SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-QSB



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE

SECURITIES EXCHANGE ACT OF 1934



FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004



Commission File #333-31067



Itec Environmental Group, Inc.

(Exact name of small business issuer as specified in its charter)



Delaware

(State or other jurisdiction of incorporation or organization)



31-1705310

(IRS Employer Identification Number)



693 Hi Tech Parkway, Suite 3, Oakdale, CA 95361

(Address of principal executive offices)(Zip Code)



(209) 848-3900

(Registrant's telephone no., including area code)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X ] No [  ]



The number of shares outstanding of the issuer's common equity on November 3, 2004 is 667,163,992





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Table of Contents



PART I - FINANCIAL INFORMATION



Item 1 - Financial Statements



Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations



Item 3 - Controls and Procedures





PART II - OTHER INFORMATION



Item 1  Legal Proceedings



Item 2 - Changes in Securities



Item 3 - Defaults Upon Senior Securities



Item 4 - Submission of Matters to a Vote of Security Holders



Item 5 - Other Information



Item 6 - Exhibits and Reports on Form 8-K



SIGNATURES





2

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PART I   FINANCIAL INFORMATION



Item 1.  Financial Statements





ITec ENVIRONMENTAL GROUP, INC. AND SUBSIDIARY

A DEVELOPMENT STAGE COMPANY



Consolidated Financial Statements



September 30, 2004











C O N T E N T S











|Consolidated Balance Sheets                | 4  5 
|------------------------------------------ | ------
|                                           |       
|Consolidated Statements of Operations      | 6     
|                                           |       
|Consolidated Statements of Cash Flows      | 7 - 8 
|                                           |       
|Notes to Consolidated Financial Statements | 9  21





















3











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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Consolidated Balance Sheets

As of September 30, 2004 and December 31, 2003









|               |                                               |                                  |                      |              | September 30, 2004 |         | December 31, 2003
|-------------- | --------------------------------------------- | -------------------------------- | -------------------- | ------------ | ------------------ | ------- | -----------------
|ASSETS         | (unaudited)                                   |                                  | (audited)           
|Current Assets |                                               |                                  |                      |              |                   
|               | Cash & cash equivalents                       | $                                | 39,111               |              | $                  | 125    
|               | Accounts receivable (net)                     |                                  | 297,339              |              |                    | 268,987
|               | Inventory                                     |                                  | 55,094               |              |                    | 55,094 
|               |                                               |                                  |                      |              |                    |         |                  
|               |                                               |                                  | Total Current Assets |              | 391,544            |         |                  
|               |                                               |                                  |                      |              |                    |         |                  
|Fixed Assets   |                                               |                                  |                      |              |                   
|               | Furniture & equipment (net of depreciation of |                                  |                      |              |                    |        
|               |                                               | $95,250 & $54,109, respectively) |                      | 209,466      |                    |         | 250,607          
|               |                                               |                                  |                      |              |                    |         |                  
|               |                                               |                                  | Total Fixed Assets   |              | 209,466            |         |                  
|               |                                               |                                  |                      |              |                    |         |                  
|Other Assets   |                                               |                                  |                      |              |                   
|               | Deposits                                      |                                  | 43,049               |              |                    | 10,224 
|               | Prepaid expenses                              |                                  | 87,339               |              |                    | 12,416 
|               | Note receivable - other                       |                                  | 14,690               |              |                    | 14,690 
|               | Note receivable - officer                     |                                  | 147,973              |              |                    | 147,973
|               | License fees (net of amortization of $42,500  |                                  |                      |              |                    |        
|               |                                               | and $35,000, respectively)       |                      | 7,500        |                    |         | 15,000           
|               |                                               |                                  |                      |              |                    |         |                  
|               |                                               |                                  | Total Other Assets   |              | 300,551            |         |                  
|               |                                               |                                  |                      |              |                    |         |                  
|               |                                               |                                  |                      | Total Assets | $                  | 901,561 |                  

















(continued)



See accompanying notes to these financial statements.

4

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Consolidated Balance Sheets

As of September 30, 2004 and December 31, 2003









|                                             |                                                       |                           |                             |                                          | September 30, 2004 |           | December 31, 2003
|-------------------------------------------- | ----------------------------------------------------- | ------------------------- | --------------------------- | ---------------------------------------- | ------------------ | --------- | -----------------
|LIABILITIES AND EQUITY                       | (unaudited)                                           |                           | (audited)                  
|Current Liabilities                          |                                                       |                           |                             |                                          |                   
|                                             | Accounts payable                                      | $                         | 1,150,474                   |                                          | $                  | 932,321  
|                                             | Income taxes payable                                  |                           | -                           |                                          |                    | 800      
|                                             | Amount due - officers                                 |                           | 185,432                     |                                          |                    | 96,332   
|                                             | Accrued liabilities                                   |                           | 349,480                     |                                          |                    | 209,726  
|                                             | Capital lease obligation - short term                 |                           | 11,951                      |                                          |                    | 10,078   
|                                             | Notes payable                                         |                           | 2,077,955                   |                                          |                    | 1,699,000
|                                             |                                                       |                           |                             |                                          |                    |           |                  
|                                             |                                                       | Total Current Liabilities |                             | 3,775,292                                |                    |           | 2,948,257        
|                                             |                                                       |                           |                             |                                          |                    |           |                  
|Other Liabilities                            |                                                       |                           |                             |                                          |                   
|                                             | Notes payable - Italian investors                     |                           | 446,463                     |                                          |                    | 446,463  
|                                             | Capital lease obligation - long term                  |                           | 20,050                      |                                          |                    | 28,810   
|                                             | Deferred revenue                                      |                           | 475,190                     |                                          |                    | 475,190  
|                                             |                                                       |                           |                             |                                          |                    |           |                  
|                                             |                                                       | Total Other Liabilities   |                             | 941,703                                  |                    |           | 950,463          
|                                             |                                                       |                           |                             |                                          |                    |           |                  
|                                             |                                                       |                           | Total Liabilities           |                                          | 4,716,995          |           |                  
|                                             |                                                       |                           |                             |                                          |                    |           |                  
|EQUITY                                       |                                                       |                           |                             |                                          |                   
|Preferred stock, $0.001 par value            |                                                       |                           |                             |                                          |                   
|                                             | 10,000,000 shares authorized none                     |                           |                             |                                          |                    |          
|                                             | issued & outstanding                                  |                           | -                           |                                          |                    | -        
|Common stock, $0.001 par value,              |                                                       |                           |                             |                                          |                   
|                                             | 750,000,000 shares authorized, issued and outstanding |                           |                             |                                          |                    |          
|                                             | 238,315,528 and 70,512,008 at September 30, 2004      |                           | 238,316                     |                                          |                    | 70,512   
|                                             | and December 31, 2003, respectively                   |                           |                             |                                          |                    |          
|Paid in capital                              |                                                       | 5,219,482                 |                             |                                          | 4,629,685         
|Accumulated deficit during development stage |                                                       | (9,273,232)               |                             |                                          | (7,823,801)       
|                                             |                                                       |                           |                             |                                          |                    |           |                  
|                                             |                                                       |                           | Total Stockholders' Deficit |                                          | (3,815,434)        |           |                  
|                                             |                                                       |                           |                             |                                          |                    |           |                  
|                                             |                                                       |                           |                             |                                          |                    |           |                  
|                                             |                                                       |                           |                             | Total Liabilities & Stockholders' Equity | $                  | 901,561   |                  





See accompanying notes to these financial statements.

