**UNITED
STATES SECURITES AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 **Form
10-KSB**
 
 [X]
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
 SECURITIES
EXCHANGE ACT OF 1934 ****
 For
Fiscal Year Ended
 December
31, 2004
 
 Commission
File # 000-27867
 
 **ITEC
ENVIRONMENTAL GROUP, INC.**
 (Exact
name of registrant as specified in its charter)
 
 Delaware
 (State or
other jurisdiction of incorporation or organization)
 
 31-1705310
 (IRS
Employer Identification Number)
 
 5300
Claus Rd.
 Riverbank,
Ca. 95367
 (Address
of principal executive offices)(Zip Code)
 
 209-881-3523
 (Registrant's
telephone no., including area code)
 
 (Former
name, former address and former fiscal year, if changed since last report)
 
 Securities
registered pursuant to Section 12(b) of the Act: None
 Securities
registered pursuant to Section 12(g) of the Act: **** Common
Stock, $0.001 Par Value
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X]
No o
  Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB/A or any
amendment to this Form 10-KSB/A. o
 
 Revenues
for year ended December 31, 2004$1,750
 
 Aggregate
market value of the voting common stock held by non-affiliates of the registrant
as of April 14, 2005 was $1,348,177.
 
 Number of
shares of the registrant's common stock outstanding as of April 14, 2005 was
19,507,890.
 
 
 
 
 
 **PART
I**
 
 **ITEM
1. DESCRIPTION OF BUSINESS**
 
 Founded
in 1999, Itec Environmental Group, Inc., a Delaware corporation (“Itec” or the
“Company”) merged with Beechport Capital in 2000, after which Itec continued as
the surviving, public entity. Following the merger, Itec licensed the System
from Honeywell, which initially was intended merely to be used to recycle used
oil containers and recapture the residual oil for recycling. Itec’s initial plan
was to commercialize the Honeywell invention and develop the equipment necessary
to utilize the System and sell equipment. However, once the System was developed
and business models were completed, Itec realized that the largest profit ratios
would be obtained through building and operating Itec plants and producing and
selling the PET flake/pellets and post-consumer HDPE natural
flake/pellets.
 
 Itec
worked in collaboration with Honeywell and several engineering companies with
expertise in the fields of C0 2 and
solvents to develop the System. During the process of engineering, designing and
building the equipment, Itec developed and improved System to recycle not only
oil containers but also plastic of all types, including plastic with harmful
contaminates. As a result of this development of the System technology, Itec was
able to approach Honeywell and suggest collaboration on the filing of a new
patent that expands the scope of the System to include the improved method to
recycle most types of plastic without the use of water. This System has
demonstrated its ability to remove all contaminants, dirt, labels and odors from
each type of recyclable plastics that was tested. The System’s process produces
the highest value clean, marketable plastic flakes, which are used as raw
materials to create new plastic products.
 
 Itec has
developed a unique and revolutionary patent pending process, the Eco 2 TM Environmental
System (the “System”) that cleans post-consumer plastics without the use of
water, at a cost savings of 30% to 40%. The System is licensed from Honeywell
FM&T and the Department of Energy exclusively to Itec for the life of the
patent. Further, over the past five years, $8,500,000 has been invested in the
development of the technology and equipment comprising the System, including
building several scaled up versions of prototype plants, testing the prototypes,
building a pilot plant, evaluating the product produced by the prototype systems
and real-time testing over the past three years. Itec’s goal is to build and
operate Plastic Recycling plants throughout the USA in which the System can be
used and, secondly, to sell the Systems worldwide to third parties.
 
 In August
2004 the State of California Integrated Waste Management Board (CIWMB), through
the Recycle Market Development Zone Loan (RMDZ) Program, approved a $2,000,000
“matching funds loan” to be used to build a plant in California. To qualify for
the loan the Company leased a 58,000 square foot building in Riverbank CA with a
five (5) year lease that includes a five (5) year additional extension. The
Company is seeking to raise $11,500,000 to expand its operations through the
creation of two new facilities in California. The plants will be used by Itec to
implement the System. Assuming Itec is able to raise the working capital needed
for production of the plants, Itec expects the first Itec plant to be
strategically located in Riverbank, where the Company has leased a 58,000 square
foot building between the San Francisco Bay Area and the greater Sacramento
Metropolitan Area. Strategically locating one of our plants in between the Bay
Area and the Sacramento Metropolitan Area will allow Itec to provide convenient
access for clients, potentially serving over 10,000,000 residential
customers.
 
 Itec’s
initial plans for its second plant are to locate the facility in the Greater Los
Angeles Basin, home to over 18,500,000 people. Itec’s research indicates the
Greater Los Angeles Basin generates an enormous amount of plastic containers. In
fact, a strong case can be made for locating a third Itec facility in San Diego
County, which has both a significant population and continuing
growth.
 
 The
Company has secured a supply of raw material from the major collector of the
post consumer used beverage containers in California as well as from several
independent sources. The Plastic Recycling Corp. of California (PRCC) has
committed to make available to Itec up to 100 Million pounds of material per
year. Itec’s first plant will be capable of producing up to 44 million pounds
per year (See the PRCC letter in the Appendix).
 
 Indeed,
once Itec obtains the working capital necessary to build its first plant, it
will be well positioned to produce and sell a large quantity of its PET and HDPE
flake. Itec recently entered into a three-year “Agency Agreement” with H.
Muehlstein & Co., Inc., pursuant to which H. Muehlstein will act as Itec’s
exclusive agent for the purchase and sale annually of up to 60 million pounds of
Itec’s PET flake and post-consumer HDPE natural flake and pellets in the United
States and Canada (See the H. Muehlstein & Co., Inc. Agreement in the
Appendix).
   2
 
 Gary De
Laurentiis, President & CEO of Itec, has worked with H. Muehlstein & Co.
for over 12 years. H. Muehlstein brings tremendous value to their clients and
has an excellent reputation within the industry. H. Muehlstein & Co. will
act as Itec’s sales force, representing Itec’s products within the US and
Canada.
 
 **ITEM
2. DESCRIPTION OF PROPERTY**
 
 The
Company does not own any real property. Itec has entered into a five-year use
agreement with a five-year option on a 51,394 sq. ft. steel frame building in
the heavy industrial complex building in Riverbank, California. The agreement
includes 3,500 sq. ft. of office space.
 
 **ITEM
3. LEGAL PROCEEDINGS**
 
 The
Company is not currently involved in any legal proceedings.
 
 **ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 On
November 3, 2004 via a written consent in lieu of a special meeting of the
shareholders, a majority of the shareholders of the common stock of the Company
voted to amend the Articles of Incorporation, as amended, of the Company to
reverse-split the Company’s issued and outstanding common stock at a ratio of
1-for-165. 396,436,171 shares of common stock were voted in favor of the
amendment. No votes were cast against the amendment.
 
 **PART
II**
 
 **ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS** ****
 
 As of
April 14, 2005, Itec Environmental Group had 19,507,890 shares of common stock
issued and outstanding and had approximately 867 stockholders of
record.
 
 Itec’s
common stock is not traded on a registered securities exchange, or the NASDAQ.
Itec’s common stock is quoted on the National Association of Securities Dealers
OTC Bulletin Board. The following table sets forth the range of high and low bid
quotations for each fiscal quarter for the past two (2) years. These quotations
reflect inter-dealer prices without retail mark-up, mark-down, or commissions,
and a 1-for-165 reverse-split on December 20, 2004, and may not necessarily
represent actual transactions.
 
 FISCAL
      QUARTER ENDING
    
    HIGH
      BID
    
    LOW
      BIDDecember
      31, 2004
    
    $
    .43
    
    $
    .0014September
      30, 2004
    
    $
    .017
    
    $
    .0015June
      30, 2004
    
    $
    .12
    
    $
    .008March
      31, 2004
    
    $
    .07
    
    $
    .02December
      31, 2003
    
    $
    .04
    
    $
    .02September
      30, 2003
    
    $
    .05
    
    $
    .01June
      30, 2003
    
    $
    .05
    
    $
    .01March
      31, 2003
    
    $
    .35
    
    $
    .03
 
 April 13,
2005, the closing price was $.07 per share.
 
 We have
never declared or paid cash dividends to our stockholders. We currently intend
to retain all available funds and any future earnings for use in the operation
of our business and we do not anticipate declaring or paying cash dividends for
the foreseeable future.
   3
 
 
 **Equity
Compensation Plan Information**
 
 Plan
      Category
    
    Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights (a)
    
    Weighted-average
      exercise price of outstanding options, warrants and rights
    (b)
    
    Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))Equity
      compensation plans approved by security holdersEquity
      compensation plans not approved by security holders
    
    
    2,457,370(1
      
      15,000,000(2
    )
      
      )
    $
    .06
      
      Price
      as listed on the OTCBB
      at
      the time of issuance.
    
    
    N/A
      
      5,150,000Total
    
    
    17,457,370
    
    
    --
    
    
    5,150,000
 
 (1) Consists
of a Warrant issued by the Company to Gary De Laurentiis, its Chairman &
CEO pursuant
to which Mr. De Laurentiis may purchase up to 2,457,370 shares of common stock
of the Company, exercise price of $.06 per share.
 
 (2) 2005
Stock Plan of the Company adopted by the Board of Directors on January 28, 2005.
The 2005 Stock Plan (the “Plan”) was adopted by the Board of Directors as a
method to compensate company employees, directors and non-employee independent
contractors that provide services to the Company. The Plan is administered by
the two non-employee directors of the Company based upon recommendations for
issuances by the Company’s CEO.
 
 **Recent
Sales of Unregistered Securities**
 
 During
the period covered by this 10-KSB, the Company sold the following securities
which were not registered under the Securities Act of 1933 (the
“Act”):
 
 In March
2005, 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") in exchange for services provided by Mr. De Laurentiis to the
Company, the Company issued a Warrant to Gary De
Laurentiis, its Chairman & CEO, pursuant
to which Mr. De Laurentiis may purchase up to 2,457,370 shares of common stock
of the Company, exercise price of $.06 per share (the “Warrant”). The Warrant is
exerciseable for a period of five (5) years and may be exercised for cash or via
a cashless exercise. The shares underlying the Warrant have piggy-back
registration rights.
  In March
2005, pursuant to the Exemption, the Company issued 100,000 shares of its common
stock to Apex Charting, Inc.
 
 For
purposes of the Exemptions above, the Company relied upon representations and
warranties of the recipient of the securities and its own
investigations.
 
 In
February 2005, pursuant to Regulation S of the Securities Act of 1933 (the "Reg.
S Exemption"), in exchange for certain Italian creditors of the Company
terminating approximately $23,207 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, the Company issued 14,608 shares of the Company's common
stock to certain of the Italian creditors pursuant to Settlement and Release
Agreements and certain Subscription Agreements. These shares have piggy-back
registration rights.
 
 For
purposes of the Reg. S Exemption, the Company relied upon (i) certain
representations and warranties of the Italian creditors made pursuant to the
Subscription Agreements and certain Investor Questionnaires and (ii) its own
independent investigation to confirm said representations and
warranties.
 
 In
December 2004, pursuant to the Reg. S Exemption, in exchange for certain Italian
creditors of the Company terminating approximately $73,183 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, the Company issued 40,698
shares of the Company's common stock to certain of the Italian creditors
pursuant to Settlement and Release Agreements and certain Subscription
Agreements. These shares have piggy-back registration rights.
   4
 
 For
purposes of the Reg. S Exemption, the Company relied upon (i) certain
representations and warranties of the Italian creditors made pursuant to the
Subscription Agreements and certain Investor Questionnaires and (ii) its own
independent investigation to confirm said representations and
warranties.
 
