I-Minerals Inc - Quarter Report: 2015 July (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: July 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 V6E 3M4
(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 September 11, 2015, the registrant had 82,604,710 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 three months ended July 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

Forward Looking Statements

The information contained in this Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995.  These forward-looking statements involve risks and uncertainties. Any statement which does not contain a historical fact may be deemed to be a forward-looking statement. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. In evaluating forward looking statements, you should consider various factors outlined in our Annual Report on Form 10-K filed with the U.S. Securities Exchange Commission (“SEC”) on July 28, 2015 and, from time to time, in other reports we file with the SEC. These factors may cause our actual results to differ materially from any forward-looking statement. We disclaim any obligation to publicly update these statements, or disclose any difference between our actual results and those reflected in these statements.

As used in this Registration Statement, unless the context otherwise requires, “we,” “us,” “our,” the “Company” and “I-Minerals” refers to I-Minerals Inc.  All dollar amounts in this registration statement are in U.S. dollars unless otherwise stated.

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 Minerals Mine and the WBL Tailings Project.

The Bovill Minerals Mine (previously referred to as the Bovill Kaolin Project)

Our lead project, the Bovill Minerals Mine, 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 Minerals Mine 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:

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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.

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.

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 50% complete and we anticipate that initial results will be available in late 2015 or early 2016 with the formal document completed in the first quarter of calendar 2016 at an estimated cost of US$3,056,000. 

Outlook

Our focus continues to be the detailed assessment of all of our mineral assets and advancing the Bovill Minerals Mine, 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.

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Permitting is on schedule to be largely completed within six months save an air discharge permit.  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 in September 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 Q4 of calendar 2015.

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

Three months ended July 31, 2015

We recorded a loss of $1,659,467 ($0.02 per share) for the three months ended July 31, 2015 as compared to income of $52,904 ($0.00 per share) for the three months ended July 31, 2014.  The increase in the loss recorded in the three months ended July 31, 2015 as compared to the income in the three months ended July 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 $31,518 (2014 - $74,995) are comprised of fees to manage our Company and stock-based compensation.  The stock-based compensation recognized in the current period was $4,556 (2014 - $60,182).  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 $684,515 (2014 - $297,615) are costs incurred on our Helmer-Bovill Property.  The main expenses incurred during the current period included engineering and consulting ($393,191) and mineral analysis and processing ($174,024).  We were working on completing a feasibility study during the current period.  In the prior period, the Company incurred $109,275 of engineering and consulting expenditures as part of updating the pre-feasibility study. 
• General and miscellaneous expenses of $157,910 (2014 - $74,383) 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 in marketing activities of our property.
• Professional fees of $155,145 (2014 - $110,550) include legal fees, audit fees and financial consulting fees.  The increase in fees in the current period was due to increase 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 $72,679 (2014 - $21,676) 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 $248,451 (2014 - $153,293) 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 loss on change in fair value of derivative liabilities of $278,751 (2014 – gain of $784,430).  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.

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Liquidity and Capital Resources

Our aggregate operating, investing and financing activities during the three months ended July 31, 2015 resulted in a net cash inflow of $520,540 (2014 – outflow of $122,935).  As at July 31, 2015, we had working capital of $306,290, including cash of $792,580.

During the three months ended July 31, 2015, we used $1,270,890 on cash flows from operations before changes in non-cash operating working capital items (2014 - $648,202).  The increase in these cash flows was due primarily to an increase in mineral property expenditures.  During the three months ended July 31, 2015, we spent $nil on investing activities (2014 - $6,204) and we received $1,500,000 from financing activities (2014 - $459,185).

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 July 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 July 31, 2015 was $3,117,000.

The Promissory Notes are due as to $1,000,000 on December 31, 2015, $2,000,000 on June 30, 2016 and the balance due on December 31, 2016.  Certain conditions may result in early repayment.  The maturity dates are the later of these maturity dates and one year after resolution of the IIM litigation. 

The Second Promissory Notes mature as to $1,000,000 one year after resolution of the IIM litigation, $2,000,000 one and a half years after resolution of the IIM litigation and the balance due two years after resolution of the IIM litigation.  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.