5

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2004 and 2003

And for the Period from Inception (March 28, 2000) through September 30, 2004





|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           | For the period  
|-------------------------------------- | --------------------------- | ----------------------------- | ----------------------- | ------------------ | ---------- | ------------------ | --------- | ------------------ | --------- | ------------------ | ----------- | ------------------ | --------- | ---------- | --------- | ----------------
|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           | from Inception  
|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           | (March 28, 2000)
|                                       |                             |                               |                         | Three months ended |            | Nine months ended  |           | through           
|                                       |                             |                               |                         | September
30, 2004 |            | September
30, 2003 |           | September
30, 2004 |           | September
30, 2003 |             | September
30, 2004
|                                       |                             |                               |                         | (unaudited)        |            | (unaudited)        |           | (unaudited)        |           | (unaudited)        |             | (unaudited)       
|Income                                 |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |           
|                                       | Revenue                     | $                             | -                       |                    | $          | -                  |           | $                  | 1,750     |                    | $           | 455,250            |           | $          | 494,387  
|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           |                 
|                                       | Cost of goods               |                               | -                       |                    |            | -                  |           |                    | -         |                    |             | 201,200            |           |            | 229,841  
|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           |                 
|                                       |                             | Gross Profit                  |                         | -                  |            |                    | -         |                    |           | 1,750              |             |                    | 254,050   |            |           | 264,546         
|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           |                 
|Operating Expenses                     |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |           
|                                       | Plant expenses              |                               | 8,772                   |                    |            | 8,389              |           |                    | 31,889    |                    |             | 51,621             |           |            | 177,355  
|                                       | Payroll                     |                               | 30,621                  |                    |            | 164,002            |           |                    | 255,703   |                    |             | 336,858            |           |            | 1,787,010
|                                       | Consulting fees             |                               | 424,431                 |                    |            | -                  |           |                    | 681,033   |                    |             | -                  |           |            | 4,499,385
|                                       | Research and development    |                               | 50,000                  |                    |            | -                  |           |                    | 62,000    |                    |             | 3,750              |           |            | 177,490  
|                                       | General and administrative  |                               | 34,241                  |                    |            | 92,583             |           |                    | 188,450   |                    |             | 431,618            |           |            | 2,135,697
|                                       | Depreciation & amortization |                               | 16,205                  |                    |            | 12,097             |           |                    | 48,641    |                    |             | 32,772             |           |            | 137,750  
|                                       |                             | Total Operating Expenses      |                         | 564,270            |            |                    | 277,071   |                    |           | 1,267,716          |             |                    | 856,619   |            |           | 8,914,687       
|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           |                 
|Other Income(expense)                  |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |           
|                                       | Other revenue               |                               | 28,368                  |                    |            | -                  |           |                    | 60,719    |                    |             | -                  |           |            | 60,719   
|                                       | Interest expense            |                               | (40,108)                |                    |            | (8,900)            |           |                    | (242,348) |                    |             | (52,952)           |           |            | (653,629)
|                                       | Other expense               |                               | (1,036)                 |                    |            | -                  |           |                    | (1,836)   |                    |             | -                  |           |            | (25,865) 
|                                       |                             | Total other income (expenses) |                         | (12,776)           |            |                    | (8,900)   |                    |           | (183,465)          |             |                    | (52,952)  |            |           | (618,775)       
|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           |                 
|                                       |                             | Net loss before taxes         |                         | (577,046)          |            |                    | (285,971) |                    |           | (1,449,431)        |             |                    | (655,521) |            |           | (9,268,916)     
|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           |                 
|                                       |                             | Provision for income taxes    |                         | -                  |            |                    | -         |                    |           | -                  |             |                    | -         |            |           | (4,316)         
|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           |                 
|                                       |                             |                               | Total Net Income (Loss) | $                  | (577,046)  |                    | $         | (285,971)          |           | $                  | (1,449,431) |                    | $         | (655,521)  |           | $               
|                                       |                             |                               |                         |                    |            |                    |           |                    |           |                    |             |                    |           |            |           |                 
|Shares Outstanding - basic and diluted |                             | 199,668,054                   |                         |                    | 68,465,812 |                    |           | 148,253,820        |           |                    | 58,012,008  |                    |           | 45,970,034
|Loss per share - Basic                 | $                           | (0.00)                        |                         | $                  | (0.00)     |                    | $         | (0.01)             |           | $                  | (0.01)      |                    | $         | (0.20)    
|Loss per share - Diluted               | $                           | (0.00)                        |                         | $                  | (0.00)     |                    | $         | (0.01)             |           | $                  | (0.01)      |                    | $         | (0.20)    



See accompanying notes to these financial statements.

6

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2004 and 2003

And for the Period from Inception (March 28, 2000) through September30, 2004





|                                     |                                                    |                                         |                                                     |                   |           |               |           |               |             | For the period  
|------------------------------------ | -------------------------------------------------- | --------------------------------------- | --------------------------------------------------- | ----------------- | --------- | ------------- | --------- | ------------- | ----------- | ----------------
|                                     |                                                    |                                         |                                                     |                   |           |               |           |               |             | from inception  
|                                     |                                                    |                                         |                                                     |                   |           |               |           |               |             | (March 28, 2000)
|                                     |                                                    |                                         |                                                     | Nine Months Ended |           | through      
|                                     |                                                    |                                         |                                                     | September 30,     |           | September 30, |           | September 30,
|                                     |                                                    |                                         |                                                     | 2004              |           | 2003          |           | 2004         
|                                     |                                                    |                                         |                                                     | (unaudited)       |           | (unaudited)   |           | (unaudited)  
|CASH FLOWS FROM OPERATING ACTIVITIES |                                                    |                                         |                                                     |                   |           |               |           |              
|                                     | Net Loss                                           | $                                       | (1,449,431)                                         |                   | $         | (655,521)     |           | $             | (9,273,232)
|                                     | Adjustments to reconcile net loss to net cash used |                                         |                                                     |                   |           |               |           |               |            
|                                     | by operating activities:                           |                                         |                                                     |                   |           |               |           |               |            
|                                     |                                                    | Depreciation and amortization           |                                                     | 41,141            |           |               | 24,505    |               |             | 95,250          
|                                     |                                                    | Amortization of license fees            |                                                     | 7,500             |           |               | -         |               |             | 42,500          
|                                     |                                                    | Bad debt expense                        |                                                     | -                 |           |               | -         |               |             | 50,380          
|                                     |                                                    | Shares issued for services              |                                                     | 366,356           |           |               | 170,235   |               |             | 3,167,059       
|                                     |                                                    | Shares issued for compensation          |                                                     | 55,500            |           |               | 72,000    |               |             | 127,500         
|                                     |                                                    | Amortization of loan origination fees   |                                                     | 190,000           |           |               | -         |               |             | 190,000         
|                                     |                                                    | Warrants issuance costs                 |                                                     | 1,000             |           |               | 4,000     |               |             | 6,000           
|                                     |                                                    | Other                                   |                                                     | (4,000)           |           |               | (8,000)   |               |             | (4,000)         
|                                     |                                                    |                                         |                                                     |                   |           |               |           |               |             |                 
|                                     | Changes in assets and liabilities                  |                                         |                                                     |                   |           |               |           |               |            
|                                     |                                                    | Increase in accounts receivable         |                                                     | (28,352)          |           |               | (297,678) |               |             | (347,719)       
|                                     |                                                    | Decrease (increase) in inventory        |                                                     | -                 |           |               | 156,973   |               |             | (55,094)        
|                                     |                                                    | Increase in prepaid expenses/deposits   |                                                     | (107,748)         |           |               | (8,903)   |               |             | (130,388)       
|                                     |                                                    | Increase in other assets/liabilities    |                                                     | -                 |           |               | (27,396)  |               |             | -               
|                                     |                                                    | Increase (decrease) in accounts payable |                                                     | 218,153           |           |               | (369,308) |               |             | 1,150,474       
|                                     |                                                    | Decrease in income taxes payable        |                                                     | (800)             |           |               | -         |               |             | -               
|                                     |                                                    | Increase in accrued liabilities         |                                                     | 228,854           |           |               | -         |               |             | 534,912         
|                                     |                                                    | Increase in deferred revenue            |                                                     | -                 |           |               | 305,191   |               |             | 475,190         
|                                     |                                                    |                                         | Net cash used in operating activities               | $                 | (481,827) |               | $         | (633,902)     |             | $               
|                                     |                                                    |                                         |                                                     |                   |           |               |           |               |             |                 
|CASH FLOWS FROM INVESTING ACTIVITIES |                                                    |                                         |                                                     |                   |           |               |           |              
|                                     |                                                    | Purchase of property and equipment      | $                                                   | -                 |           | $             | (115,301) |               | $           | (255,688)       
|                                     |                                                    | Notes receivable                        |                                                     | -                 |           |               | 39,100    |               |             | -               
|                                     |                                                    | Purchase of license fee                 |                                                     | -                 |           |               | 7,500     |               |             | (50,000)        
|                                     |                                                    | Advances made on notes receivable       |                                                     | -                 |           |               | -         |               |             | (162,663)       
|                                     |                                                    |                                         | Net cash (used in) provided by investing activities | $                 | -         |               | $         | (68,701)      |             | $               
|                                     |                                                    |                                         |                                                     |                   |           |               |           |               |             |                 
|                                     |                                                    |                                         |                                                     |                   |           |               |           |               |             |                 
|CASH FLOWS FROM FINANCING ACTIVITIES |                                                    |                                         |                                                     |                   |           |               |           |              
|                                     | Sale of common stock                               | $                                       | -                                                   |                   | $         | 571,077       |           | $             | 1,821,494  
|                                     | Proceeds from issuance of notes payable            |                                         | 527,700                                             |                   |           | 231,233       |           |               | 2,674,163  
|                                     | Payments on capital lease obligations              |                                         | (6,887)                                             |                   |           | -             |           |               | (17,027)   
|                                     |                                                    |                                         | Net cash provided by financing activities           | $                 | 520,813   |               | $         | 802,310       |             | $               
|                                     |                                                    |                                         |                                                     |                   |           |               |           |               |             |                 
|                                     |                                                    |                                         |                                                     |                   |           |               |           |               |             |                 
|                                     |                                                    |                                         | Increase (decrease) in cash and cash equivalents    | $                 | 38,986    |               | $         | 99,707        |             | $               



See accompanying notes to these financial statements.