 In
November 2004, pursuant to the Exemption, 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 and releasing the Company from any and all liability in
connection therewith (including the dismissal of certain 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. These shares have piggy-back registration
rights.
 
 For
purposes of the Exemption, the Company relied upon (i) certain representations
and warranties of Glenwood and its designees made pursuant to the Subscription
Agreements and certain Investor Questionnaires and (ii) its own independent
investigation to confirm said representations and warranties.
 
 In
November 2004, pursuant to the Reg. S Exemption, 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, 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.
 
 For
purposes of the Reg. S Exemption, the Company relied upon (i) certain
representations and warranties of the Italian creditors made pursuant to the
Subscription Agreements and certain Investor Questionnaires and (ii) its own
independent investigation to confirm said representations and
warranties.
 
 Pursuant
to the Exemption, in October 2004, in exchange for six (6) creditors of the
Company (the “Creditors”) terminating approximately $939,402 in debts of Itec
Environmental Group, Inc. (the “Company”) 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”).
 
 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.
  **ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS**
 Itec
Environmental Group, Inc. (the "Company")(f/k/a Beechport Capital Corp.) was
organized as a Colorado corporation on January 24, 1989. On May 29, 2001,the
Company filed a current report on Form 8-K to report that effective May 4, 2001,
the Company entered into a share exchange agreement with Itec, to acquire all
the issued and outstanding shares of common stock of Itec in exchange for
6,651,987 shares of the Company's common stock. This business combination
resulted in the shareholders of Itec owning approximately 66.5% of the issued
and outstanding shares of the Company's common stock (10,000,000 shares were
outstanding upon completion of the transaction), and the Company holding 100% of
the issued and outstanding shares of Itec's common stock. In September of 2002
the Company filed a notice on Schedule 14A changing it's name to Itec
Environmental Group, Inc. and moving the domicile to the State of
Delaware.
 
 We use
patented technology and proprietary equipment to recycle plastic.
 
 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 contaminated plastics.
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.
 
 Results
of Operations
 
 We had
revenue of $1,750 in 2004 compared with $468,589 in 2003, a decrease of $466,839
(99.6%). The decrease in revenue in 2004 was the result of the change in
business strategy from the marketing of equipment and licensing of “the system”
technology to building an Itec plant for the recycling of plastic. This required
the management to focus its efforts on raising funding of approximately
$7,000,000 to capitalize the new business strategy.
 
 Cost of
goods sold amounted to $68,704 in 2004 as compared with $210,567 in 2003. This
again reflects the company’s change in business strategy. The cost of goods in
2004 is for inventory being written off, which was in Italy.
 
 Total
operating expenses increased by $456,674 from $1,826,256 in 2003 to $2,282,930
in 2004. The increase is mainly attributable to an increase in consulting fees
and attorney’s fees in 2004 in association with business issues and developing a
plan to raise additional capital.
 
 Depreciation
expense amounted to $57,007 in 2004 as compared to $42,705, an increase of
$14,302 (33.5%).
 
 The
Company recorded net interest expense of $273,327 in 2004 as compared to $61,078
in 2003. The $212,249 (347.5%)increase is attributed to the cost of borrowing
from Cornell Capital.
 
 Our net
losses for the fiscal year 2004 amounted to $2,237,699 compared with $1,633,534
in 2003, an increase of 604,165 (37.0%). The increase is primarily due to
increases in consulting and professional fees and general and administrative
expenses.
 
 At
December 31, 2004 and 2003, we have available approximately $10,071,000 and
$7,819,000 in net operating loss carry-forwards available to offset future
federal and state income taxes, respectively, which expire through 2024.
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, 2004 and 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.
 
 5
 During
the fiscal year ending December 31, 2004, the company issued 137,650,000
pre-reverse split common shares of the company common stock having a market
value of approximately $1.3 million to David Otto, principal of the Otto Law
Group of Seattle, Washington. The purpose of the issuance of the shares was to
pay for current and future fees for strategic business consulting and legal
services rendered relating to the equity restructuring of the company and
recapitalization efforts. The issuance of these shares was necessary due to a
lack of funds for these purposes and resulted in substantial increases in
professional fees in 2004.
 
 Liquidity
and Capital Resource
 
 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
December 31, 2004, we had a working capital deficit of $1,627,957 compared to a
working capital deficit of $2,624,051 at December 31, 2003. The 38.0% decrease
in working capital deficit is primarily attributed to decreases in accounts
payable and short-term borrowings, offset by a $268,987 (100%) decrease in
accounts receivable and a $55,094 (100%) decrease in inventory at December 31,
2004. We were able to convert debt into shares of our common stock.
 
 As of
December 31, 2004, we had total assets of $423,149 and a total shareholder's
holder's deficit of $1,906,260 compared with total assets of $775,116 and total
stockholder's deficit of $3,123,604 at December 31, 2003. Total assets decreased
by 98.3% due to the write-off of uncollectable receivables and unusable
inventory. Total shareholders' deficit decreased by 39.0% in 2004 due to the
fact that the consulting and professional fees that created the increase to net
loss were non-cash, stock-based compensation amounts that contributed to a
$3,448,571 increase to the Company’s Additional Paid-In Capital.
 
 For the
fiscal year ended December 31, 2004, cash used by operating activities increased
to $854,693 from $594,834 for the comparable period ended December 31, 2003, an
increase of $260,859 (43.9%). This increase is attributed to the conversion of
debt into equity, which created a gain of $634,211, and on operating expenses in
2004. In addition, in fiscal year 2003, cash flows used in investing activities
were $168,234 compared with net cash obtained by investing activities of $14,690
in 2004. The decrease is primarily due to the fact that the Company invested
more in Property, Plant and Equipment in 2003.
 
 In fiscal
year ended 2004, we realized cash flow from financing activities of $845,244
compared with $761,800 for the comparable period in 2003, an increase of $83,444
(11.0%). The increase is due to additional borrowings during 2003. There were no
sales of common stock in 2004, compared to common stock sales of $172,940 in
2003.
 
 6
 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 do not
have sufficient cash or lines of credit for the next twelve months but are in
the process of raising funds. We expect to have sufficient cash or lines of
credit to satisfy our needs for the twelve months ending December 31, 2005.
There is no guaranty, however, that efforts will result in Itec raising
sufficient capital or any capital or additional financing.
 
 Our plan
for the next twelve months is opening a plastic recycling plant in Stanislaus
County, California.
 
 Financing
for the current ECO2TM Environmental Systems customers in Italy will be secured
through IG-Sviluppo Italia, spa the Treasury Agency of Italy. The loan guarantee
is provided through the Treasury Agency of Italy to the "startup" Italian
Company and not paid or assignable to Itec. Future Itec customers may apply for
this government loan program and will be evaluated on the business plan and
financials that they submit to the Italian Agency at that time. Itec's first
"Italian startup" customer is OPT International, srl of Paliano,
Italy.
 
 The
following chart names our significant customers, describes the status of the
ordered products, and describes the estimated time of delivery:
 
 CUSTOMERS FROM THE IG
    DepositPaidOPT
      International / Massimo Mari
      Loc.
      Paduni snc.
      03012
      Anagni (FR) Italy
      System
      1
      System
      2V2&M
      Plastic srl / Pasquale Vella
      Via
      Vivaldi n. 59
      81100
      Caserta Italy
      System
      1
      System
      2
    $ 40,000E-bios
      sas / Alberto Mazza
      Via
      Nocelle, 69
      80128
      Napoli Italy
      System
      1
      System
      2Ecotruck
      srl / Giuseppe Cuscuna
      Ecotruck
      srl Via Cisterna, 3
      89844
      Nicotera (V) Italy
      System
      1
      System
      2CM
      Cleaning srl / Carlo Mastrominico
      Via
      Aldo Moro, 31
      San
      Cipriano D' Avers
      System
      1
      System
      2
      NON
      IG CUSTOMER
    $ 40,000
      $ 40,000EnviroPlastic-Hungary
      Istvan
      Kiraig UT 32
      529
      Zhalombatta H2440 Hungary
      System
      1
    $ 75,000$195,000
  7
 There are
pending orders for mobile/portable ECO2TM Environmental Systems for delivery
upon Italian government approval.
  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. During 2004 $73,768 of the notes payable, which
have been previously reclassified to deferred revenue, were converted by our
customers into stock of the company.
 
 In
addition to the conversion of deferred revenue, the majority of the Italian
investors who were holding notes payable converted their notes payable into
stock of the company. This reduced the notes payable to the Italian investors to
the sum of $353,980. In March of 2004, the company applied for a $2,000,000
matching fund loan from the California Integrated Waste Management
Board(“CIWMB”). A qualifying condition for the loan was that Itec have
sufficient facilities leased and available for the construction of a recycling
plant. As a result, Itec entered into a five-year lease contract with Norris
Industries for 58,000 square feet of factory floor space in Riverbank,
California. Itec moved the pilot plant, which had been constructed and operating
in Oakdale, California, to the Riverbank facility and pending funding of the
loan will commence operations there upon receipt of sufficient
capital.
 
 In the
United States, we plan to operate a full scale recycling plant. We have signed a
five-year lease on a building and have moved all equipment necessary for the
plastic recycling pilot line to our new plant in Riverbank, California. The
recycling pilot plant opened for operations in June 2003 and was located in
Oakdale, CA.
 
 The lease
for the plant in Riverbank, California lease 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 would be for a 58,000 sq ft steel frame building in a
heavy industrial complex, it would include 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 2005.
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 44
employees.
 
 We
currently have contacts in place for all needed raw product and we are seeking
additional sources of product for future growth.
 
 Itec
recently entered into a three-year “agency agreement” with H Mulstein & Co.,
Inc., pursuant to which H Mulstein will act as Itec’s exclusive agent for the
purchase and sale annually of up to sixty million (60,000,000) pounds of Itec’s
PET flake and post-consumer HDPE natural flake/pellets in the United States and
Canada.
 
 8
 
 The
following chart provides details of our milestones in our business plan and
timeline for reaching these milestones.
 Months toTask
      required
    
    Complete
    
    In
      Month
    
    Cost
    
    CompletedReceive
      Approval of FundingNegotiate
      lease
    
    
    1
    
    
    2
    
    
    
    
    
    YesDeposit
      required
    
    
    
    
    
    
    
    $
    59,110Permit
      Process
    
    
    0
    
    
    YesOne
      Permit Necessary –Air
      Quality
    
    
    
    
    
    
    
    
    
    
    
    YesEngineering
    
    
    2
    
    
    1
    
    $
    150,000
    
    
    25
    %Electrical
      Installation
    
    
    1
    
    
    1
    
    $
    150,000
    
    
    NoOrderEquipment&Pay20%DepositOrder
      Equipment & Pay 20% Deposit
    
    
    
    
    
    1
    
    $
    1,115,000
    
    
    NoBalanceofEquipmentPaymentEquipment
      Progress Payments
    
    
    
    
    
    1
    
    $
    2,302,000
    
    
    NoBalance of Equipment Payment
    
    
    
    
    
    2
    
    $
    150,000
    
    
    NoTotal
      Cost
    
    
    
    
    
    
    
    $
    3,926,110Start
      Production
    
    
    
    
    
    6
  We do not
have sufficient cash or lines of credit to fund operations for the next 12
months. Itec is in negotiations to secure cash needs for the next twelve months
as follows: Capital projects $5,000,000 to start up the full-scale
recycling/processing plant in California. Out of the $5,000,000 general working
capital needs are $1,648,000 for general office expenses, payroll and benefits,
legal and audit, increased inventory and business development
projects.
 
