I-Minerals Inc - Quarter Report: 2015 October (Form 10-Q)

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

FORM 10-Q

 [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: October 31, 2015

 [  ]  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:  000-55321

I-MINERALS INC.
(Exact name of registrant as specified in its charter)

Suite 880, 580 Hornby Street, Vancouver, BC, Canada V6C 3B6
(Address of principal executive offices)(Zip Code)

(877) 303-6573
Registrant’s telephone number, including area code

Not applicable
(Former name or former address if changed since last report)

Securities registered under section 12(g) of the Exchange Act: Common shares with no par value.

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes [  ] No [X]

As of December 15, 2015, the registrant had 85,557,141 outstanding shares of common stock.

I-Minerals Inc.

INDEX

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

I-Minerals Inc.

Condensed Consolidated Financial Statements
For the six months ended October 31, 2015
(Unaudited - Expressed in US dollars)

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On behalf of the Board

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

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

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

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

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Item 2.  Management’s discussion and analysis of financial condition and results of operations

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report constitute "forward-looking statements.” These statements, identified by words such as “plan,” "anticipate,” "believe,” "estimate,” "should,” "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, general business, economic, competitive, political and social uncertainties; the actual results of current exploration activities; changes in project parameters as plans continue to be refined; changes in labour costs or other costs of production; future mineral prices; equipment or processes to operate as anticipated; accidents, labour disputes and other risks of the mining industry, including but not limited to environmental hazards, cave-ins, pit-wall failures, flooding, rock bursts and other acts of God or unfavourable operating conditions and losses; delays in obtaining governmental approvals or financing or in the completion of development or construction activities, as well as those factors discussed in the section titled "Risk Factors" in our Annual Report on Form 10-K which was filed with the SEC on July 28, 2015.

Forward looking statements are based on a number of material factors and assumptions, including the results of exploration and drilling activities, the availability and final receipt of required approvals, licenses and permits, that sufficient working capital is available to complete proposed exploration and drilling activities, that contracted parties provide goods and/or services on the agreed time frames, the equipment necessary for exploration is available as scheduled and does not incur unforeseen break downs, that no labour shortages or delays are incurred and that no unusual geological or technical problems occur. While we consider these assumptions may be reasonable based on information currently available to it, they may prove to be incorrect. Actual results may vary from such forward-looking information for a variety of reasons, including but not limited to risks and uncertainties disclosed in the section titled "Risk Factors" in our Annual Report on Form 10-K which was filed with the SEC on July 28, 2015.

We intend to discuss in our Quarterly Reports and Annual Reports any events or circumstances that occurred during the period to which such documents relate that are reasonably likely to cause actual events or circumstances to differ materially from those disclosed in this registration statement. New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on our business or the extent to which any factor, or combination of such factors, may cause actual results to differ materially from those contained in any forwarding looking statement.

Cautionary Note to U.S. Note to U.S. Investors Regarding Estimates of Measured, Indicated and Inferred Resources and Proven and Probable Reserves

The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) – CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended (the “CIM Definition Standards”). These definitions differ from the definitions in the United States Securities and Exchange Commission (“SEC”) Industry Guide 7 (“SEC Industry Guide 7”) under the United States Securities Act of 1933, as amended (the “Securities Act”). Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves, and the primary environmental analysis or report must be filed with the appropriate governmental authority.

In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that all or any part of a mineral deposit in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all, or any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of unit measures in a resource is permitted disclosure under Canadian regulations; however, the SEC only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures.

Accordingly, information contained in this Quarterly Report and the documents incorporated by reference herein contain descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies

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subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.

General

We were incorporated under the laws of British Columbia, Canada in 1984. In 2004, we changed our corporate jurisdiction from a British Columbia company to a Canadian corporation.  In December 2011, we amended our articles to change our name from “i-minerals inc.” to “I-Minerals Inc.”

We are an exploration stage company engaged in the exploration and development of our Helmer-Bovill industrial minerals property (the “Helmer-Bovill Property”).  The Helmer-Bovill Property, in which we hold a 100% interest, is comprised of 11 mineral leases totaling 5,140.64 acres located approximately 6 miles southwest of Bovill, Latah County, Idaho.