7

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Consolidated Statements of Cash Flows, Continued

For the Nine Months Ended September 30, 2004 and 2003

And for the Period from Inception (March 28, 2000) through September 30, 2004





|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           | For the period  
|--------------------------------------------------------------------- | ------------------------------------ | - | ------------------------------------------------ | ----------------- | ------ | ------------- | - | ------------- | --------- | ----------------
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           | from inception  
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           | (March 28, 2000)
|                                                                      |                                      |   |                                                  | Nine Months Ended |        | through      
|                                                                      |                                      |   |                                                  | September 30,     |        | September 30, |   | September 30,
|                                                                      |                                      |   |                                                  | 2004              |        | 2003          |   | 2004         
|                                                                      |                                      |   |                                                  | (unaudited)       |        | (unaudited)   |   | (unaudited)  
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      |                                      |   | Increase (decrease) in cash and cash equivalents | $                 | 38,986 |               | $ | 99,707        |           | $               
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      |                                      |   | Balance at beginning of year                     |                   | 125    |               |   | 393           |           |                 
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      |                                      |   | Balance at end of period                         | $                 | 39,111 |               | $ | 100,100       |           | $               
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|Supplemental disclosures:                                             |                                      |   |                                                  |                   |        |               |   |              
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      | Cash paid for interest               | $ | -                                                |                   | $      | 986           |   | $             | 109,467  
|                                                                      | Cash paid for taxes                  | $ | 1,600                                            |                   | $      | 2,200         |   | $             | 4,000    
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|Supplemental Schedule of Non-Cash Investing and Financing Activities: |                                      |   |                                                  |                   |        |              
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           | For the period  
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           | from inception  
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           | (March 28, 2000)
|                                                                      |                                      |   |                                                  | Nine Months Ended |        | through      
|                                                                      |                                      |   |                                                  | September 30,     |        | September 30, |   | September 30,
|                                                                      |                                      |   |                                                  | 2004              |        | 2003          |   | 2004         
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      | Common stock issued for compensation | $ | 55,500                                           |                   | $      | -             |   | $             | 127,500  
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      | Common stock issued for services     | $ | 366,356                                          |                   | $      | 170,235       |   | $             | 3,167,153
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      | Warrants issuance                    | $ | 1,000                                            |                   | $      | 4,000         |   | $             | 6,000    
|                                                                      |                                      |   |                                                  |                   |        |               |   |               |           |                 
|                                                                      | Debt conversion into common stock    | $ | 114,745                                          |                   | $      | -             |   | $             | 114,745  



See accompanying notes to these financial statements.

8



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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004





1.

Description of Business and Significant Accounting Policies



This summary of significant accounting policies of ITec Environmental Group, Inc. (f/k/a Beechport Capital Corp.) and Subsidiary is presented to assist in understanding the Companys financial statements and is stated in United States dollars.  The financial statements and notes are representations of the Companys management, who is responsible for their integrity and objectivity.  These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the financial statements.





General



Beechport Capital Corp. ("Beechport") was organized as a Colorado corporation on January 24, 1989, in order to evaluate, structure and complete a merger with or acquisition of prospects consisting of private companies, partnerships or sole proprietorships.



ITec Environmental Group, Inc. ("ITec" or the "Company") was incorporated under the laws of the State of Delaware on March 28, 2000.  ITec was formed for the purpose of acquiring certain patented technology and the development of a worldwide market for its usage.



At a special September 27, 2002 meeting of the shareholders of Beechport Capital Corp., the Company authorized a merger of Beechport into its wholly-owned subsidiary, ITec Environmental Group, Inc.  The Company's subsidiary, ECO2 Environmental Systems, Inc. ("ECO2"), was incorporated under the laws of the State of Delaware on April 10, 2000.  The only activity to date has been the registration of a trademark for ECO2.



Unless the context indicates otherwise, all references herein to the Company include ITec Environmental Group, Inc., its predecessor, Beechport Capital Corporation, and its wholly-owned subsidiary, ECO2 Environmental Systems, Inc.



The Company is a development stage entity and is primarily engaged in activities to become a worldwide supplier of oil and agricultural chemical container recycling equipment and related systems.  The Company's business objective is to attempt to build on the foundation of the licensed patented technology, to develop proprietary recycling equipment, and to form strategic alliances to become a supplier of recycling equipment and operate plastic waste recycling plants.  ITec's primary revenue source, the ECO2TM Environmental System, is a new cost-effective, environmentally sensitive technology for cleaning plastic contaminated by substances that make most types of plastic ineligible for traditional recycling programs.  The Company's initial marketing of its technology is concentrated in Italy.  In the future, the Company will be marketing its technology in the United States and other countries.  The initial focus of the Companys research and development efforts will be the generation of products for recycling of plastic waste.  The Company has limited experience in manufacturing of recycling systems and operating plastic waste recycling plants.  There can be no assurance that the Company will not encounter problems in marketing and selling its proprietary recycling systems.



9

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004





1.

Description of Business and Significant Accounting Policies (continued)



General (continued)



The Companys success will depend in part on its ability to obtain patents and maintain product license rights, maintain trade secrets and operate without infringing on the proprietary rights of others, both in the United States and other countries.  There can be no assurance that patents licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.



For the nine months ended September 30, 2004, revenues of $1,750 were from a sale of granulated oil bottles.  The Company has no significant operating history and, from March 28, 2000, (inception) to September 30, 2004, has generated a net loss of $9,273,232.  The accompanying financial statements for the nine months ended September 30, 2004, have been prepared assuming the Company will continue as a going concern.  During the year 2004, management is working to raise additional debt and/or equity financing to fund future operations and to provide additional working capital.  However, there is no assurance that such financing will be obtained in sufficient amounts necessary to meet the Companys needs.



The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.





Basis of presentation



The accompanying unaudited interim consolidated financial statements represent the financial activity of ITec Environmental Group, Inc. and its subsidiaries.  The consolidated financial statements for the nine and twelve months ended September 30, 2004 and December 31, 2003, have been prepared in accordance with generally accepted accounting principles for interim financial information in the US and in accordance with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X.  Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  For further information, refer to consolidated financial statements and footnotes thereto for the fiscal quarter ended September 30, 2004, included herein.  The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries.  All inter-company transactions were eliminated.  The Companys fiscal year ends on December 31 each year.  The financial statements and notes are representations of the management and the Board of Directors who are responsible for their integrity and objectivity.



The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period.  The financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.



10



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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004





1.

Description of Business and Significant Accounting Policies (continued)



Use of estimates in the preparation of financial statement



The preparation of financial statements in conformity with generally accepted accounting principles requires management 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 financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.





Contingencies



Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Companys management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Companys legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.



If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Companys financial statements.  If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.



Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.





Cash equivalents



The Company considers deposits that can be redeemed on demand and investments that have original maturities of less than three months when purchased to be cash equivalents.





Concentrations



Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments, cash equivalents and trade accounts receivables.  At September 30, 2004 and December 31, 2003, the Company had no amounts of cash or cash equivalents in U.S. financial institutions in excess of amounts insured by agencies of the U.S. Government.



At September 30, 2004 and December 31, 2003 the Company had a net trade receivable of $297,339 and $268,987.  Approximately 95% of September 30, 2004 and 100% of December 31, 2003 receivableare from a single customer in Italy.  Management anticipates that initial customers for its recycling systems will be from Italy.  The Company does not require collateral for its trade accounts receivables.



11

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004





1.

Description of Business and Significant Accounting Policies (continued)



Revenue and expense recognition



The Company recognizes revenues from sales of equipment and products upon delivery to customers.  When products are configured to customer requirements, revenue is recorded upon the successful completion of any final test procedures.





Deferred revenue



Amounts billed in advance of the period in which a service is rendered or a product is delivered are recorded as a liability under "Deferred Revenue".  At September 30, 2004 and December 31, 2003, deferred revenue for the year then ended totaled $475,190 for the future sale of ECO2 systems.



The Company contracts with others for the manufacturing of the equipment.