 Strategic
Alliance Agreements
 
 Itec has
engaged in a series of discussions for the purpose of entering into
manufacturing, technology and sales alliances. Such discussions are ongoing and
the Company anticipates that these negotiations will lead to the consummation of
several critical contracts, agreements and/or alliances in the foreseeable
future that will provide the Company with the ability to accelerate the
sales/delivery cycle through calendar year 2005 and thereafter.
 
 While the
Company has not signed any definitive agreements, the Company is 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.
 
 Equity
 
 In
February 2004, we received approval from the SEC for an SB-2 registration
statement with the Securities and Exchange Commission seeking approval to issue
up to 157,7272 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. Itec only obtained $500,000 from
Cornell in fiscal year 2004.
 
 Based
upon managements recommendations, on November 3, 2004 via a written consent in
lieu of a special meeting of the shareholders, a majority of the shareholders of
the common stock of the Company voted to amend the Articles of Incorporation, as
amended, of the Company to reverse-split the Company’s issued and outstanding
common stock at a ratio of 1-for-165. 396,436,171 shares of common stock were
voted in favor of the amendment. No votes were cast against the
amendment.
 
 9
 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,
2004.
 
 Cautionary
Warning Regarding Forward-Looking Statements
 
 This
press release may contain "forward-looking statements." In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "could," "expects," "plans," "intends," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
and other comparable terminology. These forward-looking statements include,
without limitation, statements about our market opportunity, our strategies,
competition, expected activities and expenditures as we pursue our business
plan, and the adequacy of our available cash resources. Although we believe that
the expectations reflected in any forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Actual results may differ materially from the predictions
discussed in these forward-looking statements. Changes in the circumstances upon
which we base our predictions and/or forward-looking statements could materially
affect our actual results. Additional factors that could materially affect these
forward-looking statements and/or predictions include, among other things: (1)
our limited operating history; (2) our ability to pay down existing debt; (3)
our ability to retain the professional advisors necessary to guide us through
our corporate restructuring; (4) the risks inherent in the investigation,
involvement and acquisition of a new business opportunity; (5) unforeseen costs
and expenses; (6) potential litigation with our shareholders, creditors and/or
former or current investors; (7) the Company's ability to comply with federal,
state and local government regulations; and (8) other factors over which we have
little or no control.
 
 10
 **ITEM
7. FINANCIAL STATEMENTS**
 
 **ITEC
ENVIRONMENTAL GROUP, INC.**
 **A
DEVELOPMENT STAGE COMPANY**
 
 **CONSOLIDATED
FINANCIAL STATEMENTS**
 
 **DECEMBER
31, 2004 AND 2003**
 
 
 
  **ITEC
ENVIRONMENTAL GROUP, INC.**
 **A
DEVELOPMENT STAGE COMPANY**
 
 **CONSOLIDATED
FINANCIAL STATEMENTS**
 
 **DECEMBER
31, 2004 AND 2003**
  
 
 
 **C
O N T E N T S**
  
 
 Report
      of Independent Certified Public Accountants
    1Consolidated
      Balance Sheets
    2Consolidated
      Statements of Operations
    3Consolidated
      Statements of Shareholders’ Equity
    4Consolidated
      Statements of Cash Flows
    5 -
      6Notes
      to Consolidated Financial Statements
    7 -
      29
 
 
 **REPORT
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS**
 
 
 Board of
Directors and Shareholders
 ITec
Environmental Group, Inc.
 (A
Development Stage Company)
 
 We have
audited the accompanying consolidated balance sheets of ITec Environmental
Group, Inc., (a Development Stage Company) (“ITec”), as of December 31, 2004 and
2003, and the related consolidated statement of operations, shareholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the consolidated financial statements of ITec from inception on
March 28, 2000 through December 31, 2002. The consolidated financial statements
as of December 31, 2002 and for the period from inception on March 28, 2000
through December 31, 2002, were audited by other auditors whose reports
reflected a net loss of $6,190,267 of the total net loss from inception. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for such prior
periods, is based solely on the report of the other auditors.
 
 We
conducted our audits in accordance with standards of the Public Company
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of ITec Environmental Group,
Inc., (a Development Stage Company) , as of
December 31, 2004 and 2003, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
 
 The other
auditor’s report on the 2002 financial statements of ITec included an
explanatory paragraph describing conditions that raised substantial doubt about
the Company’s ability to continue as a going concern.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in the Note 2 to the
consolidated financial statements, the Company incurred a net loss of $2,237,699
during the year ended December 31, 2004, and, as of that date, had a working
capital deficiency of $1,627,958 and net capital deficiency of $1,906,260. Those
conditions raise substantial doubt about the Company’s ability to continue as
going concern. Management plans to raise additional equity and pursue financing
arrangements to remedy the capital and loss deficiencies. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 
 */s/
Pohl, McNabola, Berg & Company, LLP*
 
 
 Pohl,
McNabola, Berg & Company LLP
 San
Francisco, CA
 March 19,
2005
 
  ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**CONSOLIDATED
BALANCE SHEETS**
**AS
OF DECEMBER 31, 2004 AND
2003****
   2004
    
    2003**ASSETS**Current
      AssetsCash
      and cash equivalents
    
    $
    5,366
    
    $
    125Accounts
      receivable, net
    
    
    -
    
    
    268,987Inventory
    
    
    -
    
    
    55,094Total
      current assets
    
    
    5,366
    
    
    324,206Fixed
      AssetsProperty
      and equipment, net of depreciation
    
    
    193,600
    
    
    250,607Total
      fixed assets
    
    
    193,600
    
    
    250,607Other
      AssetsLicense
      fee, net
    
    
    5,000
    
    
    15,000Note
      receivable - officer
    
    
    147,973
    
    
    77,973Note
      receivable - other
    
    
    -
    
    
    84,690Deposits
    
    
    37,514
    
    
    10,224Prepaid
      expenses
    
    
    16,446
    
    
    12,416Other
    
    
    17,250
    
    
    -Total
      other assets
    
    
    224,183
    
    
    200,303**TOTAL
      ASSETS**
    
    $
    423,149
    
    $
    775,116**LIABILITIES
      AND SHAREHOLDERS' DEFICIT**Current
      LiabilitiesAccounts
      payable
    
    $
    644,355
    
    $
    932,321Income
      taxes payable
    
    
    -
    
    
    800Accrued
      liabilities - officer
    
    
    150,520
    
    
    96,332Accrued
      liabilities
    
    
    670,416
    
    
    209,726Capital
      lease obligation - short term
    
    
    18,032
    
    
    10,078Notes
      payable
    
    
    150,000
    
    
    1,699,000Total
      current liabilities
    
    
    1,633,323
    
    
    2,948,257Other
      LiabilitiesNotes
      payable - Italian Investors
    
    
    353,980
    
    
    446,463Capital
      lease obligation - long term
    
    
    16,005
    
    
    28,810Notes
      payable - officers
    
    
    126,100
    
    
    -Deferred
      revenue
    
    
    200,001
    
    
    475,190Total
      other liabilities
    
    
    696,086
    
    
    950,463**TOTAL
      LIABILITIES**
    
    
    2,329,409
    
    
    3,898,720**SHAREHOLDERS'
      DEFICIT**Preferred
      stock, 10,000,000 shares authorized; $0.001 par value;None issued
      and outstanding in 2003 and 2002
    
    
    -
    
    
    -Common
      stock, 750,000,000 shares authorized; $0.001 par value;issued and
      outstanding 427,345 shares in 2003; 6,898,914 shares in 2004, respectively
    
    
    6,900
    
    
    428Additional
      paid-in capital
    
    
    8,148,340
    
    
    4,699,769Deficit
      accumulated during the development stage
    
    
    (10,061,500
    )
    
    (7,823,801
    )Total
      shareholders' deficit
    
    
    (1,906,260
    )
    
    (3,123,604
    )**TOTAL
      LIABILITIES AND SHAREHOLDERS' DEFICIT**
    
    $
    423,149
    
    $
    775,116
 
 
 The accompanying notes are an integral part of these
financial statements.
 2
 
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**CONSOLIDATED
STATEMENTS OF OPERATIONS**
**FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003**
**AND
FOR THE PERIOD FROM INCEPTION (MARCH 28, 2000) THROUGH DECEMBER 31,
2004****
 
 2004
    
    2003
    
    For
      the periodfrom inception(March 28, 2000)throughDecember
      31,2004**Income**Revenues
    
    $
    1,750
    
    $
    468,589
    
    $
    494,387Cost
      of goods
    
    
    (68,704
    )
    
    (210,567
    )
    
    (295,977
    )Gross
      profit (loss)
    
    
    (66,954
    )
    
    258,022
    
    
    198,410**Operating
      Expenses**Plant
      expenses
    
    
    37,096
    
    
    140,887
    
    
    177,983Payroll
    
    
    604,863
    
    
    468,831
    
    
    2,136,170Consulting
      fees
    
    
    1,192,390
    
    
    975,296
    
    
    5,000,072Research
      and development
    
    
    62,000
    
    
    3,750
    
    
    177,490General
      and administrative
    
    
    319,575
    
    
    184,787
    
    
    2,302,668Depreciation
      and amortization
    
    
    67,006
    
    
    52,705
    
    
    156,115Total
      operating expenses
    
    
    2,282,930
    
    
    1,826,256
    
    
    9,950,498**Other
      expenses and (income)**Interest
      expense ( income)
    
    
    273,327
    
    
    61,078
    
    
    684,608Gain
      from extinguishment of debt
    
    
    (634,211
    )
    
    -
    
    
    (634,211
    )Other
      expenses
    
    
    247,899
    
    
    74
    
    
    254,067Total
      other (income) and expenses
    
    
    (112,985
    )
    
    61,152
    
    
    304,464Net
      loss before taxes
    
    
    (2,236,899
    )
    
    (1,629,386
    )
    
    (10,056,552
    )Provision
      for income taxes
    
    
    800
    
    
    4,148
    
    
    4,948**Net
      loss**
    
    $
    (2,237,699
    )
    $
    (1,633,534
    )
    $
    (10,061,500
    )Loss
      per share:Basic
      - continuing operations
    
    $
    (1.40
    )
    $
    (4.59
    )
    $
    (21.94
    )Diluted
      - continuing operations
    
    $
    (1.40
    )
    $
    (4.59
    )
    $
    (21.94
    )Weighted
      average number of shares:Basic
    
    
    1,595,427
    
    
    356,011
    
    
    458,610Diluted
    
    
    1,595,427
    
    
    356,011
    
    
    458,610
 The
accompanying notes are an integral part of these financial
statements.
  3
 
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY**
**FOR
THE PERIOD FROM INCEPTION (MARCH 28, 2000) THROUGH DECEMBER 31,
2004****
 CommonStock
    
    PreferredStock
    
    Additionalpaid-in
    
    AccumulatedShares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Deficit
    
    TotalBalance
      March 28, 2000
    
    
    -
    
    $
    -
    
    
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Sale
      of common stock
    
    
    40,315
    
    
    40
    
    
    -
    
    
    -
    
    
    6,612
    
    
    -
    
    
    6,652Net
      Loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,215,313
    )
    
    (1,215,313
    )Balance
      December 31, 2000
    
    
    40,315
    
    $
    40
    
    
    -
    
    $
    -
    
    $
    6,612
    
    $
    (1,215,313
    )
    $
    (1,208,661
    )Common
      stock - reverse merger
    
    
    20,291
    
    
    20
    
    
    -
    
    
    -
    
    
    (20
    )
    
    -
    
    
    -Common
      stock issued for services
    
    
    16,315
    
    
    16
    
    
    -
    
    
    -
    
    
    1,092,112
    
    
    -
    
    
    1,092,128Net
      Loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,411,222
    )
    