We acquired the Helmer-Bovill Property from Idaho Industrial Minerals (“IIM”) pursuant to an Assignment Agreement with Contingent Right of Reverter (the “IIM Agreement”) dated August 12, 2002, as amended August 10, 2005, August 10, 2008 and January 21, 2010, between I-Minerals USA (formerly Alchemy Kaolin Corporation), our wholly owned subsidiary, and IIM.  Under the terms of the IIM Agreement, we issued a total of 1,800,000 common shares to IIM.

Our principal executive office is located at Suite 880, 580 Hornby Street, Vancouver, British Columbia, Canada and our telephone number is (877) 303-6573.

To date, we have not earned significant revenues from the operation of our mineral properties.  Accordingly, we are dependent on debt and equity financing as its primary source of operating working capital.  Our capital resources are largely determined by the strength of the junior resource markets and by the status of our projects in relation to these markets, and its ability to compete for investor support of its projects.

Our Principal Projects

Our operations at the Helmer-Bovill Property are focused on developing the Bovill Kaolin Project and the WBL Tailings Project.

The Bovill Kaolin Project

Our lead project, the Bovill Kaolin Project, is a strategically located long term resource of high purity quartz, potassium feldspar (“K-spar”), halloysite and kaolin formed through weathering of a border phase of the Idaho Batholith causing all minerals to be contained within a fine white clay-sand mixture referred to as “primary clay.” The Bovill Kaolin Project is located within 3 miles of state highways with electricity and natural gas already at the property boundary.

Since 2010, our exploration work has focused diamond drilling on the Bovill Kaolin Project. To date, a total of 243 diamond drill holes have been drilled totaling 26,753 feet. As a result of these drill campaigns, four deposits have been identified: Kelly Hump, Kelly South, Middle Ridge and WBL.

In June 2014, we completed an updated pre-feasibility study on the Bovill Kaolin Project (the “2014 PFS”), which included the following highlights:

•  Updated Measured and Indicated Resource Estimate
           •  Measured Resources of 3.3 million tons containing 76.1% quartz/K-spar sand, 12.7% Kaolinite and 4.5% Halloysite.
           •  Indicated Resources of 7.9 million tons containing 74.4% quartz/K-spar sand, 15.6% Kaolinite and 2.7% Halloysite.
           •  358,000 tons of contained halloysite, 1,657,600 tons of contained kaolinite and 8,407,000 tons of contained quartz/K-spar.

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•  Mineral Reserve Estimate

•  Economic Analysis
           •  US$330 million Pre-Tax NPV; US$212 million After Tax NPV using a 6% discount rate.
           •  38.2% Pre-Tax IRR; 30.5% After Tax IRR.
           •  Initial Capital Cost of $72.7 million and Total Life of Mine capital costs $90.8 million.
           •  Life of Mine in excess of 25 years with a stripping ratio of 0.69:1 (waste:ore).
           •  3 year estimated after tax payback.

With the 2014 PFS finalized, our focus will be to complete a feasibility study on the Bovill Kaolin Project. We anticipate that a feasibility study will be finalized in the first quarter of calendar 2016.

The WBL Tailings Project

We also plan to commence mining operations at the WBL Tailings Project.  The WBL Tailings Project is feldspathic sands deposited as tailings from clay mining operations during the period from 1961 to 1974.  In September 2012, we received approval of our Mine Plan of Operations (“MPO”) from the Idaho Department of Lands.  The MPO allows us to mine up to 50,000 tons per annum from feldspathic sands from June to October for a period of 10 years.

Settlement Agreement

On December 2, 2015, we received final court approval of its settlement of the lawsuit against us by Idaho Industrial Minerals, LLC (“IIM”), Hoodoo Resources, LLC (“Hoodoo”), the principal of Hoodoo, Robert Lemke (“Lemke”), Brent Thomson (“Thomson”) and The Thomson Family Trust (the “Thomson Trust”) (IIM, Hoodoo, Lemke, Thomson and the Thomson Trust collectively referred to as the “Plaintiffs”) in Latah County, Idaho.