Allowance for doubtful accounts



The Company uses the allowance method to account for uncollectible accounts receivable.  The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts, and the allowance estimate is based on a review of the current status of trade accounts receivable.  It is reasonably possible that the Companys estimate of the allowance for doubtful accounts will change.  Accounts receivable are presented net of an allowance for doubtful accounts of $50,380 at September 30, 2004 and December 31, 2003.





Inventory



Inventory consisted principally of auxiliary equipment for the recycling machine and is stated at the lower of cost (first-in, first-out method) or market.  Market is determined based on net realizable value.  Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value.  Inventory amounted to $55,094 at September 30, 2004 and December 31, 2003.





Advertising cost



The Company expenses advertising cost as incurred.  There were no advertising costs for the three and nine months ended September 30, 2004 and 2003.





Basic and diluted net earnings per share



Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period.  Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options or warrants.  In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.



12

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004





1.

Description of Business and Significant Accounting Policies (continued)



Comprehensive income (loss)



Comprehensive income consists of net income and other gains and losses affecting shareholders equity that, under generally accepted accounting principles are excluded from net income in accordance with Statement on Financial Accounting Standards No. 130, Reporting Comprehensive Income.  The Company, however, does not have any components of comprehensive income (loss) as defined by SFAS No. 130 and therefore, for the three and nine months ended September 30, 2004 and 2003, comprehensive income (loss) is equivalent to the Companys reported net income (loss).





Stock option plan



Financial Accounting Standards Board Statement No. 123 (Accounting for Stock-Based Compensation) encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair value of options granted.  The Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (Accounting for Stock Issued to Employees) and related interpretations and to provide additional disclosures with respect to the pro forma effects of adoption had the Company recorded compensation expense as provided in FAS-123.



In accordance with APB-25, compensation cost for stock options is recognized as income based on the excess, if any, of the quoted market price of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock.  Generally, the exercise price for stock options granted to employees equals or exceeds the fair market value of the Companys common stock at the date of grant, thereby resulting in no recognition of compensation expense by the Company.  The Company has no outstanding options as of December 31, 2003.



The FASB released Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation.  This Interpretation addresses certain practice issues related to APB Opinion No. 25 in regards to options or warrants granted to employees and other third-parties.  The Companys policies comply with the guidance provided by FIN No.44.



During the three and nine months ended September 30, 2004 and 2003, the Company did not issue any options or warrants to employees or consultants.





Segment reporting



The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information".  The Company determined that it operates in a single business segment that includes the design, development and manufacture of recycling equipment and products for the commercial waste management industry.  Revenue of $455,250 for the period from January 1, 2003 to September 30, 2003, was attributable to foreign sales in Italy.  All sales and related purchase transactions are done in US dollars.  There were no foreign sales during the three and nine month period ended September 30, 2004.



13

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004





1.

Description of Business and Significant Accounting Policies (continued)



Development stage company



The Company adopted SFAS No. 7 Accounting and Reporting by Development Stage Enterprises.  This statement specifies the guidelines for identifying an enterprise in the development stage and the standards of financial accounting and reporting for such an enterprise.  Development stage companies use the same accounting principles as established operating companies.





Business risks and uncertainties



The Company operates in the evolving field of materials recycling processing.  New developments could both significantly and adversely affect existing and emerging technologies in the field.



The Companys success in developing additional marketable products and processes and achieving a competitive position will depend on its ability to retain qualified management personnel and to raise sufficient capital to meet its operating and development needs.



While the Company is seeking financing through equity and loans, there can be no assurance that the Company will be successful in accomplishing its objectives.



Currently, the Company is focused on sales of its recycling equipment in Italy.  The potential for adverse financial impact can result from negative effects of economic conditions within Italy.  Since the Company's business is principally in one area, this concentration of operations results in an associated risk and uncertainty.





Reclassifications



Certain reclassifications have been made to the prior years financial statements to conform to the current year presentation.



2.

Going Concern



The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern.  The Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern.  The Company incurred a net loss of $577,046 and $449,431 during the three and nine months ended September 30, 2004, and, as of that date, had a working capital deficiency of $3,383,748 and net capital deficiency of $3,815,434.  Management is attempting to raise additional equity.  The Company filed a Form SB-2A on June 20, 2003, in an effort to raise up to $5 million in additional financing.  The Company has received an additional $500,000 as of September 30, 2004.  There is no guarantee, however, that this offering or any other efforts will result in the Company raising sufficient capital or any capital or additional financing.



In view of these matters, continuing as a going concern is dependent upon the Company's ability to meet its financing requirements, raise additional capital, and the success of its future operations or completion of a successful business combination.  Management plans to pursue financing arrangements and aggressive sales of equipment to remedy the capital and loss circumstances to provide the opportunity for the Company to continue as a going concern.



14

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004







3.

Property and Equipment



Property and equipment at September 30, 2004 and December 31, 2003 consist of the following:



|                                | September 30,
2004 |          | December 31
, 2003
|------------------------------- | ------------------ | -------- | ------------------
|                                |                    |          |                   
|Manufacturing equipment         | $                  | 242,461  |                   
|Office furniture                |                    | 12,502   |                   
|Computer equipment and software |                    | 34,883   |                   
|Leasehold improvements          |                    | 14,870   |                   
|                                |                    |          |                   
|Total property and equipment    |                    | 304,716  |                   
|Less accumulated depreciation   |                    | (95,250) |                   
|                                |                    |          |                   
|Total                           | $                  | 209,466  |                   



Depreciation expense for the three and nine months ended September 30, 2004 was $13,322 and $39,992, respectively.  Depreciation expense for the three and nine months ended September 30, 2003 was $9,214 and $24,505, respectively.





4.

Accrued Liabilities



Accrued liabilities at September 30, 2004 and December 31, 2003 consist of the following:



|                          | 2004 |         | 2003
|------------------------- | ---- | ------- | ----
|Accrued payroll           | $    | 239,421 |     
|Accrued interest          |      | 72,625  |     
|Accrued professional fees |      | 35,574  |     
|Other                     |      | 1,860   |     
|                          |      |         |     
|Total                     | $    | 349,480 |     





















5.

Common Stock



The Articles of Incorporation of ITec authorize a maximum of 750,000,000 shares of $0.001 par value common stock and 10,000,000 shares of $0.001 par value preferred stock.  Each share of common stock is entitled to one voting right, the right to share in earnings and the right to share in assets upon liquidation.  At September 30, 2004 and December 31, 2003, 238,315,528 and 70,512,008 shares of common stock were issued and outstanding.



The common stock transactions during the nine months ended September 30, 2004 were as follows:



15

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004





5.

Common Stock (continued)



In 2004, the Company issued 2,313,167 shares of Common Stock, valued at $78,494, in lieu of cash to consultants in payment for services performed.



In 2004, the Company issued 250,000 shares of Common Stock, valued at $20,000, in lieu of cash to Directors in payment for services performed.



In 2004, the holder of a 5% Convertible Debenture Note converted $60,000 of the principal note into 3,678,434 shares of the Companys Common Stock.



In 2004, the Company cancelled 4,000,000 shares of Common Stock



In July and August 2004, the Company issued 401,325 shares of Common Stock, valued at $3,612, in lieu of cash to consultants in payment for consulting services performed.



In July and August 2004, the Company issued 56,000,000 shares of Common Stock, valued at $304,000, in lieu of cash to consultants in payment for legal services performed.



In July and August 2004, the Company issued 2,200,000 shares of Common Stock, valued at $14,750, in lieu of cash to Directors in payment for services performed.



In July and August 2004, the holder of a 5% Convertible Debenture Note converted $43,634 of the principal note into 4,738,372 shares of the Companys Common Stock.



In September 2004, the holder of a 5% Convertible Debenture Note converted $11,111 of the principal note into 2,222,222 shares of the Companys Common Stock.





The common stock transactions during the nine months ended September 30, 2003 were as follows:



In 2003, the Company through a private placement with a group of investors issued 6,042,043 shares of its common stock for $172,940.



In 2003, the Company issued 8,039,417 shares of Common Stock, valued at $320,137, in lieu of cash to consultants in payment for consulting services performed.



In 2003, the Company issued 12,550,000 shares of Common Stock, valued at $500,000 to a consultant in payment for consulting services performed, under a consulting services agreement.



In 2003, the Company issued 2,000,000 shares of Common Stock, valued at $72,000, in lieu of cash to officers and employees in payment for services performed.



Common Stock held in Escrow account



In 2004, Company executed a $500,000 note payable agreement with Cornell Capital whereby the Company had agreed to put 50,000,000 shares of the Companys common stock into an escrow account. In May 2004, Company executed a new agreement to put an additional of 50,000,000 shares of its common stock in the escrow.  As of September 30, 2004, the holder of this note payable had converted $279,745 of the principal into Companys common stock.