    (2,411,222
    )Balance
      at December 31, 2001
    
    
    76,921
    
    $
    77
    
    
    -
    
    $
    -
    
    $
    1,098,703
    
    $
    (3,626,535
    )
    $
    (2,527,755
    )Common
      stock issued for services
    
    
    42,424
    
    
    42
    
    
    -
    
    
    -
    
    
    888,396
    
    
    -
    
    
    888,438Sale
      of common stock
    
    
    135,182
    
    
    135
    
    
    -
    
    
    -
    
    
    1,641,767
    
    
    -
    
    
    1,641,902Net
      Loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,563,732
    )
    
    (2,563,732
    )Balance
      at December 31, 2002
    
    
    254,528
    
    $
    255
    
    
    -
    
    $
    -
    
    $
    3,628,865
    
    $
    (6,190,267
    )
    $
    (2,561,147
    )Sale
      of common stock
    
    
    36,618
    
    
    37
    
    
    -
    
    
    -
    
    
    172,903
    
    
    -
    
    
    172,940Common
      stock issued for compensation
    
    
    12,121
    
    
    12
    
    
    -
    
    
    -
    
    
    71,988
    
    
    -
    
    
    72,000Share
      adjustment
    
    
    (404
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Common
      stock issued for services
    
    
    124,481
    
    
    124
    
    
    -
    
    
    -
    
    
    820,013
    
    
    -
    
    
    820,137Warrant
      issuance
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    6,000
    
    
    -
    
    
    6,000Net
      loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,633,534
    )
    
    (1,633,534
    )Balance
      December 31, 2003
    
    
    427,345
    
    $
    428
    
    
    -
    
    $
    -
    
    $
    4,699,769
    
    $
    (7,823,801
    )
    $
    (3,123,604
    )Shares
      issued for notes payable conversion
    
    
    1,006,625
    
    
    1,007
    
    
    -
    
    
    -
    
    
    1,863,235
    
    
    -
    
    
    1,864,242Shares
      issued for accounts payable conversion
    
    
    318,434
    
    
    318
    
    
    -
    
    
    -
    
    
    285,181
    
    
    -
    
    
    285,499Shares
      issued for debt conversion
    
    
    1,170,434
    
    
    1,171
    
    
    -
    
    
    -
    
    
    306,286
    
    
    -
    
    
    307,457Common
      stock issued for compensation - Directors
    
    
    149,775
    
    
    150
    
    
    -
    
    
    -
    
    
    240,350
    
    
    -
    
    
    240,500Common
      stock issued for services
    
    
    3,826,301
    
    
    3,826
    
    
    -
    
    
    -
    
    
    1,930,937
    
    
    -
    
    
    1,934,763Common
      stock issued for future legal fees
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,177,418
    )
    
    
    
    
    (1,177,418
    )Net
      loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    
    
    
    (2,237,699
    )
    
    (2,237,699
    )Balance
      December 31, 2004
    
    
    6,898,914
    
    $
    6,900
    
    
    -
    
    $
    -
    
    $
    8,148,340
    
    $
    (10,061,500
    )
    $
    (1,906,260
    )
 The
accompanying notes are an integral part of these financial
statements.
 4
 ****
 **ITEC
ENVIRONMENTAL GROUP, INC.**
 **A
DEVELOPMENT STAGE COMPANY**
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003**
 **AND
FOR THE PERIOD FROM INCEPTION (MARCH 28, 2000) THROUGH DECEMBER 31,
2004**
 2004
    
    2003
    
    For
      the periodfrom inception(March 28, 2000) throughDecember
      31,2004CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Loss
    
    $
    (2,237,699
    )
    $
    (1,633,534
    )
    $
    (10,061,500
    )Adjustments
      to reconcile net loss to net cash usedby operating activities:Depreciation
      and amortization
    
    
    57,007
    
    
    42,705
    
    
    111,116Amortization
      of license fees
    
    
    10,000
    
    
    10,000
    
    
    45,000Gain
      on extinguishment of debt
    
    
    (634,211
    )
    
    -
    
    
    (634,211
    )Shares
      issued for Services
    
    
    757,345
    
    
    820,136
    
    
    3,558,048Shares
      issued for compensation
    
    
    240,500
    
    
    72,000
    
    
    312,500Warrants
      issuance costs
    
    
    -
    
    
    6,000
    
    
    6,000*Changes
      in assets and liabilities*Decrease
      (increase) in accounts receivable
    
    
    268,987
    
    
    (254,159
    )
    
    -Decrease
      in inventory
    
    
    55,094
    
    
    166,340
    
    
    -Decrease
      in prepaid expenses and deposits
    
    
    (31,319
    )
    
    (7,012
    )
    
    (53,959
    )Decrease
      in employee advances
    
    
    -
    
    
    8,000
    
    
    -Decrease
      (increase) in other assets
    
    
    (17,250
    )
    
    40,590
    
    
    (17,250
    )Increase
      in accounts payable
    
    
    (2,467
    )
    
    149,327
    
    
    929,854Increase
      in income taxes payable
    
    
    (800
    )
    
    800
    
    
    -Increase
      in accrued liabilities
    
    
    680,120
    
    
    193,609
    
    
    986,178Increase
      (decrease) in deferred revenue
    
    
    -
    
    
    (63,578
    )
    
    475,190Increase
      in other liability
    
    
    -
    
    
    (145,058
    )
    
    -**Net
      cash used in operating activities**
    
    $
    (854,693
    )
    $
    (593,834
    )
    $
    (4,343,034
    )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
    
    $
    -
    
    $
    (121,064
    )
    $
    (255,688
    )Purchase
      of license fee
    
    
    -
    
    
    -
    
    
    (50,000
    )Advances
      made on notes receivable
    
    
    14,690
    
    
    (47,170
    )
    
    (147,973
    )**Net
      cash (used in) provided by investing activities**
    
    $
    14,690
    
    $
    (168,234
    )
    $
    (453,661
    )CASH
      FLOWS FROM FINANCING ACTIVITIESSale
      of common stock
    
    $
    -
    
    $
    172,940
    
    $
    1,821,494Proceeds
      from issuance of notes payable
    
    
    901,095
    
    
    599,000
    
    
    3,046,558Payments
      on notes payable
    
    
    (51,000
    )
    
    -
    
    
    (51,000
    )Payments
      on capital lease obligations
    
    
    (4,851
    )
    
    (10,140
    )
    
    (14,991
    )**Net
      cash provided by financing activities**
    
    $
    845,244
    
    $
    761,800
    
    $
    4,802,061
  
 (continued)
 The
accompanying notes are an integral part of these financial
statements.
  5
 
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)**
**FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003**
**AND
FOR THE PERIOD FROM INCEPTION (MARCH 28, 2000) THROUGH DECEMBER 31,
2004****
 2004
    
    2003
    
    For
      the periodfrom inception(March 28, 2000) throughDecember
      31,2004
 Increase
      (decrease) in cash and cash equivalents
    
    $
    5,241
    
    $
    (268
    )
    $
    5,366Balance
      at beginning of year
    
    
    125
    
    
    393
    
    
    -Balance
      at end of year
    
    $
    5,366
    
    $
    125
    
    $
    5,366**Supplemental
      disclosures:**Cash
      paid for interest
    
    $
    -
    
    $
    1,381
    
    $
    109,467Cash
      paid for taxes
    
    $
    1,600
    
    $
    2,200
    
    $
    4,000
  **Supplemental
      Schedule of Non-Cash Investing and Financing Activities:**
  2004
    
    
    2003
    
    
    For
      the periodfrom inception(March 28, 2000) throughDecember
      31,2004Common
      stock issued for compensation
    
    $
    240,500
    
    $
    72,000
    
    $
    312,500Common
      stock issued for services
    
    $
    757,345
    
    $
    820,136
    
    $
    3,558,048Common
      stock issued for debt conversion
    
    $
    3,091,408
    
    $
    -
    
    $
    3,091,408Common
      stock issued for future legal fees
    
    $
    1,177,418
    
    $
    -
    
    $
    1,177,418Warrant
      issuance
    
    $
    -
    
    $
    6,000
    
    $
    6,0002003Acquisition
      of equipment under capitalized leases
    
    
    
    
    $
    49,028Less:
      Equipment loans and capitalized leases
    
    
    
    
    
    (49,028
    )Cash
      used for acquisition of equipment under capitalized leases
    
    
    
    
    $
    -
 
 
 The
accompanying notes are an integral part of these financial
statements.
  6
 
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 **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.), 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 are 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
 
 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.
 
 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, and the
subsidiary is currently inactive.
 
 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.
 
 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. The Company has the right to exploit recycling technology, which the
Company has license to use from Honeywell Corporation.
 
 7
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **1.** **Description
of Business and Significant Accounting Policies
(continued)**
 
 General
(continued)
 
 For the
year ended December 31, 2004, revenues of $1,750 were from a sale of a recycling
system. The Company has no significant operating history and, from March 28,
2000, (inception) to December 31, 2004, has generated a net loss of
$ 10,061,500 . The
accompanying financial statements for the year ended December 31, 2004, have
been prepared assuming the Company will continue as a going concern. During the
year 2005, management intends 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.
  History
 
 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. 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.
 
 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.
  Basis
of presentation
 
 The
accompanying audited financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, after elimination of all material
intercompany accounts and transactions.
  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.
 8
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND
2003****




**1.** **Description
of Business and Significant Accounting Policies
(continued)**
 
 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 December 31, 2004 and 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
December 31, 2004, the Company had a net trade receivable of $311,423, which is
from a single customer in Italy. The Company has determined that collectibility
of this amount is in doubt and has fully reserved the balance.
  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.
 
  9
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **1.** **Description
of Business and Significant Accounting Policies
(continued)**
 
 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 December 31,
2004, deferred revenue for the years then ended totaled $200,001 and $475,190,
respectively, 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
$311,423 and $50,380 at December 31, 2004 and 2003, respectively.
  Inventory
 
 Inventory
consisted principally of auxiliary of the recycling equipment 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.
  Property
and equipment
 
 Property
and equipment are recorded at cost less accumulated depreciation and
amortization. Expenditures for major additions and improvements are capitalized,
and minor maintenance, repairs and replacements are charged to expense as
incurred. When property and equipment are retired or otherwise disposed of, the
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the results of operations for the
respective period. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the respective assets
using the straight-line method for financial statement purposes. The Company
uses other depreciation methods (generally, accelerated depreciation methods)
for tax purposes where appropriate. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of the remaining lease
term or the estimated useful lives of the improvements.
  10
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **1.** **Description
of Business and Significant Accounting Policies
(continued)**
 
 Property
and equipment (continued)
 
 The
estimated useful lives for significant property and equipment are as
follows:
 
 
 Leasehold
      improvements
    2-5
      yearsComputer
      equipment and software
    3
      yearsOffice
      furniture and fixtures
    3-5
      yearsManufacturing
      equipment
    5-7
      years
  Assets
held under capital leases
 
 Assets
held under capital leases are recorded at the lower of the net present value of
the minimum lease payments or the fair value of the leased asset at the
inception of the lease. Amortization expense is computed using the straight-line
method over the shorter of the estimated useful lives of the assets or the
period of the related lease.
  Advertising
cost
 
 The
Company expenses advertising cost as incurred. There were no advertising costs
for the years ended December 31, 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. Potentially
dilutive securities include stock options and warrants, and convertible debt
securities.
  Fair
value of financial instruments
 
 The
Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including cash and cash equivalents, accounts payable and accrued
liabilities, the carrying amounts approximate fair value due to their short
maturities. The amounts shown for notes payable also approximate fair value
because current interest rates offered to the Company for debt of similar
maturities are substantially the same.
  11
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
   **1.** **Description
of Business and Significant Accounting Policies
(continued)**
 
 Accounting
for derivative instruments and hedging activities
 
 The
Company has adopted Financial Accounting Standards Board Statement No. 133
“Accounting for Derivative Instruments and Hedging Activities”, which requires
that all derivative instruments be recorded on the balance sheet at fair value.
The Company is currently not engaged in hedging activities, nor does it have any
derivative instruments, thus there is no impact on the current period’s
financial statements
 Intangible
assets
 
 The
Company has adopted Statement of Financial Accounting Standards No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets.” SFAS 142
requires that intangibles be tested for impairment on an annual basis and
between annual tests in certain circumstances. The Company generally determines
the fair value of its intangible assets using the expected present value of
future cash flows, giving consideration to the market comparable approach.
 