The terms of the settlement are set forth in a formal definitive settlement agreement (the “Settlement Agreement”) among the Plaintiffs, the Estate of Philip Nisbet, Allen Ball (“Ball”), the Allen Ball and Connie Ball Family Trust (the “Ball Trust”), Ball Ventures, LLC (“BV”) and BV Natural Resources, LLC (“BVNR”) (Ball, the Ball Trust, BV and BVNR collectively referred to as the “Ball Entities”) and Northwest Kaolin, Inc. (“NWK”).  In addition to the Latah County lawsuit, two additional lawsuits received court approval and dismissal: the lawsuit between the Ball Entities and the Plaintiffs filed in Ada County, Idaho; and the lawsuit between the Ball Entities and the Plaintiffs filed in Nez Perce County, Idaho.

Under the terms of the Settlement Agreement, we paid IIM the sum of $100,000 in exchange for a full release and dismissal with prejudice of the claims made against us by the Plaintiffs, as well as the acknowledgement by IIM and NWK that we are the sole owner of the mineral leases that make up our Helmer-Bovill property.

Also under the Settlement Agreement, BVNR, an entity controlled by Allen Ball, one of our directors and a member of IIM, has agreed to grant to IIM options to purchase certain of our common shares owned by BVNR.  The option grant by BVNR to IIM is separate and apart from the payment to be made by us to IIM, and does not affect the rights and obligations of us under the Settlement Agreement.  However, we have agreed to file a registration statement with the United States Securities and Exchange Commission for the resale of our common shares by BVNR to IIM as a result of the options.

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Plan of Operation

During the next twelve months, our plan of operation is to complete a feasibility study on our Bovill Kaolin Project and to continue production at our WBL Tailings Project.

Feasibility Study of the Bovill Kaolin Project

As recommended in the 2014 PFS, in January 2015 we commenced the feasibility study of the Bovill Kaolin Project. In order to bring the Bovill Kaolin Project to feasibility, we have or will be required to undertake additional exploration and drilling, complete mining, tailings and environmental studies and complete additional material testing. The feasibility study is currently approximately 85% complete and we anticipate that initial results will be available in early 2016 with the formal document completed in the first quarter of calendar 2016 at an estimated cost of US$4,346,000.

Outlook

Our focus continues to be the detailed assessment of all of our mineral assets and advancing the Bovill Kaolin Project, part of the Bovill Kaolin Project, towards production. With the updated PFS completed in June 2014, the next step is additional permitting activities and ultimately the completion of a full feasibility study. We have completed sufficient drilling at sufficiently close drill hole spacing to allow for the calculation of measured and indicated resources at Kelly’s Hump and Middle Ridge. These resources were upgraded to probable and proven reserves with an expected 25 year mine life as part of the PFS process.

Permitting is scheduled to be completed within three months of completion of the feasibility study.  A second bulk sample has been sent to Ginn Mineral Research with separation of the clay minerals (kaolin and halloysite) underway.  Processing of the sand fraction (quartz and K-spar) from the initial bulk sample is continuing at the Minerals Research laboratory at North Carolina State University.  Metallurgical work on the K-spar is complete with quartz flotation ongoing.  The purpose of the current round of pilot scale separations is to confirm grades and separation characteristics of all areas of the deposits and provide samples for melt tests and customer tests.  The processing of the initial bulk sample at Ginn Mineral Research to create halloysite and metakaolin products is complete and the processing of the second sample should be completed by the end of calendar 2015.  The processing to create K-spar and quartz products at MRL is ongoing with the K-spar portion of the pilot plant complete and the processing of the quartz fraction ongoing with completion expected by early calendar 2016.

Based upon opportunities identified in the Charles Rivers report, internal marketing efforts and customer leads generated through the website, strong interest has been generated in all of the Company’s mineral products with ever increasing interest in the K-spar.  Samples continue to be sent to customers for testing and the response has generally been very favorable.