16

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004







6.

Notes Payable



The Company entered into an agreement with Glenwood Marketing Associates, Inc., (GMA) effective April 25, 2000, whereby GMA agreed to lend $1,100,000 to the Company.  From this $1,100,000 loan, the Company agreed to pay $200,000 of capital formation fees to GMA.  These fees were expensed in the year incurred.  The loan bears interest at 10% per annum payable in monthly interest-only payments for the 36-month term of the loan.



The Company has also conveyed a covenant, so long as GMA acts in accordance with the terms of the agreement, to hold GMA harmless from any and all claims that may accrue and to indemnify and hold GMA harmless from any and all losses, claims, liabilities and expenses, including reasonable costs of investigation, counsel fees and disbursements, which may be imposed upon or incurred by GMA with the conduct of its own business with the Company.



In September 2003, the Company filed a lawsuit against Glenwood Marketing Associates, Inc., for declaratory relief from the note outstanding in the amount of $1,100,000.  This proceeding was filed in California Superior Court for Stanislaus County.  Service was effected on the defendant in September 2003.



In September 2003, Glenwood Marketing Associates, Inc., filed a lawsuit against the Company seeking a Temporary Restraining Order to refrain from entering into a Line of Credit with or transfer of stock to Cornell Capital.  This proceeding was filed in Supreme Court of the State of New York for Nassau County.  In August, this action was moved into the United States District Court for the Eastern District of New York.  The Company is defending its position against this lawsuit.



In July 2003, the Company withdrew its lawsuit for declaratory relief in the amount of $1,100,000 against Glenwood Marketing Associates, Inc. filed in California Superior Court for Stanislaus County.  The Company reached a settlement with Glenwood in October 2004.



In July 2003, the Company borrowed $100,000 through a Note Payable bearing 8% interest annually due and payable in December 2003.  In August 2003, the Company rolled the aforementioned $100,000 Promissory Note due in December, 2003 into a new $600,000 Promissory Note Payable (the Note) bearing 8% interest annually due and payable in January 2004.  Interest is payable at maturity.  The Note Unit consisted of $600,000 principal amount of 8.0% unsecured Note, due January 31, 2004, and a Common Stock Purchase

Warrant to purchase 1,000,000 shares of the Companys common stock, par value $0.001 per share (the Common Stock), at an exercise price of $0.04 per share.  The Warrant expires on July 31, 2005.  Total funds received of $600,000 were allocated $6,000 to the Note Warrant and $594,000 to the Note.



The value allocated to the Note Warrant is being amortized to interest expense over the term of the Note.  The balance at September 30, 2004 is $600,000.



In February 2004, the SB2 registration filed in June 2003 to raise up to $5 million in equity was declared effective.



17

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004







6.

Notes Payable (continued)



On February 24, 2004, ITec (holder or the Company) executed an agreement with Cornell Capital Partners, LP whereby the Company issued $500,000 in notes payable.  This note bears an annual interest rate of 24% beginning ninety (90 days) from the date of the note.  The Company agreed to put in an escrow with the law firm, Butler Gonzalez, LLP, fifty million (50,000,000) shares of the Companys common stock (escrowed shares) and twenty (20) advance notices of not less than $25,000 each. In May 2004, executed another agreement with Cornell Capital whereby Company agreed to put additional fifty million (50,000,000) shares of the Companys common stock in the escrow.  The law firm shall release these advance notices to the holder every seven (7) calendar days commencing March 1, 2004.  In the event that the escrowed shares are insufficient to repay all amounts due under the note, the Company will immediately place in escrow additional shares of common stock sufficient to repay all the outstanding balance of the note.  At the option of the holder, the interest due can be paid either by Companys common stock or cash.  The term of the loan agreement required the Company to pay a $190,000 loan origination fee.  This amount was amortized over the term of the loan.  The balance at September 30, 2004 was zero.





7.

Technology License



Effective June 30, 2000, the Company entered into a five-year patent license agreement with Honeywell International, Inc. (Honeywell), whereby the Company obtained a non-exclusive, nontransferable worldwide license to practice the methods and to make, use, and sell, the products which are covered by the proprietary rights, limited to the field of use of separating and recovering motor oil from high density polyethylene plastic.  Under the terms of the agreement, the Company agreed to pay a $50,000 non-refundable initial license fee and an additional minimum annual royalty commencing upon delivery of the first equipment to an ITec customer, of the greater of $50,000 or 5% of the gross sales of all products and or services sold in the United States and 3% of the products and or services sold in countries other than the United States.  The initial license fee of $50,000 is not creditable toward the minimum annual royalty and was payable in three equal installments.  This license agreement automatically renews for additional one-year periods after the end of the initial five-year term unless written notice is given by either party of its intent to terminate the agreement.  Honeywell may terminate this agreement in the event of a bankruptcy filing or insolvency of the Company, an assignment for the benefit of creditors of the Company, the nationalization of the industry which encompasses any products or services, any suspension of payments under the terms of the agreement by government regulation, the Company's failure to commence manufacture, a substantial change in ownership of the Company (whether resulting from merger, acquisition, consolidation or otherwise), another company or person acquiring control of the Company, or the existence of a state of war between the United States and any country where the Company has a license to manufacture products or provide services. In addition, if either party to the agreement defaults for any reason in any of the obligations under the terms of the agreement, the other party will have the right to terminate the agreement by giving at least 60 days written notice.



There are no rights to sub-license granted under the terms of this agreement.  The Company has agreed to invest in the commercial development of the technology and market for the product by committing resources at minimum in accordance with various requirements as set forth in the commercialization plan provided by the Company for consideration to Honeywell when the Company applied for the license.  The terms of the

agreement require the Company to observe all applicable United States and foreign laws, regulations, rules, and decrees with respect to the transfer of the proprietary rights and related technical data to foreign countries and failure to conform to such laws, regulations, rules and decrees may result in criminal liability.



18

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004







7.

Technology License  (continued)



The $50,000 license fee is recorded as an intangible asset and is being amortized over the initial five year term of the license agreement on a straight-line basis.  Management's policy with respect to long-lived assets, including intangible assets, is to periodically review the carrying amounts, at least annually, to determine if there is any impairment in the carrying value.  As of September 30, 2004, management believes that there is no impairment in the carrying value of any of its long-lived assets.  Accumulated amortization at September 30, 2004 and December 31, 2003 amounted to $42,500 and $35,000 respectively.





8.

Receivable  Related Party



On July 5, 2000, the Company's Board of Directors approved and authorized the Company to make a loan of $250,000 to the Company's President.  The loan, according to the minutes of the Board meeting, is interest only for ten years with the total principal due at the end of ten years.  Interest in the amount of $21,197 has been waived for the year ended December 31, 2003; $18,958 has been waived in the year ended December 31, 2002; and $9,479 in year ended December, 2001 by the board of directors and was recorded as compensation expense in the respective periods.  As of September 30, 2004 and December 31, 2003, a balance of $147,973 was still due on the loan.





9.

Income Taxes



At September 30, 2004, the Company has available approximately $8,300,000 in net operating loss carryforwards available to offset future federal and state income taxes, respectively, which expire through 2021.  Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards.  A change of greater than 50% of the Company ownership could significantly reduce the availability of the tax credits.  This and other components of deferred tax asset accounts are described above.  At September 30, 2004 and December 31, 2003, the Company has provided a valuation allowance to reduce its net deferred tax asset to zero.  The amount of deferred tax asset considered realizable, however, can be revised in the near term based upon future operating conditions during the carryforwards period.





10.

Stock Options and Warrants



The following table summarizes information with respect to stock options outstanding and exercisable at September 30, 2004:



|                         | Options and Warrants Outstanding |                                             | Options and Warrants Exercisable
|------------------------ | -------------------------------- | ------------------------------------------- | --------------------------------
|Range of
Exercise
Prices |                                  | Number
Outstanding
as of
September
30, 2004 |                                 
|                         |                                  |                                             |                                 
|$0.12                    |                                  | 1,200,000                                   |                                 
|$0.18                    |                                  | 2,000,000                                   |                                 
|                         |                                  |                                             |                                 
|                         |                                  |                                             |                                 
|                         |                                  | 3,200,000                                   |                                 



19

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004





10.

Stock Options and Warrants (continued)



The options and warrants expire 4 years from the original date of grant.  In October 2003, warrants convertible into 1,000,000 shares of common stock were granted in conjunction with debt financing.



The Company did not issue any options or warrants to employees or consultants during the nine months ended September 30, 2004 and 2003.





11.