 The
carrying value and useful lives of intangible assets are based on management’s
current assessment of recoverability. Management periodically evaluates whether
certain circumstances may affect the estimated useful lives or the
recoverability of the unamortized balance of intangible assets using both
objective and subjective factors. Objective factors include management’s best
estimates of projected future earnings and cash flows and analysis of recent
sales and earnings trends. Subjective factors include competitive analysis and
the Company’s strategic focus.
 
 Income
taxes
 
 The
Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes represents the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
 
 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 years ended December 31, 2004 and 2003, comprehensive income
(loss) is equivalent to the Company’s reported net income (loss).
 
 12
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **1.** **Description
of Business and Significant Accounting Policies
(continued)**
 
 Stock-based
compensation
 
 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 in
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 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.
 
 Effective
January 1, 2005, the Company will account for all options and warrant grants to
employees and consultants in accordance with SFAS 123R, which requires recording
an expense for the fair value of all options or warrants granted employees and
consultants.
 
 Research
and development cost
 
 Research
and development represent internal costs incurred in connection with the
Company’s improving of recycling processes. All research and development costs
are expensed when incurred.
  Impairment
of long-lived assets
 
 The
Company accounts for the impairment and disposition of long-lived assets in
accordance with SFAS No. 144. Long-lived assets are reviewed whenever indicators
of impairment are present and whenever the undiscounted cash flows are not
sufficient to recover the related asset-carrying amount.
  13
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 **1.** **Description
of Business and Significant Accounting Policies
(continued)**
 
 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.
All sales and related purchase transactions are done in US dollars.
 
 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.
 
 Environmental
costs
 
 Costs
related to environmental remediation are charged to expense. Other environmental
costs are also charged to expense unless they increase the value of the property
and/or provide future economic benefits, in which event they are capitalized.
Liabilities are recognized when the expenditures are considered probable and can
be reasonably estimated.
  14
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **1.** **Description
of Business and Significant Accounting Policies
(continued)**
 
 Reclassifications
 
 Certain
reclassifications have been made to the prior years’ financial statements to
conform to the current year presentation.
 
 Recent
accounting pronouncements
 
 In
December 2004, the Financial Accounting Standards Board (“FASB”) released a
revision to Statement of Financial Accounting Standard (“SFAS”) No. 123,
Accounting for Stock-Based Compensation (“FAS 123R”). FAS 123R addresses the
accounting for share-based payment transactions in which an enterprise receives
employee services in exchange for (a) equity instruments of the enterprise or
(b) liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
The statement would eliminate the ability to account for share-based
compensation transactions using APB Opinion No. 25, Accounting for Stock Issued
to Employees, and generally would require instead that such transactions be
accounted for using a fair-value-based method. The Company adopted FAS 123R
effective with the year ended September 30, 2005. With the adoption of this new
statement, the Company will have to recognize substantially more compensation
expense in the future. This may have a material adverse impact on the Company’s
financial position and results of operations in the future.
 
 In July
2004, the EITF issued a draft abstract for EITF Issue No. 04-08, “The Effect of
Contingently Convertible Debt on Diluted Earnings per Share” (“EITF 04-08”).
EITF 04-08 reflects the Task Force’s tentative conclusion that contingently
convertible debt should be included in diluted earnings per share computations
regardless of whether the market price trigger has been met. If adopted, the
consensus reached by the Task Force in this Issue will be effective for
reporting periods ending after December 15, 2004. Prior period earnings per
share amounts presented for comparative purposes would be required to be
restated to conform to this consensus and the Company would be required to
include the shares issuable upon the conversion of the Notes in the diluted
earnings per share computation for all periods during which the Notes are
outstanding Management does not expect the implementation of this new standard
to have a material impact on its computation of diluted earnings per share.
 
 In
September 2004, the EITF delayed the effective date for the recognition and
measurement guidance previously discussed under EITF Issue No. 03-01, “The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments” (“EITF 03-01”) as included in paragraphs 10-20 of the proposed
statement. The proposed statement will clarify the meaning of
other-than-temporary impairment and its application to investments in debt and
equity securities, in particular investments within the scope of FASB Statement
No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and
investments accounted for under the cost method. The Company is currently
evaluating the effect of this proposed statement on its financial position and
results of operations.
 
 15
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **1.** **Description
of Business and Significant Accounting Policies
(continued)**
 
 Recent
accounting pronouncements (continued)
 
 In
December 2004, the Financial Accounting Standards Board issued SFAS No. 151,
“Inventory Costs, an amendment of ARB No. 43, Chapter 4”, which clarifies the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and charges regardless of whether they meet the criterion of “so
abnormal” that was originally stated in Accounting Research Bulletin No. 43,
chapter 4. In addition, SFAS No. 151 requires that the allocation of fixed
production overheads to conversion costs be based on the normal capacity of the
production facilities. SFAS No. 151 is effective for inventory costs incurred
during fiscal year beginning after June 15, 2005. Management does not expect the
implementation of this new standard to have a material impact on its financial
position, results of operations and cash flows.
 
 In
December 2004, the Financial Accounting Standards Board Statement issued SFAS
No. 153, “Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29”,
which amends Opinion 29 by eliminating the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. SFAS
No. 153 is effective for a fiscal year beginning after June 15, 2005, and
implementation is done prospectively. Management does not expect the
implementation of this new standard to have a material impact on its financial
position, results of operations and cash flows.
 
 **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
$2,237,699 during the year ended December 31, 2004, and, as of that date, had a
working capital deficiency of $1,627,958 and net capital deficiency of
$1,906,260. 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 obtained $520,000 in financing under this
arrangement in 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 2004,
the Company received approval for a loan from the California Integrated Waste
Management Board. The loan is approved for $2 million, but requires the Company
to obtain $2 million in matching funds prior to funding.
 
 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.
  16
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **3.** **Property
and Equipment**
 
 Property
and equipment at December 31 consist of the following:
  2004
    
    
    2003Manufacturing
      equipment
    
    $
    233,639
    
    $
    242,461Office
      furniture
    
    
    12,502
    
    
    12,502Computer
      equipment and software
    
    
    34,883
    
    
    34,883Leasehold
      improvements
    
    
    14,870
    
    
    14,870Total
      property and equipment
    
    
    295,894
    
    
    304,716Less
      accumulated depreciation and amortization
    
    
    (102,294
    )
    
    (54,109
    )Total
    
    $
    193,600
    
    $
    250,607
 Depreciation
expense for the years ended December 31, 2004 and 2003 was $57,007 and $42,705,
respectively.
  
 **4.** **Capital
Lease Obligation**
 
 Effective
January 2003, the Company entered into various lease agreements for office and
plant equipment at its location in Oakdale, California. These various leases
have been classified as capital leases at December 31, 2003. The cost of this
leased equipment amounts to $40,207 and is included in property and equipment at
December 31, 2004 and 2003. Accumulated amortization of the leased equipment at
December 31, 2004 amounted to $26,833. Amortization of assets under capital
leases is included in depreciation expense.
 
 The
future minimum lease payments required under the capital lease and the present
values of the net minimum lease payments as of December 31, 2004 are as
follows:
 
 Year
      ending December 31,
    
    Amount2005
    
    $
    33,6382006
    
    
    12,3892007
    
    
    8,512Total
      minimum lease payments
    
    
    54,539Less:
      Amount representing interest
    
    
    (20,502
    )Present
      value of net minimum lease payments
    
    
    34,037Less:
      Current maturities of capital lease obligation
    
    
    (18,032
    )Long-term
      capital lease obligation
    
    $
    16,005
 
  17
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 **5.** **Accrued
Liabilities**
 
 Accrued
liabilities at December 31, 2004 and 2003 consist of the following:
 
 2004
    
    2003Accrued
      payroll and benefits
    
    $
    466,876
    
    $
    147,814Accrued
      interest
    
    
    59,490
    
    
    20,000Accrued
      professional fees
    
    
    112,810
    
    
    41,912Accrued
      rent
    
    
    17,630
    
    
    -Other
    
    
    13,610
    
    
    -Total
    
    $
    670,416
    
    $
    209,726
  
 **6.** **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
December 31, 2004, 6,898,914 shares of common stock were issued and
outstanding.
 
 As
described in Note 1, on May 4, 2001, Beechport entered into a merger agreement
with ITec to acquire all the issued and outstanding shares of common stock of
ITec in exchange for 40,315 shares of Beechport’s common stock. This business
combination resulted in the shareholders of ITec owning approximately 66.5% of
the issued and outstanding shares of the Company's common stock (60,606 shares
were outstanding upon completion of the transaction), and the Company holding
100% of the issued and outstanding shares of ITec's common stock. The
transaction was accounted for as a reverse merger. Therefore, ITec was deemed to
be the accounting acquirer.
 
 This
transaction is treated as a recapitalization of ITec, with no revaluation of
assets and liabilities. Beechport was a shell corporation at the time of the
exchange, and, therefore, the acquisition was recorded under the reverse merger
guidelines.
  Reverse
Stock Split
 
 Effective
December 20, 2004, the Board of Directors authorized a one-for-165 reverse stock
split to be effective in December 2004 to shareholders of record.
 
 On
December 20, the Company’s Board of Directors approved to keep the par value of
the Common Stock at $0.001 per share. As a result of reverse stock split and the
reduction in par value, the “Common stock” account was reduced, and the
“Additional paid-in capital” account was increased by the same
amount.
  18
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **6.** **Common
Stock (continued)**
 
 Reverse
Stock Split (continued)
 
 The
Company’s common stock as of December 20, 2004, consisted of the
following:
 
 $0.001
par value, 750,000,000 shares authorized, 735,748,651 issued and
outstanding
 
 The
common shares issued and outstanding were 4,489,607 as a result of the reverse
stock split.
 
 Sale
of Common Stock
 
 In 2003,
the Company through a private placement with a group of investors issued 36,618
shares of its common stock for $172,940.
 
 Common
Stock Issued for Services
 
 In 2004,
the Company issued 2,834,263 shares of its common stock to a firm for future
legal and strategic consulting services. At the date of the issuances the shares
had an aggregate market value of $1,177,418. Since the Company has not received
the aforementioned legal and business consulting services, the amount is
reported as a reduction of additional paid-in capital.
 
 In 2004,
the Company issued 149,775 shares of common stock, valued at $240,500, to
directors as compensation.
 
 In 2004,
the Company issued 990,038 shares of Common Stock, valued at $753,519, in lieu
of cash to consultants in payment for consulting services performed.
 
 In 2003,
the Company issued 124,481 shares of Common Stock, valued at $820,137 to a
consultant in payment for consulting services performed, under a consulting
services agreement.
 