Results of Operation

Six months ended October 31, 2015

We recorded a loss of $2,772,264 ($0.03 per share) for the six months ended October 31, 2015 as compared to income of $348,835 ($0.00 per share) for the six months ended October 31, 2014.  The increase in the loss recorded in the six months ended October 31, 2015 as compared to the income in the six months ended October 31, 2014 is the net result of changes to a number of expenses.  The income in the prior period was due to the change in fair value of derivative liabilities as explained below.  Of note are the following items:

• Management and consulting fees of $97,201 (2014 - $93,236) are comprised of fees to manage our Company and stock-based compensation.  The stock-based compensation recognized in the current period was $35,653 (2014 - $62,617).  Approximately half of the fees to manage our Company are charged to management and consulting fees and the other half is charged to mineral property expenditures.
• Mineral property expenditures of $1,534,536 (2014 - $654,084) are costs incurred on our Helmer-Bovill Property.  The main expenses incurred during the current period included engineering and consulting ($935,192) and mineral analysis and processing ($312,127).  We were working on completing a feasibility study during the current period.  In the prior period, the Company incurred $163,950 of engineering and consulting expenditures and mineral analysis and processing of $284,934 as part of updating the pre-feasibility study. 
• General and miscellaneous expenses of $292,053 (2014 - $154,148) are comprised of office and telephone expenses, payroll taxes, medical benefits, insurance premiums, travel expenses, promotional expenses, shareholder communication fees, transfer agent fees and filing fees.  The increase during the current period was due primarily to an increase marketing activities of our property as well as investor relations activities.

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• Professional fees of $273,122 (2014 - $363,275) include legal fees, audit fees and financial consulting fees.  The decrease in fees in the current period was due to the transition from IFRS to US GAAP during the prior period, as well as a reduction of legal fees relating to the IIM litigation and legal fees relating to the Unimin Temporary Restraining Order.
• Loss on settlement of liabilities of $31,512 (2014 – $nil) represents the change in fair value of common shares between the date the Company agreed to settled liabilities for common shares and the date that the common shares were ultimately issued.  The Company used common shares to settle interest payable pursuant to promissory notes and second promissory notes.
• Accretion expense of $163,032 (2014 - $48,742) is the amortization of the fair value of bonus shares and bonus warrants issued to the lender of the promissory notes and the second promissory notes.  The bonus shares and bonus warrants are amortized over the life of the promissory notes.
• Interest expense of $536,347 (2014 - $312,102) is from promissory notes and second promissory notes that bear interest at a rate of 12% per year.  Interest increased as additional funds were advanced.
• We recorded a gain on change in fair value of derivative liabilities of $157,329 (2014 – gain of $1,975,705).  The change in fair value of derivative liabilities is based on the change in remaining term of derivative instruments and our stock price.  The derivatives include warrants as well as stock options granted to non-employees.  The derivative liabilities do not represent cash liabilities.

Three months ended October 31, 2015

We recorded a loss of $1,112,797 ($0.01 per share) for the three months ended October 31, 2015 as compared to income of $295,931 ($0.00 per share) for the three months ended October 31, 2014. The decrease in the loss recorded in the three months ended October 31, 2015 as compared to the income in the three months ended October 31, 2014 is the net result of changes to a number of expense items as noted above under the six months ended October 31, 2015 and 2014. The income in the prior period was due to the change in fair value of derivative liabilities as explained above. Management and consulting fees of $65,683 (2014 - $18,241) increased due to an increase in stock-based compensation recognized during the current period.

Liquidity and Capital Resources

Our aggregate operating, investing and financing activities during the six months ended October 31, 2015 resulted in a net cash inflow of $588,913 (2014 – outflow of $233,642).  As at October 31, 2015, we had working capital deficiency of $20,141, including cash of $860,953.

During the six months ended October 31, 2015, we used $2,697,321 on cash flows from operations before changes in non-cash operating working capital items (2014 - $1,512,689).  The increase in these cash flows was due primarily to an increase in mineral property expenditures.  During the six months ended October 31, 2015, we spent $nil on investing activities (2014 - $6,204) and we received $2,600,000 from financing activities (2014 - $909,185).