Subsidiary



On April 11, 2001, ITec formed a wholly-owned subsidiary and incorporated it as a Delaware corporation known as ECO2 Environmental Systems.  The only activities to date were the registration of a trademark for ECO2 and the sale of a recycling machine to an Italian company operating in Italy.





12.

Agreements



The Company has entered into an agreement with Cesmet Laboratories SRL, (Cesmet) an Italian company for a cooperative effort and the oversight of ITec's Italian operations.  The fees for this agreement are on a time and expense basis billed monthly.  A director of the Company is a 50% owner of Cesmet.  The Company paid fees of $6,411 to Cesmet in nine months ending September 30, 2003.  Effective July 1, 2003, the Company terminated its agreement with Cesmet.



The Company has no employment agreements with its officers.





13.

Subsequent Events



The following is a summary of significant common stock transactions:





Conversion of Debt into Common Stock



In October 2004, the Company converted $600,000 of notes payable plus related interest into 76,086,000 shares of its Common Stock.  The Company also canceled warrants convertible into 3,200,000 shares of Common Stock issued to the note holder.



In October 2004, the Company converted $296,222 of accounts payable into 37,258,633 shares of its Common Stock.



In October 2004, the Company converted $422,296 of debt into 43,151,258 shares of its Common Stock.





Common Stock Issued for Services



In October 2004, the Company issued 87,750,000 shares of its Common stock for services valued at $87,750 to consultants in payment for consulting services performed.  The Company used consultants to provide legal services, financial and accounting services and investment relations.



20

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ITec Environmental Group, Inc.

A DEVELOPMENT STAGE COMPANY

Notes to Consolidated Financial Statements

September 30, 2004





13.

Subsequent Events (continued)



Settlement of Litigation



In October 2004, the Company reached a settlement with Glenwood Marketing Associates, Inc., in regards to a note outstanding in the amount of $1,100,000 and $126,242 in accrued interest.  The Company issued 90 million shares of its common stock for a full and complete settlement of all outstanding amounts.





Advances Made by Officer



In October 2004, the Company received advances totaling $15,000 from the Companys CEO and Chairman.  These short-term advances are unsecured, bear interest at 10%, and are payable on demand.





Reverse Stock Split Subsequent to the Balance Sheet Date



In November 2004, Companys board of directors authorized a 1-for-165 split of its Common Stock.  The Company has filed a 14C Information Statement with the Securities and Exchange Commission regarding the proposed reverse stock split.  The Company has obtained written authorization from a majority of its shareholders regarding the reverse stock split.



21



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ITEM 2.     Management's Discussion and Analysis or Plan of Operation



We use patented technology and proprietary equipment to design and sell worldwide oil and agricultural chemical container recycling equipment and related systems. Itec's initial marketing of the technology is concentrated in California and Italy.



We license environmental technology using a carbon dioxide cleaning process from Honeywell International, Inc. This new environmental technology, the System, is believed by management to be the only pollution reduction and recycling system on the market today that allows for the 100% recycling of plastic motor oil containers and the residual oil left inside each container. By using the carbon dioxide cleaning process, the Company can focus on environmental protection and environmental safety by creating no chemical waste disposal in the oil recycling and plastic recycling process.



We had revenue of $0 & $1,750 for the three and nine months ended September 30, 2004 compared with $0 & $455,250 for the three & nine months period ended September 30, 2003. All the revenues for 2003 consist of sales made to an Italian customer.



Management has been pursuing a matching funds loan from the California Integrated Waste Management Board in the amount $2,000,000 for the purchase of equipment to allow the expansion of the plastic recycling operations. To that end, the management entered into a lease on a new facility in Riverbank, California and began moving its Oakdale plant to the new Riverbank plant. As a result, the Companys income producing operations have ceased for the short term. It is anticipated that the award of this loan from the State of California together with the potentially committed matching funds from Cornell Capital will result in the complete funding of the expanded and more efficient operations at the new Riverbank plant.  We are pursuing other parties to obtain the necessary finances.



There were no cost of goods sold for the three and nine months ended September 30, 2004 as compared with $0 and $201,200 for the same periods in 2003. No cost of goods sold is a direct result of the no sales in 2004. The components that make up the cost of goods sold include the auxiliary parts, labor and purchased equipment. These sales were for granulated oil bottles and territory fees respectively and have no cost of goods components.



Operating expenses for the three and nine months period ended September 30, 2004 were $564,270 & $1,267,716, which represents an increase of $287,199 & $411,097 from the same period in 2003. The increase of $411,097is mainly attributable to an increase of $681,033 in consulting fees which was offset by decreases of $19,732 in plant expenses, $81,155 in payroll expense and $243,168 in general and administrative expense as compared with the nine-month period ended September 30, 2003.  In 2004, the Company incurred consulting fees in association with debt placement, strategic planning and developing a plan to raise additional debt capital.



Depreciation and amortization expense increased 34% & 48% to $16,205 & $48,641 for the three and nine months ended September 30, 2004 compared to $12,907 & $32,772 for the same period in 2003. The increase is due to purchases of new plant and office equipment in the remainder of 2003 and to property and equipment being placed in service during 2003 which was purchased in earlier years.



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The Company recorded net interest expense of $40,108 & $242,348 for the three and nine months ended September 30, 2004 for an increase of $31,208 and $189,396 respectively for the comparable periods in 2003.  The increase is attributed mainly to the amortization of loan origination fees of $164,214 associated with the new loan acquired in 2004 and accrual of 8% interest of $24,000 on MTI loan acquired in second half of 2003 offset by decrease in Glenwood Marketing interest accrual and interest stock discount element in issuances of stock for services received. For the three- and nine-month periods ending September 30, 2004 there were no accruals of interest expense associated with Glenwood Marketing Associates, Inc. disputed note payable in the amount of $1,100,000.  Our position is that we are no longer obligated under the terms of this note, and this matter is currently being litigated.



Our net losses increased 102% & 121% for the three and nine months ended September 30, 2004 to $577,046 & $1,449,341 compared with $285,971 & $655,521 for the three and nine months ended September 30, 2003.  The increase is due to increases in consulting, legal and professional fees and interest expense and a decrease in revenues.



At September 30, 2004 we have available approximately $7,823,801 and $1,449,431 in net operating loss carry-forwards from prior years and current year to date respectively available to offset future federal and state income taxes, respectively, which expire through 2021. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carry-forwards. A change of greater than 50% of the Company ownership could significantly reduce the availability of the tax credits. At December 31, 2003 we have provided a valuation allowance to reduce its net deferred tax asset to zero. The amount of deferred tax asset considered realizable, however, can be revised in the near term based upon future operating conditions during the carry-forwards period.



Liquidity and Capital Resources



Historically, our working capital needs have been satisfied primarily through private placement of our securities and other debt instruments, such as short and long-term notes with certain investors. We reasonably expect to continue to do so in the future, but cannot guarantee that such financing activities will be sufficient to fund our current and future projects and our ability to meet our cash and working capital needs.



At September 30, 2004, we had a working capital deficit of $3,383,748 compared to a working capital deficit of $2,624,051 at December 31, 2003, a net increase of $759,697 in working capital deficit. The 29% decrease in our working capital deficit is primarily attributed to increase of $378,955 notes payable, $218,153 in accounts payable and accrued liabilities offset by $28,352 increase in accounts receivable.



Company has acquired a new loan of $690,000 from Cornell Capital Partners, LP comprising of $500,000 cash and $190,000 as compensation debenture issued for loan origination fees. The agreement executed on February 24, & May 3, 2004, provides for putting 100 million shares of our Common Stock in escrow with the law firm of Butler Gonzales LLP. The outstanding balance as of September 30, 2004 consists of $405,000 of promissory.



As of September 30, 2004, we had total assets of $901,561 and a total shareholder's holder's deficit of $3,815,434 compared with total assets of $775,116 and total stockholder's deficit of $3,123,604 at December 31, 2003. Total assets increased due to the increase in cash, receivables, deposits and prepaid expenses. Total shareholders' deficit increased by 22% for the period ended September 30, 2004 due to the Company's additions of $1,449,431 net loss to accumulated deficit offset by $589,797 increase in paid in capital in 2004 as a result of issuing common stock for services and debt conversion.



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For the nine months ended September 30, 2004, cash used by operating activities decreased to $481,827 from cash used by operating activities of $658,407 for the comparable period ended September 30, 2003. This decrease of $176,580 is attributed mainly to the issuance of shares for services and the reduction of operating expenses during the search for investment capital in 2004 which is reflected by an increase in net loss for the nine months period ended $793,4104, plus the following : 1) increase in non cash operating expenses and revenue $20,675, amortization of loan fees of $190,000, increase in shares issued for services and compensation $179,621, with an increase in accounts payable and accrued liabilities of $816,315 offset by an increase in accounts receivable, prepaid expenses and other assets of $197,877.



