets, a division of
the Royal Bank of Canada, as financial advisor with respect to strategic options
facing the company. The engagement is for a term of 12 months with success fee
based compensation for completion of a transaction. By mutual consent, this
agreement was terminated in June 2009.
The Company continues to explore alternate financing options which the Company
acknowledges must be finalized prior to implementation of a pilot plant program.
The Company is also exploring a work program at the site including a possible
drilling program, should it succeed in resolving its funding requirements.
RESULTS OF OPERATIONS
For the six month period ending June 30, 2009, the Company incurred a loss of
$371,129 compared to a loss of $897,105 for the six months ending June 30, 2008.
The loss for the three months ending June 30, 2009 was $234,557 vs. $372,758 for
the three months ending June 30, 2008. The Company had no revenues for the six
months ending June 30, 2009. The Company continues as an Exploration Stage
Company and will not have revenues until a proposed feasibility study is
completed, a determination is made as to the method of production, and the
Company acquires the necessary equipment to commence production.
During the six month period ending June 30, 2009, the Company did not complete
any private placements but did receive an additional deposit of $36,397
regarding the sale of surplus Equipment at the mine site. This transaction has
not yet closed and the equipment is still at the site.
For the six months ending June 30, 2009, expenses amounted to $322,988 compared
to $902,261 for the six months ending June 30, 2008. Professional fees were
$21,639 compared to $107,425 for the six months ended June 30, 2008 Professional
expenses in the previous year were higher mainly because of increased legal fees
related to proposed financings, and statutory filings related to financings.
Management fees and salaries were $165,030 for the six months ended June 30,
2009 compared to $502,713 for the six months ending June 30, 2008. Current fees
include a charge of $89,611 for stock compensation expense re options previously
authorized . In the six months ending June 30, 2008, stock compensation expense
amounted to $138,090. As at June 30, 2009, there is a balance of $134,415
remaining to be expensed.
Management fees have been significantly reduced as a result of a reduction in
personnel under contract as compared to the previous year.
General exploration expenses in the six months ending June 30, 2009 were $956
vs. $42,555 for the six month period ending June 30, 2008. There was work
undertaken the previous year at the site whereas no work has been undertaken
this year as the Company continues to explore its financing options for further
development work at Bissett Creek.
General and administrative expenses for the six months ending June 30, 2009
amount to $51,028 compared to $134,903 in the six months ended June 30, 2008.
Expenses for general and administrative will continue to be tightly monitored
pending completion of additional financing and implementation of the next phase
of the development program.
At June 30, 2009, the Company had outstanding options in the amount of 7,799,999
shares of which 6,799,999 were currently exercisable. The remaining 1,000,000
are not vested yet.
The original option plan adopted in 2007 and the Company issued 22,950,000 in
options. Subsequent resignations and terminations resulted in cancellation of
15,150,001 options for a present balance outstanding of 7,799,999. When an
employee/consultant/director resigns or is terminated, only shares vested at
time of departure remain with the individual as an option and these all have a
time period when they must be exercised.
On September 23, 2008, the Company moved its headquarters to 346 Waverley St.
Ottawa Ontario, Canada K2P 0W5.
The Company currently has no full time employees and it contracts with four
consultants for engineering, technical and administrative support and financial
services.
The Company will continue the use of outside professional consultants as it
continues its mineralogical assessment and its development of a detailed
mineralogy study.
On November 7, 2008, the Company announced the appointment of Mr. George Hawley
as Technical Advisor to the Board of Directors and to assist both the Board of
Directors and RBC Dominion Capital Markets regarding their current financial
advisory services mandate. Mr. Hawley has nearly 40 years of experience in the
processing of industrial minerals including mica, graphite, and silica, all of
which are specific to the Bissett Creek property. He has conducted projects for
government agencies, mining companies in the USA, Europe, Japan, Australia,
Africa and Canada and has published over 50 papers on technical and marketing
topics pertaining to industrial minerals products. As it is uncertain when
revenue will be generated, expenses will need to be financed by continued
outside financial support.
11
The Company has not completed any private placements this year but intends to
seek additional equity financing and/or loans from shareholders and other
interested parties in order to finance its operations. While the Company feels
it can obtain the necessary financing there is no assurance that such
investments, loans, or other financial assistance will be forthcoming.
For the six months ended June 30, 2009, the Company incurred a loss of $371,129
vs. a loss of $897,105 for the six months ended June 30, 2008. While the Company
has been successful in arranging necessary private placement financing over the
years, the Company cautions that until it has completed its feasibility study
and Baseline Mineralogical Assessment, there is no assurance that a commercially
viable mineral deposit exists on the property, and that further exploration may
be required before a final evaluation as to any economic and legal feasibility
is determined. The Company received its NI 43101 report December 27, 2007 and it
was filed with regulatory authorities at that time.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2009, the Company had cash on hand in the amount of $148 compared to
$307 at December 31, 2008. While the Company completed several private
placements in the year ending December 31, 2008 resulting in $475,200 being
raised, the Company has not completed any private placements in the six months
ending June 30, 2009. An additional deposit of $35,397 was received during the
period regarding the proposed sale of surplus equipment at the mine site.