 In 2003,
the Company issued 12,121 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 303,030 shares of the Company’s common stock into
an escrow account. In May 2004, Company executed a new agreement to put an
additional of 303,030 shares of its common stock in the escrow. As of December
31, 2004, the holder of this note payable has converted $350,000 of the
principal into Company’s common stock. The outstanding balance on the note
amounts to $150,000 plus accrued interest of $35,490 at December 31, 2004. The
proceeds from the note were used for working capital needs.
 
 19
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **7.** **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.
 
 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 6,060 shares of the
Company’s common stock, par value $0.001 per share (the Common Stock), at an
exercise price of $6.60 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. In 2004, the Company converted the outstanding balance
including accrued interest into 461,127 shares of common stock.
 
 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. The law firm shall release these advance notices to
the holder every seven (7) calendar days commencing April 5, 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.
 
 Extinguishment
of Note Payable
 
 *GMA*
 
 In
November 2004, the Company reached an agreement with a creditor to grant 545,475
shares of the Company’s $0.001 par value common stock to the creditor in full
settlement for $1,226,242 for a note payable and accrued interest, which bore
interest at 10% per annum and which was in default and became due on demand. At
the date of transfer, the carrying value of the debt payable to the vendor
exceeded the fair market value of the common stock transferred by $544,424;
accordingly, a gain from the extinguishment of debt of $544,424, net of income
tax of $0, has been included in the Statement of Operations in 2004.
  20
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 **7.** **Notes
Payable (continued)**
 
 Extinguishment
of Note Payable (continued)
 
 *MTI*
 
 In
November 2004, the Company reached an agreement with a creditor to grant 461,150
shares of the Company’s $0.001 par value common stock to the creditor in full
settlement for $638,000 for a note payable and accrued interest, which bore
interest at 8% per annum and which was in default and became due on demand. At
the date of transfer, the carrying value of the debt payable to the vendor
exceeded the fair market value of the common stock transferred by $61,591;
accordingly, a gain from the extinguishment of debt of $61,591, net of income
tax of $0, has been included in the Statement of Operations in 2004.
 
 *Others*
 
 In
November 2004, the Company reached an agreement with various creditors and
vendors to grant 642,849 shares of the Company’s $0.001 par value common stock
to the creditors in full settlement of amounts due to them. At the date of
transfer, the aggregate carrying value of the debt to these creditors and
vendors exceeded the fair market value of the common stock transferred by
$28,196; accordingly, a gain from the extinguishment of debt of $28,196, net of
income tax of $0, has been included in the Statement of Operations in 2004.
 
 **8.** **Operating
Leases**
 
 Effective
April 2001, the Company entered into a lease agreement for office facilities in
California. Under terms of the lease, the Company agreed to pay monthly lease
payments of $900 for 36 months. This lease was terminated in February 2003
without cost to the Company.
 
 Effective
January 2003, the Company entered into a lease agreement for office and plant
facilities (totaling 7,000 square feet) in California. Under terms of the lease,
the Company agreed to pay monthly lease payments of approximately $3,500 for 24
months. The Company vacated this property in April 2004.
 
 On March
1, 2004, ITec entered into an agreement with NI Industries, Inc. to lease a
50,000 square-foot production and office facility in Riverbank, California. Rent
for the facility will be effective December 2004 and thereafter. The term of the
lease is five (5) years and four (4) month effective March 1, 2004. ITec has the
option to extend the lease for an additional five-year term after
expiration.
 
 21
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 ****
 ****
 **8.** **Operating
Leases (continued)**
 
 Future
minimum rentals under this operating lease are as follows:
 
 Year
      Ending December 31,2005
    
    $
    220,4402006
    
    
    220,4402007
    
    
    220,4402008
    
    
    220,4402009
    
    
    110,220Total
    
    $
    991,980
 
 
 **9.** **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.
 
 22
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **9.** **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
December 31, 2004, management believes that there is no impairment in the
carrying value of any of its long-lived assets. Accumulated amortization at
December 31, 2004 amounted to $45,000. Net book value at December 31, 2004
amounted to $5,000.
 
 
 **10.** **Related
Party Transactions**
 
 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 $0 has been
waived for the year ended December 31, 2004; $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 December
31, 2004, a balance of $147,973 was still due on the loan.
 
 In 2004,
the Company received advances totaling $50,000 from its CFO primarily to
accommodate the working capital needs of the Company. Such advances are
unsecured, bear interest at 10% and are due on demand.
 
 In 2004,
the Company received advances totaling $76,100 from its CEO primarily to
accommodate the working capital needs of the Company. Such advances are
unsecured, bear interest at 10% and are due on demand.
 
 **11.** **Income
Taxes**
 
 Significant
components of the provision for taxes based on income for the year ended
December 31 are as follows:
 2004
    
    2003CurrentFederal
    
    $
    -
    
    $
    -State
    
    
    800
    
    
    4,148800
    
    
    4,148DeferredFederal
    
    
    -
    
    
    -State
    
    
    -
    
    
    --
    
    
    -Provision
      for income taxes
    
    $
    800
    
    $
    4,148
 
 
 23
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **11.** **Income
Taxes (continued)**
 
 Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities for income taxes consist of the
following:
  2004
    
    2003Deferred
      tax assetNet
      operating loss carryforward
    
    $
    3,968,651
    
    $
    3,003,977Total
      deferred tax asset
    
    
    3,968,651
    
    
    3,003,977Deferred
      tax liabilityDifferences
      between book and tax depreciation
    
    
    (10,870
    )
    
    (4,434
    )State
      income tax benefit
    
    
    (184,389
    )
    
    (117,179
    )Total
      deferred tax liability
    
    
    (195,259
    )
    
    (121,613
    )Net
      deferred tax asset before valuation allowance
    
    
    3,773,392
    
    
    2,882,364Less
      valuation allowance
    
    
    (3,773,392
    )
    
    (2,882,364
    )Net
      deferred tax asset
    
    $
    -
    
    $
    -
  A
reconciliation of the provision for income tax expense with the expected income
tax computed by applying the federal statutory income tax rate to income before
provision for (benefit from) income taxes for the years ended December 31, 2004
and 2003 is as follows:
 
 2004
    
    2003Income
      tax provision (benefit) computedat federal statutory
      rate
    
    
    (34.00
    %)
    
    (34.00
    %)State
      income tax rate
    
    
    (8.84
    %)
    
    (8.84
    %)Valuation
      allowance
    
    
    42.84
    %
    
    43.10
    %Effective
      income tax rate
    
    
    0.00
    %
    
    0.26
    %
  The
Company’s effective income tax rate is lower than what would be expected if the
federal statutory rate were applied to income before income taxes primarily
because of certain expenses deductible for financial reporting purposes that are
not deductible for tax purposes, and operating loss carryforwards.
  24
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
   **11.** **Income
Taxes (continued)**
 
 At
December 31, 2004 and 2003, the Company has available approximately $10,071,000
and $7,819,000 in net operating loss carryforwards available to offset future
federal and state income taxes, respectively, which expire through 2019.
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 December 31, 2004 and 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.
 
  **12.** **Stock
Options and Warrants**
 
 The
Company has adopted an incentive stock plan (the “Plan”) under which options
granted are intended to qualify as “incentive stock options’ under Section 422A
of the Internal Revenue Code of 1986, as amended. Pursuant to the Plan, options
to purchase up to 275 shares of the Company’s common stock may be granted to
employees of the Company. The Plan is administered by the Board of Directors
which is empowered to determine the terms and conditions of each option subject
to the limitation that the exercise price can not be less than market value of
the common stock on the date of grant (110% of the market value in the case of
options granted to an employee who owns 10% or more of the Company’s outstanding
common stock) and no option can have a term in excess of 10 years (5 years in
the case of options granted to an employee who owns 10% or more of the Company’s
outstanding common stock). As of December 31, 2004, no options have been granted
under the Plan.
 
 On May
28, 2001, the Company adopted the Beechport Capital Corporation 2001 Stock Plan
which covers the issuance of up to 6,060 shares of common stock either directly
or pursuant to options to eligible employees, directors, officers of and
consultants and advisors of the Company. The Company filed a registration
statement on Form S-8 with the Securities and Exchange Commission to register
the shares covered under the Plan.
 
 In May,
2002, the Company established Beechport Capital Corp 2002 Stock Plan which
covers issuance of 12,121 shares of common stock either directly or pursuant to
options to eligible employees, directors, officers of and consultants and
advisors of the Company. The Company filed a registration statement on Form S-8
with the Securities and Exchange Commission to register the shares covered under
the Plan.
 
 In 2002,
the Company issued warrants convertible into 12,121 shares of common stock under
this plan to employees and consultants. The warrants have an exercise price of
$29.70 per share.
 
 In
November 2002, the Company established the ITec Environmental Group, Inc., 2002
Stock Plan (“2002 Stock Plan”) which covers the issuance of 24,242 shares of
common stock either directly or pursuant to options to eligible employees,
directors, officers of and consultants and advisors of the Company. The Company
filed a registration statement on Form S-8 with the Securities and Exchange
Commission to register the shares covered under the Plan. In 2002, the Company
issued 24,242 shares under the terms of this Plan.
  25
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 **12.** **Stock
Options and Warrants (continued)**
 
 In March
2003, the Company established the ITec Environmental Group, Inc., 2003 Stock
Plan (“2003 Stock Plan”) which covers the issuance of 121,212 shares of common
stock either directly or pursuant to options to eligible employees, directors,
officers of and consultants and advisors of the Company. The Company filed a
registration statement on Form S-8 with the Securities and Exchange Commission
to register the shares covered under the Plan. In 2003, the Company issued
warrants convertible into 1,212 shares of common stock under this plan to
employees and consultants. The warrants have an exercise price of $6.60 per
share. In 2003, the Company issued 60,845 shares under this plan.
 
 The
Company has adopted the provisions of Financial Interpretation No. 44.
Accordingly, the Company applies APB Opinion No. 25 and related interpretations
in accounting for its plans for employees. In 2003 and 2004, the Company did not
issue options or warrants to employees. The Company’s net loss and the pro forma
results were the same.
  2004
    
    2003Net
      lossAs
      reported
    
    $
    (2,237,699
    )
    $
    (1,633,534
    )Pro
      forma
    
    $
    (2,237,699
    )
    $
    (1,633,534
    )Basic
      and diluted loss per common shareAs
      reported
    
    $
    (1.40
    )
    $
    (4.59
    )Pro
      forma
    
    $
    (1.40
    )
    $
    (4.59
    )
 
 Options
and warrants are granted at prices that are equal to the current fair value of
the Company’s common stock at the date of grant. The Company records
compensation expense on options granted at prices below the current fair market
value. The vesting period is determined by the Board of Directors, and it is
usually related to the length of employment or consulting contract period.
However, all warrants granted to date are immediately vested.
 
 The fair
value of these warrants was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for the years ended December 31, 2004 and 2003; dividend yield of
0%; expected volatility of 50%; risk-free interest rate of 5.5%; and expected
life of 2 years.
 
 The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options. The weighted-average fair value
of options and warrants granted during the year ended December 31, 2004 and
2003, was none and $8.25, respectively.
 