For the nine months ended September 30, 2004, we realized $527,700 in aggregate proceeds from notes payables. For the comparable period in 2003, we had an increase in notes payable of $231,233, and realized proceeds from the sale of common stock in the amount of $571,077.



Off-Balance Sheet Arrangements



We do not have any off balance sheet arrangements that have or are likely to have a material current or future effect on the Company's financial condition, or changes in financial condition, liquidity or capital resources or expenditures.



We have experienced cash flow shortages due to operating losses primarily attributable to development, marketing, administrative and other costs associated with our business. Cash flows from operations have not been sufficient to meet our obligations. Therefore, we have had to raise funds through several financing sources and transactions. At least until we reach breakeven volume in sales and/or acquire the capability to manufacture and sell our products profitably, or acquire other lines of business that will enable us to breakeven, we will continue to rely on cash from external financing sources. While we anticipate being able to utilize our current financing arrangements with Cornell Capital during the next 12 months as described in our prior SEC filings, there can be no assurance that these funds will be available or available in a timely manner.



Over the next 12 months, we intend to continue marketing our ECO2TM Environmental System on a world wide basis and open a plastic recycling plant in Stanislaus County, California.



In 2000 and 2001 we received funds from Italian investors who are also business owners or partners in companies that have signed purchase orders for equipment being sold by Itec. During 2003, $368,768 of the notes payable have been reclassified from debt to deferred revenue. An additional $200,917 may be reclassified from deferred revenue to revenue in 2004. The balance of $245,546 may be reclassified to revenue during 2005. However, no assurances can be given in this regard, to future activity.



The note holders are also customers of Itec to purchase ECO2 systems who have signed purchase orders. Knowing that the research and development schedule could last many months or years, Itec suggested that they instead receive a note receivable from Itec at a rate of 5% per annum until Itec was prepared to deliver their order for an ECO2 system. So instead of simply placing their deposits for systems in a deferred revenue account, Itec is showing this as a note payable. During 2003, Itec started its deliveries; these various notes are being converted to deferred revenue as the customers system moves through the assembly process. Then upon deliver and acceptance of the ECO2 system in Italy, Itec will then recognize the revenue from the sale.



Concurrently in the United States, we plan to both sell the ECO2 Environmental System and in California operate a full scale recycling plant. We have signed a two-year lease on a 6,900 sq ft building and have purchased or leased all equipment necessary for the plastic recycling test plant in California. The recycling pilot plant opened for operations in June 2003 and is located in Oakdale, CA. with two full time employees being hired for this operation.



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We currently have contacts in place for all needed raw product.



We continue to market 3 different sizes of Granulators to Cities, Counties and private businesses throughout California.



In March 2004 Itec completed a lease for a larger building to install a full production recycling operation in Stanislaus County, California. It is a five-year lease with a five-year option. It has a sliding scale rent structure starting at $4,000 per month in month 5 and reaching $18,370 in month 10, with CPI increases on an annual basis. This lease is for a 50,000 sq ft steel frame building in a heavy industrial complex, and it includes approximately 3,500 sq ft of office space. All infrastructure including rail sidings are in place. Installation of equipment will take three months with the first testing of systems in June 2004. After completing the testing of the system, the start-up operational phase with take an additional two months. Employment would ramp up with the new recycling plant starting with four new employees, then adding an additional 18 employees. Itec will utilize both buildings, continuing to use the current location in Oakdale as our corporate offices and as a testing and research facility.



In addition to general administrative expenses, payroll and benefits, and legal and audit expenses, our cash needs for the next twelve months to implement portions of our business plan will require at least the following: Sales and marketing - approximately no less than $445,000 to fund both the European office and our US activities, brochures and trade show meetings, advertising and promotions. Research and development - approximately no less than $380,000 comprised of continuing research and testing in the use of bio-solvents and their effect on the cleaning process, testing of all samples of plastic for residue after the CO2 process, developing additional suppliers and manufactures of the ECO2 system and related equipment. Capital projects - approximately no less than $700,000 to start up the full scale recycling/processing plant in California.



Strategic Alliance Agreements



Itec continues to engage in discussions for the purpose of entering into manufacturing, technology and sales alliances.  Such discussions are ongoing.



While the Company has not signed any definitive agreements, the Company is also actively seeking acquisitions or business opportunities to, among other things, increase revenues and improve stockholder value, which businesses or lines of business may or may not relate to the current core business of the Company.



Significant Accounting Policies and Estimates



Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to reserves and intangible assets. Management bases its estimates and judgments on historical experiences and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of the Company's financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts recovery of intangible assets. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in our Annual Report on Form l0-KSB for the fiscal year ended December 31, 2003.



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Equity



Itec filed in June 2003 a SB-2 registration statement with the Securities and Exchange Commission seeking approval to issue up to 260,250,000 shares of its common stock for $5,000,000 of equity with Cornell Capital Partners, LP.  On February 12, 2004 Itec received notice ordering declared effective that registration statement.



In addition, during November 2004, as part of the ongoing restructuring of the company debt and in furtherance of the Companys plans for recapitalization, the company converted the MTI note payable to equity, issuing 76,086,000 shares of its common stock and canceled 3,200,000 warrants, converted $296,222 of accounts payable to 37,258,633 shares of its common stock and converted $422,296 of debt to shares of its common stock. The company also issued 87,750,000 shares of common stock for services associated with the financial restructuring of the company.



In November 2004 the Companys Board of Directors authorized a of 165 to 1 reverse split filing a Form 14C Proxy statement with the Securities and Exchange Commission regarding the reverse split. The company obtained written authorization from a majority of its shareholders.



Forward-Looking Statements



In addition to historical information, this Quarterly Report on Form 10-QSB contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Operations--Risk Factors. When used in this report, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this Quarterly Report. We undertake no obligation to publicly release any revisions to the forward-looking statements after the date of this document. You should carefully review the risk factors described in other documents we file from time to time with the Securities and Exchange Commission, including the Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003 and the other Quarterly Reports on Form 10-QSB filed by us in our fiscal year 2004, which runs from January 1, 2004 to December 31, 2004.



RISK FACTORS



The following risk factors should be considered carefully in addition to the other information presented in this report. This report contains forward looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward looking statements. Factors that might cause such differences include, but are not limited to, the following:



IF WE CANNOT OBTAIN ADDITIONAL FUNDS WHEN NEEDED, OR ACHIEVE PROFITABILITY WE MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN.



Our independent auditors have included an explanatory paragraph in their 2003 audit report referring to our recurring operating losses and a substantial doubt about our ability to continue as a going concern. We have sufficient cash for the next twelve months ended March 31, 2005. However, there can be no assurance that we will be able to raise additional funds or achieve planned sales volumes. If we do not secure additional funding, we will be unable to conduct all of our product development efforts as planned, and we may need to cease operations or sell assets. In addition, the existence of the explanatory paragraph in the audit report may in and of itself cause our stock price to decline as certain investors may be restricted or precluded from investing in companies that have received this notice in an audit report.



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Our management has implemented plans designed to reduce our cash requirements through reductions in operating expenditures and reductions in development activities should collaborative partners or additional funding not be secured. However, there can be no assurance that we will be able to successfully implement these plans or that we will be able to do so without significantly harming our business, financial condition or results of operations.



WE DO NOT HAVE A LONG OPERATING HISTORY, WHICH MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS.



Because limited historical information is available on our revenue trends and operations, it will be difficult for you to evaluate our business. Our prospects must be considered in light of the substantial risks, expenses, uncertainties and difficulties encountered by any emerging technology.



WE HAVE A HISTORY OF LOSSES.



We have never been profitable, and we have had operating losses since our inception. To date, we have engaged primarily in research and development efforts. The further development and commercialization of our products will require substantial development, regulatory, sales and marketing, manufacturing and other expenditures. We have only generated limited revenues from product sales. Our accumulated deficit was about $9.2 million at September 30, 2004.



IF WE CANNOT OBTAIN ADDITIONAL FUNDS WHEN NEEDED, WE WILL NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN.



We will require substantial additional capital to develop our products, beginning and scaling up manufacturing, and marketing our products. We have historically funded a significant portion of our activities through stock issuance. We are seeking additional equity investment through various sources. If we are not able to secure additional equity investment or lines of credit it may seriously limit our ability to execute our business plan.



Cautionary Statement:



This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements regarding intent, belief or current expectations of the Company and its management. These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in these statements. Factors that might cause such differences include, but are not limited to, those described under the heading, "Critical Accounting Policies and Estimates" herein, or and other factors described in the Company's future filings with the SEC. The above referenced sections do not apply to our company.