The Company has a long-term deposit of $230,000 with the Ministry of Finance for
the Province of Ontario. During the year ending December 31, 2004 a Mine
Development and Closure Plan was filed with, and accepted by, the Ministry of
Northern Development and Mines, in accordance with the MINING ACT, R.S.O. 1990,
Ontario Regulation 240/00, including the standards, procedures and requirements
of the Mining Code of Ontario. The Company's deposit in the amount of $230,000
is a financial guarantee to the Province of Ontario ensuring that there are
enough funds on hand to affect a proper closure of the Bissett Creek Graphite
property.
The Company has accounts payable of $311,306 at June 30, 2009 vs. $345,114 at
June 30, 2008 and $270,150 at December 31, 2008. Accrued interest payable of
$82,378 is outstanding at June 30, 2009. This pertains to accruals on current
loans payable of $422,116 at June 30, 2009. Negotiations are continuing
regarding settlement of this debt.
The current loans payable of $422,116 includes a loan for $90,795 with interest
at 7%, loan of $161,000 with interest at 10%, a loan of $94,666 with interest at
10% and loans totaling $75,644 with no interest and no specific terms of
repayment. Discussions are proceeding regarding ultimate settlement of these
debts of $75,644 which are with former officers/ directors of the Company who
continue to assist the Company in its efforts to obtain additional financing.
Loans due beyond one year in the amount of $350,788 are unsecured, with no
specific terms of repayment.
There have been no common shares issued in the six months ending June 30, 2009
and the increase in Additional paid in Capital is the result of stock
compensation expense of $89,611 for the six months ending June 30, 2009.
The Company intends to obtain additional financing either by way of private
placements, loans, or a combination of both from shareholders and other
interested parties to retire outstanding debt, and finance its operations over
the next twelve months. While the Company intends to procure these private
placements and/or loans, there is no assurance that the Company will be
successful in its attempt to obtain said funding.
It is the Company's opinion that the intrinsic value of the Bissett Creek
property deposit lies in the large 1 to 6 mm (18 mesh to 1/4") Graphite and Mica
flakes. There is not presently any data available as to the specific
size-by-size weight distribution of graphite and mica in the ore. Graphite flake
values vary widely based on its size, but due to the fundamental lack of size
and chemical data, it is not possible at this stage to assign a clear specific
value to the rock.
12
Going Concern Consideration
- ---------------------------
As the independent certified public accountants have indicated in their report
on the financial statements for the year ended December 31, 2008, and as shown
in the financial statements, the Company has experienced significant operating
losses that have resulted in an accumulated deficit of $10,102,042 at June 30,
2009. These conditions raise doubt about the Company's ability to continue as a
going concern.
The ability of the Company to achieve its operating goals and thus positive cash
flows from operations is dependent upon the future market price of graphite,
future capital raising efforts, and the ability to achieve future operating
efficiencies. Management's plans will require additional financing, and
completion of final feasibility report. While the Company has been successful in
these capital-raising endeavors in the past, there can be no assurance that its
future efforts, and anticipated operating improvements will be successful.
Depending on the level of exploration activity, the Company does not have
adequate capital to continue its contemplated business plan through December 31,
2009, The Company is presently investigating all of the alternatives identified
above to meet its short-term liquidity needs. The Company believes that it can
arrange a transaction or transactions to meet its short-term liquidity needs,
however there can be no assurance that any such transactions will be concluded
or that if concluded they will be on terms favorable to the Company.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.
Item 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer / Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
On or about June 30, 2009, the end of the period of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's President /Chief Financial
Officer, and a Board Member, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures. Based on the foregoing, the
Company's President and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective.
There have been no changes in the Company's internal controls or in other
factors that could affect the internal controls subsequent to the date the
Company completed its evaluation.
This Quarterly Report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this Quarterly Report.
Management assessed the effectiveness of our internal control over financial
reporting as of June 30, 2009. In making this assessment, our management used
the criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organization of the Treadway Commission (COSO).
13
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In November 2008, Mr. David Wodar former President of the Company, filed a
Statement of Claim in the Provincial Court of Ontario, Canada, claiming
severance and termination benefits. In April 2009 the parties negotiated a
settlement which is subject to fulfillment of obligations as agreed to.
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
EXHIBIT NO. DESCRIPTION
- ----------- -----------
31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT
31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT
32.1 CERTIFICATION OF DISCLOSURE BY CHIEF EXECUTIVE PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
32.2 CERTIFICATION OF DISCLOSURE BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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 14, 2009 INDUSTRIAL MINERALS, INC.
By: /s/ Robert G. Dinning
---------------------------------
President and CEO
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 14, 2009 INDUSTRIAL MINERALS, INC.
By: /s/ Robert Dinning
-----------------------------------------
Robert Dinning, Chief Financial Officer
14