We are being financed by advances pursuant to Promissory Notes and Second Promissory Notes advanced by BV Lending LLC, an entity controlled by Allen L. Ball, a member of our Board of Directors and our largest shareholder.  BV Lending agreed to advance up to $5,787,280 pursuant to the Promissory Notes.  The final advance pursuant to the Promissory Notes was received in January 2015 and the balance due at October 31, 2015 was $5,787,280.  On February 18, 2015, we entered into the Second Promissory Notes with BV Lending pursuant to which BV Lending agreed to advance up to an additional $4,463,000.  The balance due pursuant to the Second Promissory Notes at October 31, 2015 was $4,217,000.  On November 20, 2015, the Second Promissory Notes were amended with BV Lending agreeing to an advance an additional $1,000,000.

The Promissory Notes are due as to $3,000,000 on December 2, 2016 and the balance due on December 31, 2016.  Certain conditions may result in early repayment.

The Second Promissory Notes mature as to $1,000,000 on December 2, 2016, $2,000,000 on June 2, 2017 and the balance due on December 2, 2017.  Certain conditions may result in early repayment. 

We have not as yet put into commercial production any mineral properties and as such have no operating revenues.  Accordingly, we are dependent on debt and equity financing as its primary source of operating working capital.  Our capital resources are largely determined by the strength of the junior resource markets and by the status of our projects in relation to these markets, and our ability to compete for investor support of our projects.

We remain dependent on additional financing to fund development requirements on the Helmer-Bovill property and for general corporate costs.  With respect to funds required for capital cost items once a feasibility study is completed, State-sponsored debt financing instruments may be available on attractive terms, and we intend to pursue such financial instruments to cover portions of the capital costs associated with placing the Bovill Kaolin deposits into production.

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We do not have the ability to internally generate sufficient cash flows to support our operations for the next twelve months.  We are currently receiving funds from a company controlled by a director of the Company through promissory notes.  We have no formal plan in place to address this going concern issue but consider that we will be able to obtain additional funds by equity financing and/or debt financing; however, there is no assurance of additional funding being available.  As a result, our auditors have expressed substantial doubt in their auditors’ report in the financial statements for the year ended April 30, 2015 about our ability to continue as a going concern. 

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.

Critical Accounting Policies

Measurement Uncertainty

The preparation of these consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  We regularly evaluate estimates and assumptions related to the useful life and recoverability of long lived assets, stock-based compensation, valuation of convertible debentures and derivative liabilities, and deferred income tax asset valuation allowances.  We base our estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.  The actual results experienced by us may differ materially and adversely from our estimates.  To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.  The most significant estimates with regard to our condensed consolidated financial statements relate to the determination of fair values of derivative liabilities and stock-based transactions.

Stock-based Compensation

We account for all stock-based payments and awards under the fair value based method.  Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable.

The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if we had paid cash instead of paying with or using equity based instruments.  The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.

We account for the granting of stock options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant.  The fair value of all stock options is expensed over their vesting period with a corresponding increase to additional paid-in capital.

Compensation costs for stock-based payments that do not include performance conditions are recognized on a straight-line basis. Compensation cost associated with a share based award having a performance condition is recognized on the probable outcome of that performance condition during the requisite service period. Share based awards with a performance condition are accrued on an award by award basis.

We use the Black-Scholes option valuation model to calculate the fair value of stock options at the date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimates.

Derivative Liabilities

We evaluate our financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market at each balance sheet date and recorded as a liability and the change in fair value is recorded in the consolidated statement of loss.  Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

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The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.  Derivative instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date.  Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not settlement of the derivative instrument is expected within 12 months of the balance sheet date.

We use the Black-Scholes option valuation model to value derivative liabilities.  This model uses Level 3 inputs in the fair value hierarchy established by ASC 820 Fair Value Measurement.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable

Item 4. Controls and Procedures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of October 31, 2015. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of October 31, 2015.  There were no material changes in the Company’s internal control over financial reporting during the second quarter of 2016.

Part II – OTHER INFORMATION

Item 1. Legal Proceedings.