ITEM 3. Controls and Procedures



An evaluation was carried out by the Company's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's internal controls as well as the Companys disclosure controls and procedures as of September 30, 2004 (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.



During the period covered by this report, there have been no changes in the Company's internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.



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PART II  - OTHER INFORMATION



Item 1.

Legal Proceedings



On June 30, 2003, an action was commenced in New York State Supreme Court in Nassau County entitled Glenwood Marketing Association, Inc. v. Itec Environmental Group, Inc, Gary DeLaurentiis and Lisa Fitzpatrick.  The complaint asserts that Itec Environmental Group, Inc., a Delaware corporation (the Company, Itec, or the Registrant) allegedly defaulted on payments due to Glenwood Marketing under a $1,100,000 loan, entitling Glenwood to recover $1,235,408.50 for breach of contract.  The complaint further alleges that a subsequent letter agreement modified the loan agreement, entitling Glenwood to convert the amount allegedly due into 70,193,636.36 shares of Itec stock, and demands delivery of the shares.  The complaint also alleges that Itec permitted DeLaurentiis and Fitzpatrick to divert and convert funds loaned by Glenwood for their own use and demands an accounting and judgment for monies allegedly due Glenwood as well as $1,500,000 in damages for unjust enrichment.  In addition, the complaint requests preliminary injunctive relief preventing transfer, encumbrance, pledge or sale of any Itec assets, appointment of a receiver to take possession of Itec's accounts and receivables and demands punitive damages of $5,000,000 (the Litigation).



A temporary restraining order was issued against Itec by the Nassau County Supreme Court on July 14, 2003 (the Temporary Restraining Order). On July 30, 2003, Itec removed the case to the United States District Court for the Eastern District of New York, where it was assigned Case number 03 Civ. 3709 (LDW) (ETB). On April, 5, 2004, the United States District Court for the Eastern District of New York, among other things, ruled that the Temporary Restraining Order had expired no later than August 9, 2004. The Court also set a schedule for completion of discovery and other pre-trial proceedings. On April 8, 2004, Itec filed an amended answer denying the central allegations of the plaintiffs complaint and asserting numerous affirmative defenses, including, among other things, that the alleged agreement or agreements involved are unenforceable, criminally usurious, unconscionable, fraudulent and were breached by Glenwood.



On or around October 30, 2004, the parties to the Litigation agreed to the full settlement of any and all disputes pursuant to a full Settlement and Release Agreement.  In connection therewith, the parties executed a Stipulated Order of Dismissal with Prejudice (the Order).  The Order was submitted to the United Stated District Court for the Eastern District of New York for signing by the United States District Judge presiding over the Litigation.  The Company believes the Order will be signed by the Judge thereby dismissing the Litigation.



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds



Pursuant to the safe harbor private offering exemption provided by Rule 506 of Regulation D under Section 4(2) and of the Securities Act of 1933 (the Exemption), on October 22, 2004, in exchange for six (6) creditors of the Company (the Creditors) terminating approximately $939,402 in debts of Itec and releasing the Company from any and all liability in connection therewith, the Company sold 97,886,107 shares of the Company's common stock to the Creditors pursuant to Settlement and Release and Subscription Agreements (the Settlement Documents).  Pursuant to the Settlement Documents, the Company gave the Creditors piggyback registration rights in the event it files a registration statement.



For purposes of the Exemption, the Company relied upon (i) certain representations and warranties of the Creditors made pursuant to the Settlement Documents and certain Investor Questionnaires relative to their review of certain information provided and disclosed to them by and about the Company and their accredited or unaccredited status (as those terms are used in the Securities Act of 1933) and (ii) its own independent investigation to confirm the Creditors representations and warranties.



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Pursuant to the Exemption, on or around October 30, 2004, in exchange for Glenwood Associates, Ltd., a New York corporation, a/k/a Glenwood Association, Inc., Glenwood Associates, Inc. ("Glenwood Associates") and Glenwood Marketing Association, Inc. ("Glenwood Marketing") (Glenwood Associates and Glenwood Marketing Association, Inc., collectively "Glenwood") terminating approximately $1,100,000 of disputed debt of Itec Environmental Group, Inc. (the "Company") and releasing the Company from any and all liability in connection therewith (including the dismissal of the Litigation), the Company issued 90,000,000 shares of the Company's common stock to certain designees of Glenwood pursuant to a Settlement and Release Agreement and certain Subscription Agreements (the "Glenwood Settlement Documents").  Pursuant to the Glenwood Settlement Documents, the Company gave the designees of Glenwood piggyback registration rights in the event it files a registration statement.



For purposes of the Exemption, the Company relied upon (i) certain representations and warranties of Glenwood and its

designees made pursuant to the Settlement Documents and certain Investor Questionnaires and (ii) its own independent

investigation to confirm said representations and warranties.



Pursuant to Regulation S of the Securities Act of 1933 (the "Reg. S Exemption"), on or around October 30, 2004, in exchange for certain Italian creditors of the Company terminating approximately $445,000 of disputed debt of the Company and releasing the Company from any and all liability in connection with any and all agreements between the parties and the disputed debt, the Company issued 44,502,299 shares of the Company's common stock to certain of the Italian creditors pursuant to a Settlement and Release Agreement and certain Subscription Agreements (the "Italian Settlement Documents").  Pursuant to the Italian Settlement Documents, the Company gave the Italian creditors piggyback registration rights in the event it files a registration statement.



For purposes of the Reg. S Exemption, the Company relied upon (i) certain representations and warranties of the Italian creditors made pursuant to the Settlement Documents and certain Investor Questionnaires and (ii) its own independent investigation to confirm said representations and warranties.



Item 3.

Defaults Upon Senior Securities



None



Item 4.

Submission of matters to a Vote of Securities Holders



On November 3, 2004, the stockholders of the Company holding a majority of the outstanding shares of common stock approved an amendment to the Company's Certificate of Incorporation, as amended, to reverse split the Company's issued and outstanding common stock at a ratio of 1-165 (the "Reverse-Split").



The Reverse-Split will be effected by filing an amendment to the Company's Certificate of Incorporation. Subsequent to the Reverse-Split, the number of issued and outstanding shares of the Company's common stock will be reduced in accordance with the ratio, and the total number of authorized shares of the Company's common stock will not be correspondingly reduced. The Reverse-Split will become effective upon the filing of the amendment with the Delaware Secretary of State. The Company's Board of Directors may, at its sole discretion, elect not to implement the Reverse-Split.



Upon filing the amendment to reverse-split the outstanding shares of common stock, the Company's Certificate of Incorporation will be amended by adding the following Section 5 to Article 4:



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"Section 5.  Reverse-Split.  Effective upon filing by the Secretary of State of the State of Delaware of this Amendment to the Certificate of Incorporation (the "Effective Time"), and without decreasing the authorized capital stock of the Corporation, each one hundred sixty five (165) shares of common stock of the Corporation, par value $.001 per share, issued and outstanding or reserved for issuance or held in treasury (the "Old Common Stock"), shall automatically, and without any action by the holder thereof, be reclassified into one (1) share of common stock of the Corporation, par value $.001 per share (the "New Common Stock")."



Pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as amended, the proposals will not be adopted until a date at least 20 days after the date on which the Company Definitive 14C Information Statement has been mailed to the stockholders.



Item 5.

Other Information



None



Item 6.

Exhibits



See Exhibit Index



SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.





ITEC ENVIRONMENTAL GROUP, INC.







November 15, 2004

/s/ Gary De Laurentiis

Gary De Laurentiis

President & Chief Executive Officer

(Principal Executive Officer)







November 15, 2004

/s/ Frederick W. Smith

Frederick W. Smith, Jr.

Acting Chief Financial Officer

(Principal Financial Officer)







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EXHIBIT INDEX



Exhibit No.

Exhibit Description

Location



3.1(i)

Restated Certificate of Incorporation

Incorporated by Reference to

the DEF-14A filed

on September 9, 2002.



3.2(i)

Certificate of Incorporation

Incorporated by reference to

Registrant's Form S 18

Registration Statement, File

No. 33-31067



3.3(ii)

Bylaws

Attached



4.1

Form of Settlement and Release

Attached

Agreement





4.2

Form of Proxy to Vote

Attached



4.3

Form of Voting Agreement

Attached



4.4

Form of Common Stock Subscription

Attached

Agreement



10.1

Commitment Letter from the California

Attached

Integrated Waste Management Board



31.1

Certification of Chief Executive Officer

Attached

pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002.



31.2

Certification of Chief Financial Officer

Attached

pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002.



32.1

Certification of Chief Executive Officer

Attached

pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002.



32.2

Certification of Chief Financial Officer

Attached

pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002.





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