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.

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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.

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 July 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 July 31, 2015.  There were no material changes in the Company’s internal control over financial reporting during the third quarter of 2015.

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Part II – OTHER INFORMATION

Item 1. Legal Proceedings.

Derivative Complaint

We are currently named as a defendant in a lawsuit pending 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”), have 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, BV Natural Resources, LLC (“BVNR”), which owns a 25% interest in IIM.  BVNR’s lawsuit against Hoodoo and the Thomson Family Trust was filed in Ada County, State of Idaho, Case No. CV OC 1401549 (the “Ada County Lawsuit”).  BVNR has also filed a separate action against the Plaintiffs in Nez Perce County, State of Idaho, Case No. CV 14 02312 (the “Nez Perce Lawsuit”).  Both the Ada County Lawsuit and the Nez Perce Lawsuit are pending, but we are not a party in those lawsuits.

In the Ada County Lawsuit, BVNR asserts that Hoodoo and the Thomson Family Trust, both owners of a 12.5% interest in IIM, attempted to take action on behalf of IIM without authority and breached fiduciary duties owed to the other members of IIM.  In response to BVNR’s initial complaint, Hoodoo and the Thomson Family Trust filed a counterclaim against BVNR and a third-party complaint against us, as well as Barry Girling and Allen Ball, members of our Board of Directors, and an entity Allen Ball owns, Ball Ventures, LLC, and Roger Kauffman, our former President and Director.  Since filing the third-party claims in the Ada County Lawsuit, the Plaintiffs have dismissed Mr. Kauffman and Mr. Girling from the lawsuit with prejudice, and the claims against us were severed and transferred to Latah County.

The derivative claims alleged by Hoodoo and the Thomson Family Trust against us originally included claims of fraud, conspiracy and various allegations of breach of the terms of the IIM Agreement and sought the return of the Idaho state mineral leases of the Helmer-Bovill Property (the “Leases”) to IIM.  Many of the original claims against us have been dismissed since the inception of the lawsuit.  The remaining claims against us are the return of the Leases due to our alleged breach of the IIM Agreement by (1) failing to provide IIM copies of letters between us and the State of Idaho in relation to a transfer of the leases to an entity that we control, and (2) failing to complete the deliverables as required by the IIM Agreement, namely completion of a feasibility study; completion of the permitting process for the Helmer-Bovill Property; completion of a processing plant; and production of commercial products from minerals on the Helmer-Bovill Property.

We categorically deny the claims against us.  Under the original terms of the IIM Agreement, which was executed in August 2002 and was to expire 3 years thereafter, we were required to deliver a total of 1.75 million common shares to IIM as follows:

(1)           100,000 common shares upon execution of the original IIM Agreement;

(2)           400,000 common shares upon the completion of a feasibility study;

(3)           350,000 common shares upon the State of Idaho issuing leases with respect to the Helmer-Bovill Property;

(4)           500,000 common shares upon completion of the permitting process; and

(5)           400,000 common shares upon the delivery of commercial product from a production plant on the Helmer-Bovill Property.

In August 2005, pursuant to the Second Amendment to the IIM Agreement, the term of the IIM Agreement was extended for three additional years to August 10, 2008 and IIM agreed that, with the issuance of a total of 1.75 million shares plus an additional Fifty Thousand (50,000) common shares as consideration for the Second Amendment, IIM would release any and all interest in the Leases and the Helmer-Bovill Property.  In August 2008, pursuant to the Third Amendment to the IIM Agreement, the term was further extended for 3 additional years to August 10, 2011.  In January 2010, pursuant to the Fourth Amendment to the IIM Agreement, the term was further extended to August 10, 2013.  In addition, the Fourth Amendment re-allocated the number of common shares issuable to IIM by ”eliminating any and all obligations of [I-Minerals] to issue any shares on the Completion of a Production Plant and First Delivery of Commercial Product” and re-allocating the related 400,000 shares by increasing the number of shares issuable upon completion of a feasibility study from 400,000 to 600,000 common shares, and the number of shares issuable upon completion of the permitting process from 500,000 to 700,000 common shares.