Derivative Complaint

We were named as a defendant in a lawsuit in Latah County, State of Idaho, Case No. CV 2014-1306 (the “Latah County Lawsuit ”).  The plaintiffs who filed the Latah County Lawsuit, Hoodoo Resources, LLC (“Hoodoo ”) and Brent Thomson as trustee for the Brent Thomson Family Trust (the “Thomson Family Trust ”) (Hoodoo and the Thomson Family Trust are sometimes collectively referred to as the “Plaintiffs ”), alleged both direct claims and derivative claims on behalf of Idaho Industrial Minerals, LLC (“IIM ”).  The Plaintiffs’ claims were initially brought on June 6, 2014, as third-party claims in response to a complaint filed against Hoodoo and the Thomson Family Trust by another IIM member, the Selling Security Holder, which owns a 25% interest in IIM.  The Selling Security Holder’s lawsuit against Hoodoo and the Thomson Family Trust was filed in Ada County , State of Idaho, Case No. CV OC 1401549. The Selling Security Holder has also filed a separate action against the Plaintiffs in Nez Perce County, State of Idaho, Case No. CV 14 02312.

On December 2, 2015, all of the foregoing lawsuits were settled pursuant to the terms of the Settlement Agreement.  Under the terms of the Settlement Agreement, we paid IIM the aggregate sum of $100,000 (the “I-Minerals Payment”) for the release of any and all claims made against us under the lawsuits by the Ball Entities and the Plaintiffs.  In addition, IIM and NWK have expressly acknowledged and agreed that, upon receipt of the I-Minerals Payment, we have fulfilled all of our duties and obligations under the terms of the IIM Agreement relating to our Helmer-Bovill Property, and that any and all rights and claims of IIM and NWK to the mineral leases making up the Helmer-Bovill Property will be released and extinguished.  See “Settlement Agreement”.

Legal Action against Unimin

In July, 2014, we announced the engagement of Dr. Thomas Gallo, a former employee of Unimin Corporation (“Unimin”), as a consultant to oversee our ceramic test work and market development.  On August 13, 2014, Unimin obtained a Temporary Restraining Order which restrained and enjoined Dr. Gallo from disclosing to us specifications of Unimin’s process in producing high purity quartz.  On September 17, 2014, the North Carolina Court of Justice denied Unimin’s Motion for a Preliminary Injunction (the “P.I. Motion”) pursuant to Rule 65 of the North Carolina Rules of Civil Procedure and determined “Unimin has failed to present sufficient evidence to show that it is will succeed on the merits of its claims.”  On December 2, 2014, Unimin filed a voluntary dismissal of its lawsuit against the Company and Dr. Gallo.

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On March 24, 2015, we filed a suit for Abuse of Process, Malicious Prosecution and Unfair and Deceptive Trade Practices against Unimin arising out of the dismissed Injunction Action.  All three claims are centered around I-Minerals’ contention that under the guise of a lawsuit to protect Unimin’s confidential, proprietary, and/or trade secret information, Unimin was actually attempting to gain information and documents from competitors, to interfere with the business relationships of competitors, to stifle lawful market competition, and to prevent Dr. Gallo from plying his general skills and knowledge in manufacturing high purity quartz.  Unimin sought a Motion to Dismiss, but on September 18, 2015, Unimin’s efforts failed.  In the words of Judge Max O. Connor of the United States District Court for the Western District of North Carolina: “The court finds that such allegations are more than sufficient to plausibly allege willful acts whereby Defendants allegedly sought to use the existence of the proceeding to gain advantage of the plaintiff in respect to a collateral matter.”

Item 1A. Risk Factors

There have been no material changes from the risk factors as previously disclosure in our Annual Report on Form 10-K which was filed with the SEC on July 28, 2015. 

Item 2. Unregistered sales of equity securities and use of proceeds

All unregistered sales of equity securities during the period covered by the Quarterly Report were previously disclosed in our current reports on Form 8-K or our Annual Report on Form 10-K.

Item 3. Defaults upon senior securities

None

Item 4. Mine Safety Disclosures.

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (The “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the six months ended October 31, 2015, our U.S. exploration properties were not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the "Mine Act").

Item 5. Other Information.

None.

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Item 6. Exhibits

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SIGNATURES

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

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