 26
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **12.** **Stock
Options and Warrants (continued)**
 
 The
following table summarizes information with respect to stock options outstanding
and exercisable at December 31, 2004:
 
 Options
      and Warrants Outstanding
    
    Options
      and Warrants ExercisableRange
      ofExercise
      Prices
    
    Number
      Outstandingas
      ofDecember31, 2004
    
    WeightedAverageRemainingContractualLife
    
    Weighted
      Average
      Exercise
      Price
    
    NumberExercisable
      asof December31, 2004
    
    Weighted
      Average
      Exercise
      Price$29.70
    
    
    12,121
    
    
    2.83
    
    
    29.70
    
    
    12,121
    
    
    29.7012,121
    
    
    2.83
    
    $
    29.70
    
    
    12,121
    
    $
    29.70
 
 
 The
following table summarizes information with respect to stock options outstanding
and exercisable at December 31, 2003:
 
 Options
      and Warrants Outstanding
    
    Options
      and Warrants ExercisableRange
      of Exercise
      Prices
    
    Number
      Outstanding
      as of December 31, 2003
    
    Weighted
      AverageRemaining
      Contractual Life
    
    Weighted
      Average
      Exercise
      Price
    
    Number
      Exercisable as of December 31, 2003
    
    Weighted
      Average
      Exercise
      Price$19.80
    
    
    7,273
    
    
    1.33
    
    $
    6.60
    
    
    7,273
    
    $
    6.60$29.70
    
    
    12,121
    
    
    3.83
    
    
    29.70
    
    
    12,121
    
    
    29.7019,394
    
    
    2.89
    
    $
    24.75
    
    
    19,394
    
    $
    24.75
 
  27
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 ****
 **12.** **Stock
Options and Warrants (continued)**
 
 The
following table summarizes the Company's stock option and warrants
activity:
 
 Warrants
      And
      Stock
      Options
      Outstanding
    
    Weighted
      Average
      Exercise
      PriceOutstanding
      December 31, 2002
    
    
    12,121
    
    $
    29.70Granted
    
    
    7,273
    
    $
    6.60Exercised
    
    
    -
    
    $
    -Expired/Cancelled
    
    
    -
    
    $
    -Outstanding
      December 31, 2003
    
    
    19,394
    
    $
    24.75Granted
    
    
    -
    
    $
    -Exercised
    
    
    -
    
    $
    -Expired/Cancelled
    
    
    (7,273
    )
    $
    6.60Outstanding
      December 31, 2004
    
    
    12,121
    
    $
    29.70
 
 The
options and warrants expire 4 years from the original date of grant. In 2003,
warrants convertible into 1,000,000 shares of common stock were granted in
conjunction with debt financing (see Note 7).
  
 **13.** **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 $25,645 to Cesmet in 2003. Effective July 1, 2003, the Company
terminated its agreement with Cesmet.
 
 The
Company has no employment agreements with its officers.
 
 28
 ****ITEC
ENVIRONMENTAL GROUP, INC.**
**A
DEVELOPMENT STAGE COMPANY**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**DECEMBER
31, 2004 AND 2003****
 
 **14.** **Subsequent
Events**
 
 2005
Stock Plan
 
 In
January 2005, the Board of Directors of the Company approved the Company’s 2005
Stock Plan (the “Stock Plan”), under which officers, key employees, and
non-employee directors or consultants may be granted shares of the Company’s
authorized but unissued common stock. The maximum number of shares of the
Company’s common stock available for issuance under the Plan is 15 million
shares. The Stock Plan will be administered by the Board of
Directors.
 
 Issuance
of Promissory Note
 
 On
January 26, 2005, the Company executed an agreement with an investor whereby the
Company issued a $50,000 promissory note. These notes bear an interest rate of
10% per year and mature on July 26, 2005. The proceeds from the note were
utilized for working capital.
 
 Issuance
of Common Stock
 
 During
the period starting January 1, 2005 and ending March 19, 2005, the Company
issued 6,080,949 shares of Common Stock valued at $608,095, in lieu of cash to
consultants in payment for consulting services performed.
 
 Issuance
of Warrants
 
 In 2005,
the Company issued to its CEO warrants to purchase 2,457,370 shares of common
stock at an exercise price of $0.06 per share.
  
 29
 ****
 **ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE**
 
 None.
  11
 
 **ITEM
8A. CONTROLS AND PROCEDURES**
 
 Under the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15(b) as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective. There
were no changes in our internal control over financial reporting during the
quarter ended December 31, 2004 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
 
 **ITEM
8B. OTHER INFORMATION**
 
 In March
2004, in exchange for services provided by Mr. De Laurentiis to the Company, the
Company issued a Warrant to Gary De
Laurentiis, its Chairman & CEO, pursuant
to which Mr. De Laurentiis may purchase up to 2,457,370 shares of common stock
of the Company, exercise price of $.06 per share (the “Warrant”). The Warrant is
exerciseable for a period of five (5) years and may be exercised for cash or via
a cashless exercise. The shares underlying the Warrant have piggy-back
registration rights.
 
 In March
2004, the Board of Directors of the Company approved the following: (i) Audit
and Finance Committee Charter , Code of
Ethics, (iii) Compensation
and Nominating Committee Charter , and
(iv) Policy
Governing Director Nominations and Security Holder-Board
Communications.
 
 **PART
III**
 
 **ITEM
9. DIRECTORS AND EXECUTIVE OFFICERS, AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT**
 
 **Directors
and Executive Officers**


NAME
    
    AGE
    
    POSITIONGary
      M. De Laurentiis
    
    61
    
    Chairman
      & Chief Executive OfficerJeff
      Chartier
    
    42
    
    DirectorGeorge
      Kanakis
    
    32
    
    DirectorFrederick
      Smith, Jr.
    
    51
    
    Chief
      Financial OfficerGeorge
      Gitschel
    
    42
    
    Acting
      Vice President of Business Development
 
 Gary M De
Laurentiis


Chairman
& CEO
 
 Mr. De
Laurentiis has been our Chairman, President & CEO since founding the Company
in 1999. Mr. De Laurentiis has been active in the plastics recycling business
for nearly 20 years. In partnership with the Chinese Government, he designed and
built his first plastics recycling plant in 1987. In the years since, he has
designed, remodeled, built and operated plants in Mexico, North Carolina Ohio,
Florida, Canada and California for both local governments and private industry.
From 1992 to 1995 Mr. De Laurentiis worked directly with the State Government in
Campeche Mexico, living on site for 18 months while directing the entire
project. In 1996 and Ohio based group recruited Mr. De Laurentiis to open a
shuttered recycling plant. Year one revenues reached $8MM and $18MM in year 2.
Mr. De Laurentiis left the company in 1999 to start Itec. From collecting,
brokering, recycling and remanufacturing to lobbying on behalf of the industry,
Mr. De Laurentiis is intimately familiar with all levels of plastics recycling.
The depth of Mr. De Laurentiis’ knowledge and his continuing search for newer,
safer and more efficient ways to recycle waste has earned him the respect of his
peers, as well as the many regulatory agencies charged with protecting the
environment who regularly call upon him for advice.
 
 
 12
 
 Jeffrey
Chartier
 Director
 
 Mr.
Chartier has been a member of our board of directors since 2003. Mr. Chartier is
President of Chartier Financial Group. Mr. Chartier brings to the Board
extensive experience in investment banking and financial dealings with publicly
traded companies. Mr. Chartier formed Chartier Financial Group in October of
2002, focusing on initial public offerings, various forms of private equity
financings and retirement strategies. Mr. Chartier has recently opened an office
in Shanghai, China at the request of the Chinese Government to assist in taking
local companies public. Prior to forming Chartier Financial Group., Mr. Chartier
served as Vice President of Morgan Stanley on Wall Street in New York City for
four years. During his tenure at Morgan Stanley Mr. Chartier received the
National Sales Director award and raised over $200 million. Mr. Chartier
graduated from UCLA in 1987 where he received his Bachelors Degree in Political
Science.
 
 George
Kanakis
 Director
 
 Mr.
Kanakis has been a member of our board of directors since 2004. Mr. Kanakis
brings years of expertise in structuring equity/debt financing as well as
mergers and acquisitions experience. For the past 1-1⁄2 years, Mr. Kanakis
has served as President and CEO of NuWave Technologies, Inc. NuWave is involved
in video game enhancement through its ASIC chip technology and real estate
development. Mr. Kanakis also serves as Vice President of Corporate Finance for
Cornell Capital Partners, LP. Mr. Kanakis holds an MBA in Finance and
Investments from the Zicklin School of Business at Baruch College.
 
 Frederick
W. Smith, Jr.
 CFO &
COO
 
 Mr. Smith
has been our Chief Financial and Chief Operating Officer since May, 2004. Mr.
Smith is a licensed California Attorney at Law and former accountant. In
addition to being our Chief Financial and Chief Operating Officer during the
past 12 months, Mr. Smith has been practicing law in California since 1982. Mr.
Smith has 28 years of experience in corporate finance, corporate governance,
financial reporting, litigation, formation, SEC regulations, corporate taxation,
corporate acquisition, mergers and reorganization matters. Mr. Smith earned his
BA from California State Fullerton in 1976. Mr. Smith received his JD from
Western State University College of law in 1980.
 
 George
Gitschel
 Vice
President of Business Development
 
 Mr.
Gitschel has over 24 years experience in the industry and is president of Rose
Waste Systems, Inc. Rose Waste Systems, Inc. designs and sells waste /
recyclable material handling systems to the commercial / industrial and
government sectors. Several companies located throughout the world manufacture
these systems to Rose specifications. Mr. Gitschel previously served as a Board
Member and principal spokesperson for the Independent Recycler’s Association.
Project Management is one of Mr. Gitschel forte’s, handling all aspects of
comprehensive project management and logistical coordination. Mr. Gitschel
typically involves himself in projects coordinating up to 8 different
subcontractors (trades) and ranging between $500,000 to $10,000,000 plus, in
cost. Mr. Gitschel specializes in management of engineering, manufacturing time
line, transportation, customs clearance, site improvement/modification, new
construction, equipment installation, rigging, permitting, machinery
commissioning, customer operational/safety training, and ongoing service
support. Itec intends to appoint Mr. Gitschel as it’s Vice President and Mr.
Gitschel has agreed to serve on our Board of Directors. Mr. Gitschel will also
be responsible for assisting Itec in the supply of raw materials that can be
purchased from the customers of Rose Waste Systems. Mr. Gitschel graduated from
the University of Santa Clara, CA in 1981 where he earned a B.S. in
Commerce.
 
 **Compliance
with Section 16(a) of the Exchange Act**
 
 Section
16(a) of the Exchange Act requires the Company’s officers, directors and persons
who beneficially own more than 10% of the Company’s common stock to file reports
of ownership and changes in ownership with the SEC. These reporting persons also
are required to furnish the Company with copies of all Section 16(a) forms they
file. None of the officers or directors of the Company filed Form 3s upon their
acquisition of securities of the Company neither did The BHI Group, Inc. or MTI
Properties. With the exception of the aforementioned, to the Company’s
knowledge, no officers, directors and persons who beneficially own more than 10%
of the Company’s common stock have failed to file the reports required pursuant
to Section 16(a).
  13
  **Code
of Ethics**
 
 The
Company has adopted a Code of Ethics. The Code of Ethics is Exhibit 14 to this
10-KSB. The Company hereby undertakes to provide any person without charge, upon
request, a copy of the Company’s Code of Ethics. Requests for copies of the
Company’s Code of Ethics may send such communication via the method listed
below:
 
 U.S. Mail
or Expedited Delivery Service:
 
 Itec
Environmental Group, Inc.
 P.O. Box
760
 5300
Claus Rd.
 Riverbank,
Ca. 95367
 Attn:
Gary De Laurentiis
 
 **ITEM
10. EXECUTIVE COMPENSATION**
  The
following tables set forth certain information regarding our CEO and each of our
most highly compensated executive officers whose total annual salary and bonus
for the fiscal years ending December 31, 2004, 2003, 2002 and 2001 exceeded
$100,000:
 
 SUMMARY
COMPENSATION TABLE
 
 Annual Compensation
    
    Long-term
    CompensationName
    
    
    Fiscal Year
    
    
    Salary  $
    
    
    Bonus  $
    
    
    OtherAnnual Comp.
    