100,000 common shares were issued to IIM in fiscal 2003 upon execution of the original IIM Agreement, and an additional 350,000 common shares were issued to IIM in fiscal 2005 upon the State of Idaho issuing leases in respect of the Helmer-Bovill Property.  An additional 50,000 shares were issued in fiscal 2006 as consideration for the extension to the term granted under the Second Amendment to the IIM Agreement.  In January 2013, we delivered to IIM 1.3 million common shares based upon (i) completion of the feasibility study titled “NI 43-101 Technical WBL Tailings Mineral Production Project, Latah County, Idaho” by B. Stryhas, C.P.G., H. Gatley, P.Eng., V.Obie, RM SME, and C.Hoag, C.P.G. and dated effective November 30, 2012 (the “Feasibility Study”); and (ii) receipt of a letter from the Idaho Department of Lands dated November 7, 2012 confirming that our permitting application had been accepted, along with other supporting documents (collectively, the “Permit”).  In addition, we had commenced production and sale of a commercial product prior to delivery of the shares to IIM.  The final share issuance was approved by the TSX Venture Exchange.

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We believe that we have fully performed our obligations under the IIM Agreement and that, upon delivery of the remaining 1.3 million shares required by the IIM Agreement, the contractual release of all IIM interest in the Leases and the Helmer-Bovill Property took effect.  Further, our categorical denial of any deceit or fraud in connection with entering into the Third Amendment and Fourth Amendment to the IIM Agreement with IIM was vindicated when the Plaintiffs voluntarily dismissed those claims during the discovery process.  We have vigorously defended the action brought by Hoodoo and the Thomson Family Trust and filed a counterclaim against the Plaintiffs seeking damages for tortious interference with prospective economic advantage, tortious interference with contract, and unjust enrichment.

Our vigorous defense of the lawsuit has resulted in a significant reduction in the number of claims against us and our officers and directors.  While we remain steadfast that we would have ultimately prevailed in the lawsuit, the Court ordered us to participate in mediation in an attempt to settle the case.  Mediation was ordered while our Motion for Sanctions against the Plaintiffs and Plaintiffs’ counsel was pending.  In that Motion, we sought severe sanctions against Plaintiffs and Plaintiffs’ counsel due to a number of false statements made in affidavits and Court filings. 

Court-ordered mediation was held on May 28, 2015.  The goal of mediation was to settle the claims between us and the Plaintiffs in the Latah County Lawsuit, as well as the claims asserted by BVNR against the Plaintiffs in the Ada County Lawsuit and Nez Perce Lawsuit.  The mediation was successful and all parties entered into an agreement in principle to settle the parties’ claims against one another that was documented in a Binding Settlement Term Sheet.  The terms of the settlement include “the broadest release allowed by law” and require that all claims now existing, whether known or unknown, be dismissed with prejudice.  The settlement also includes an acknowledgement by the Plaintiffs that “I-Minerals is the sole owner of the” mineral Leases that are subject to the August 10, 2002 agreement, as amended, between the Company and IIM, and that the Company owns the mineral Leases “free and clear of all claims of the parties” to the lawsuit.  We have agreed to pay $100,000 (accrued in accounts payable and accrued liabilities) towards the Plaintiffs legal fees.  The agreement in principle is subject to Court approval.

Since the mediation was held and the Binding Settlement Term Sheet was executed, the parties have been diligently negotiating the terms of a more formal settlement agreement.  The parties are in agreement with respect to most of the material terms of the settlement agreement.  While we are hopeful that the parties will quickly agree on mutually acceptable terms to the more formal settlement agreement, the Binding Term Sheet anticipated such a problem and included a clause stating that “if the parties cannot agree to a final settlement agreement the terms of this Agreement shall be binding.”  BVNR and the Plaintiffs, together with us, have agreed to file the Binding Term Sheet with the Court for approval if a formal settlement agreement cannot be reached. 

Temporary Restraining Order

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 restrains and enjoins 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.”

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.

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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 three months ended July 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.

Item 6. Exhibits

Notes:

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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.