    
    RestrictedStock
    
    
    Securities  UnderlyingOptions(#)
    
    LTIP Payouts  $
    
    All OtherCompensationGary M. DeLaurentiis
    
    
    2004
    
    
    23,400
    
    
    
    
    $
    31,186
    
    
    
    
    
    
    
    
    $
    166,200
    (2)CEO
    
    
    2003
    
    
    93,600
    
    
    
    
    $
    21,197
    
    
    
    
    
    
    
    
    $
    75,000
    (1)2002
    
    
    140,000
    
    
    
    
    $
    18,958
    
    
    
    
    
    6,061
    (3)2001
    
    
    90,000
    
    
    
    
    $
    9,479Michael E. Hofmann
    
    
    2004
    
    
    71,500
    
    
    
    
    $
    1,301CFO
    
    
    2003
    
    
    99,000
    
    
    
    
    
    
    
    $
    72,0002002
    
    
    72,000
    
    
    --
    
    
    --
    
    
    
    
    
    3,030
    (3)Frederick W. Smith, Jr
    
    
    .2004CFO
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    72,000
    (2)
 
 (1)
    Accrued
      compensation from years 2000 and 2001
 (2)
    Accrued
      compensation from year 2004
 (3)
    After
      165 to 1 reverse split in 2004
 
 OPTION
GRANTS IN LAST FISCAL YEAR.
 
 No
options were granted during the last completed fiscal year:
 
 
 AGGREGATED
OPTION EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES.
 
 The
following table sets out information relating to options exercised by the
above-referenced officers during the most recent financial year and the value of
unexercised in-the-money options held by such person as of December 31,
2003:
 
 NAME
    
    
    SHARESACQUIRED ON EXERCISE
      (#)
    
    
    VALUEREALIZED($)
    
    
    NUMBER OF
      UNEXERCISED
      OPTIONS AT FY-END (#)
      EXERCISABLE/UNEXERCISABLE
    
    
    VALUE
      OF UNEXERCISED IN-THE-
      MONEY
      OPTIONS AT FY-END($)
      EXERCISABLE/
      UNEXERCISABLEGary M. DeLaurentiis
    
    
    0
    
    
    0
    
    
    6,061
    (1)
    
    $0/$ 0Michael E.Hofmann
    
    
    0
    
    
    0
    
    
    3,030
    (2)
    
    $0/$ 0
 
 (1)
Represents presently exercisable options to purchase 6,061 shares of our common
stock at $29.70 per share.
 
 (2)
Represents presently exercisable options to purchase 3,030 shares of our common
stock at $29.70 per share.
 **ITEM
11. SECURITY ONWERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.**
 
 The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of April 13, 2005:
 
 Title
      of Class
    
    Name
      and Address of
      Beneficial
      Owner
    
    Amount
      and Nature of
      Beneficial
      Ownership
    
    Percent
      of Class(1)Common,
      $.001 par value
    
    Gary
      De Laurentiis
      P.O.
      Box 760, 5300 Claus Rd.,
      Riverbank,
      Ca. 95367
    
    
    2,517,194(2
    )
    
    11
    %Common,
      $.001 par value
    
    George
      Kanakis
      P.O.
      Box 760, 5300 Claus Rd.,
      Riverbank,
      Ca. 95367
    
    
    49,699
    
    
    1
    %Common,
      $.001 par value
    
    Jeff
      Chartier
      P.O.
      Box 760, 5300 Claus Rd.,
      Riverbank,
      Ca. 95367
    
    
    4,546
    
    
    1
    %Common,
      $.001 par value
    
    Frederick
      W. Smith, Jr.
      P.O.
      Box 760, 5300 Claus Rd.,
      Riverbank,
      Ca. 95367
    
    
    134,137
    
    
    1
    %Common,
      $.001 par value
    
    David
      M. Otto
      900
      Fourth Avenue, Suite 3140
      Seattle,
      WA 98164
    
    
    3,013,818
    
    
    15
    %Common,
      $.001 par value
    
    Directors
      and Officers as a Group
    
    
    2,706,176(2
    )
    
    12
    %
 
 (1) Based
on 19,507,890 shares of common stock issued and outstanding as of April 14,
2005. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as otherwise indicated, we believe that
the beneficial owners of the common stock listed above, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
 
 (2)
Includes the common stock warrant issued to Gary De
Laurentiis, its Chairman & CEO, pursuant
to which Mr. De Laurentiis may purchase up to 2,457,370 shares of common stock
of the Company, exercise price of $.06 per share, for a period of five
years.
  14
 
 **ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 In March
2004, in exchange for services provided by Mr. De Laurentiis to the Company, the
Company issued a Warrant to Gary De
Laurentiis, its Chairman & CEO, pursuant
to which Mr. De Laurentiis may purchase up to 2,457,370 shares of common stock
of the Company, exercise price of $.06 per share (the “Warrant”). The Warrant is
exerciseable for a period of five (5) years and may be exercised for cash or via
a cashless exercise. The shares underlying the Warrant have piggy-back
registration rights.
 
 **ITEM
13. EXHIBITS**
 
 Exhibit
      No.
    Description3.1(i)
    Amendment
      to Restated Certificate of Incorporation3.2(i)
    Restated
      Certificate of Incorporation3.3(i)
    Certificate
      of Incorporation3.4(ii)
    Bylaws4.1
    Form
      of Settlement and Release Agreement4.2
    Form
      of Proxy to Vote4.3
    Form
      of Voting Agreement4.4
    Form
      of Common Stock Subscription Agreement4.5
    Form
      of Common Stock Warrant issued to Gary M. De Laurentiis10.1
    Commitment
      Letter from the California Integrated Waste Management
    Board10.2
    Agreement
      with H. Muehlstein & Co., Inc.14
    Code
      of Ethics22
    Information
      Statement Pursuant to Section 14(C) of the Securities Exchange Act of
      193423
    Consent
      of Pohl, McNabola, Berg + Company, LLP31.1
    Certification
      of CEO pursuant to Section302
      of the Sarbanes-Oxley Act31.2
    Certification
      of CFO pursuant to Section302
      of the Sarbanes-Oxley Act32
    Certification
      of CEO and CFO pursuantto
      Section 906 of the Sarbanes-Oxley Act99.1
    Audit
      and Finance Committee Charter99.2
    Compensation
      and Nominating Committee Charter99.3
    Policy
      Governing Director Nominations and Security Holder-Board
      Communications
   15
 
 **ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 Pohl,
McNabola, Berg + Company, LLP served as
our independent certified public accountants for the fiscal years 2004 and
2003.
 
 During
the fiscal years ended December 31, 2004 and 2003, fees in connection with
services rendered by Pohl,
McNabola, Berg + Company, LLP , the
Company's independent auditor, were as set forth below:
 
 Fee
      Category
    
    Fiscal
      2003
    
    Fiscal
      2004Audit
      Fees
    
    $
    37,746
    
    $
    37,500Audit-Related
      Fees
    
    
    5,500
    
    
    28,410Tax
      Fees
    
    
    --
    
    
    3,500All
      Other FeesTotal
    
    
    43,246
    
    
    69,410
 
 Audit
fees consisted of fees for the audit of the Company's annual financial
statements and review of quarterly financial
statements as well as services normally provided in connection with statutory
and regulatory filings or engagements, consents and assistance with and review
of Company documents filed with the SEC.
 
 Audit-related
fees consisted of fees for review of interim financial statements and
registration statements.
 
 Tax fees
consisted primarily of fees for tax compliance, tax advice and tax planning
services.
 
 We made
no other payments to Pohl,
McNabola, Berg + Company, LLP during
2004 which constituted other fees.
 
 **Policy
for Pre-Approval of Audit and Non-Audit Services**
 
 The Audit
Committee's policy is to pre-approve all audit, audit-related and non-audit
services to be provided by the independent auditors and adopt and implement
policies for such pre-approval. Independent auditors shall not be engaged to
perform specific non-audit services proscribed by law or regulation. The
Committee may delegate pre-approval authority to a member of the Committee. The
decisions of any Committee member to whom pre-approval authority is delegated
must be presented to the full Audit Committee at its next scheduled
meeting.
 
 All
engagements of the independent auditor to perform any audit services and
non-audit services have been pre-approved by the Committee in accordance with
the pre-approval policy. The policy has not been waived in any instance.
   16
  **SIGNATURES**
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned; thereunto duly authorized, in the City of Riverbank, State of
California, on April 14, 2005.
 
 **ITEC
      ENVIRONMENTAL GROUP, INC.**Date:
    By:
    /s/Gary
      De LaurentiisChairman
      & CEO
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of Registrant and in the
capacities indicated on April 14, 2005.
 
 Signature
    
    Title/s/
      Gary M. De Laurentiis
    
    Chairman
      and C.E.O/s/
      Frederick W. Smith
    
    Chief
      Financial Officer/s/
      George Kanakis
    
    Director/s/
      Jeff Chartier
    
    Director
   17
 
 **EXHIBIT
INDEX**
 
 Exhibit
      No.
    Description
    
    Location3.1(i)
    Amendment
      to Restated Certificate of Incorporation
    
    Incorporated
      by reference to Exhibit A to the DEFR14C filed by the Company on November
      30, 20043.2(i)
    Restated
      Certificate of Incorporation
    
    Incorporated
      by reference to Exhibit B to the DEF-14C filed by the Company on September
      9, 20023.3(i)
    Certificate
      of Incorporation
    
    Incorporated
      by reference to the Form S-18 Registration Statement filed by the Company,
      File No. 33-31-673.4(ii)
    Bylaws
    
    Incorporated
      by reference to Exhibit B to the DEF-14C filed by the Company on September
      9, 20024.1
    Form
      of Settlement and Release Agreement
    
    Incorporated
      by reference to Exhibit 4.1 to the 10-QSB filed by the Company on November
      15, 20044.2
    Form
      of Proxy to Vote
    
    Incorporated
      by reference to Exhibit 4.2 to the 10-QSB filed by the Company on November
      15, 20044.3
    Form
      of Voting Agreement
    
    Incorporated
      by reference to Exhibit 4.3 to the 10-QSB filed by the Company on November
      15, 20044.4
    Form
      of Common Stock Subscription Agreement
    
    Incorporated
      by reference to Exhibit 4.4 to the 10-QSB filed by the Company on November
      15, 20044.5
    Form
      of Common Stock Warrant issued to Gary M. De Laurentiis
    
    Attached10.1
    Commitment
      Letter from the California Integrated Waste Management
    Board
    
    Incorporated
      by reference to Exhibit 10.1 to the 10-QSB filed by the Company on
      November 15, 200410.2
    Agreement
      with H. Muehlstein & Co., Inc.
    
    Attached14
    Code
      of Ethics
    
    Attached22
    Information
      Statement Pursuant to Section 14(C) of the Securities Exchange Act of
      1934
    
    Incorporated
      by reference to Exhibit A to the DEFR14C filed by the Company on November
      30, 200423
    Consent
      of Pohl, McNabola, Berg + Company, LLP
    
    Attached31.1
    Certification
      of CEO pursuant to Section 302
      of the Sarbanes-Oxley Act
    
    Attached31.2
    Certification
      of CFO pursuant to Section302
      of the Sarbanes-Oxley Act
    
    Attached32
    Certification
      of CEO and CFO pursuantto
      Section 906 of the Sarbanes-Oxley Act
    
    Attached99.1
    Audit
      and Finance Committee Charter
    
    Attached99.2
    Compensation
      and Nominating Committee Charter
    
    Attached99.3
    Policy
      Governing Director Nominations and Security Holder-Board
      Communications
    
    Attached
 
 
 18