UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM l0-QSB

 

(Mark One)

(X) QUARTERLY REPORT UNDER SECTlON 13 OR 15(d) OF THE SECURITIES 

EXCHANGE ACT OF 1934

**                         For the quarterly period ended June 30, 2005**
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                         For the transition period from______ to_____ 

 

Commission File Number 33-18582

 
**ITRONICS INC.**
(Exact name of small business issuer as specified in its charter)

 

                       TEXAS                             75-2198369
         (State or other jurisdiction of      (IRS Employer Identification Number)

           incorporation ororganization) 

 

6490 S. McCarran Blvd., Bldg C-23, Reno, Nevada 89509

(Address of principal executive offices)

 

Issuer's telephone number, including area code: (775)689-7696
 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements during the past 90 days. Yes (x) No ( ).

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of July 31, 2005, 194,344,788 shares of common stock were outstanding.

Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)

2

ITRONICS INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 
PART I - FINANCIAL    INFORMATION
PAGEItem 1. Financial    StatementsCondensed Consolidated    Balance Sheets – June 30, 2005and December 31, 2004 
4Condensed Consolidated    Statements of Operations and Comprehensive    Income for the Three and Six Months Ended 
June 30, 2005 and 2004 
6Condensed Consolidated    Statements of Cash Flows for theSix Months Ended June 30,    2005 and 2004 
7Notes to Condensed    Consolidated Financial Statements 
8Item 2. Management's    Discussion and Analysis or Plan ofOperation 
14Item 3. Controls and    Procedures
33PART II- OTHER INFORMATIONItem 1. Legal Proceedings
33Item 2. Changes in    Securities and Use of Proceeds 
34Item 3 Defaults upon Senior    Securities
35Item 6. Exhibits and    Reports on Form 8-K 
36Certifications
38
3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2005 AND DECEMBER 31, 2004

(UNAUDITED)

 

ASSETS
 
June 30,
December    31, 
2005
2004CURRENT ASSETS   Cash 
$ -
$ 5,180Accounts receivable, less    allowance for  doubtful accounts, 2005,    $5,700; 2004, $5,700
152,035
188,805Marketable securities,    available for sale
112,004
26,180Inventories
583,488
571,704Prepaid expenses
120,135
142,509Current portion of deferred    loan fees
14,752
14,152Total Current Assets
982,414
948,530   PROPERTY AND EQUIPMENT   Land 
215,000
215,000Building and improvements
1,167,315
1,167,315Design and construction in    progress,   manufacturing facility
136,921
121,171Equipment and furniture 
2,077,587
2,071,998Vehicles 
133,028
133,028Equipment under capital    lease 
1,096,104
1,096,104 
4,825,955
4,804,616Less: Accumulated    depreciation and amortization
1,794,154
1,670,668 
3,031,801
3,133,948OTHER ASSETS   Intangibles, net of    amortization 
79,911
8,435Deferred loan fees, less    current portion, net of  amortization 
31,528
34,502Deposits
22,525
22,525 
133,964
65,462 
$4,148,179
$4,147,940
4

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
June 30,
December    31, 
2005
2004CURRENT LIABILITIES   Bank overdraft
$ 30,208
$ -Accounts payable 
590,709
558,566Account receivable and    inventory factoring
144,310
51,229Accrued management salaries    
528,799
389,127Accrued expenses 
322,083
398,731Insurance contracts payable    
34,327
15,048Interest payable 
277,080
211,216Current maturities of    long-term debt 
179,222
522,845Current maturities of    capital lease obligations 
768,723
807,746Current maturities of    advances from an officer/stockholder
246,525
161,525Current maturities of    capital lease due stockholder
5,600
5,420Current maturities of    convertible notes and accrued interest
2,760,504
1,020,946Other 
30,679
21,429Total Current Liabilities 
5,918,769
4,163,828   LONG-TERM LIABILITIES  Long-term debt, less    current maturities 
549,735
97,022Convertible promissory    notes, less current maturities 
- 
1,517,000Accrued interest,    convertible notes, less current maturities
-
925,216Capital lease obligation,    shareholder, less current 
maturities
6,326
9,144Total Long-Term Liabilities    
556,061
2,548,382 
6,474,830
6,712,210   STOCKHOLDERS' EQUITY    (DEFICIT)  Preferred stock, par value    $0.001 per share;  authorized 999,500 shares,    issued and outstanding  2005, 0 shares; 2004, 0    shares 
-
-Common stock, par value    $0.001 per share;  authorized 250,000,000    shares, issued and outstanding,  194,339,788 at June 30,    2005; 164,863,938 at   December 31, 2004
194,340
164,864Additional paid-in capital 
21,475,837
19,438,213Accumulated deficit 
(24,677,953)
(22,944,959)Common stock to be issued 
663,242
786,426Accumulated other    comprehensive income (loss) 
(19,642)
(9,568)Common stock options    outstanding, net 
37,525
754 
(2,326,651)
(2,564,270) 
$4,148,179
$4,147,940
 

See Notes to Condensed Consolidated Financial Statements

5

 

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004

(UNAUDITED)
 
Three Months Ended June 30,
Six Months Ended June 30, 
2005
2004
2005
2004REVENUES    Fertilizer 
$ 484,664
$ 476,910
$ 695,898
$ 706,389Photochemical recycling 
19,888
75,084
42,069
129,643Silver 
19,115
21,517
45,874
64,475Mining technical services 
33,661
52,659
83,460
132,503Total Revenues 
557,328
626,170
867,301
1,033,010COST OF SALES 
546,658
588,598
897,766
1,029,171Gross Profit (Loss) 
10,670
37,572
(30,465)
3,839     OPERATING EXPENSES    Depreciation and    amortization 
65,442
79,338
130,884
157,449Research and development 
52,920
27,808
133,656
48,911Sales and marketing 
244,434
269,122
525,271
483,407Delivery and warehousing
34,908
34,275
52,991
51,881General and administrative 
225,934
249,425
485,569
462,200Total Operating Expenses 
623,638
659,968
1,328,371
1,203,848Operating (Loss) 
(612,968)
(622,396)
(1,358,836)
(1,200,009)     OTHER INCOME (EXPENSE)    Interest expense 
(201,722)
(202,325)
(365,774)
(411,095)Gain (loss) on sale of 
investments
(6,431)
22,044
(10,116)
97,802Other
1,732
5
1,732
13Total Other Income    (Expense) 
(206,421)
(180,276)
(374,158)
(313,280)     Income (Loss) before    provision 
for income tax
(819,389)
(802,672)
(1,732,994)
(1,513,289)Provision for income tax 
-
-
-
-Net Income(Loss) 
(819,389)
(802,672)
(1,732,994)
(1,513,289)     Other comprehensive income    (loss)    Unrealized gains (losses)    on 
securities 
(1,192)
(105,099)
(10,074)
(289,853)Comprehensive Income (Loss)    
$(820,581)
$ (907,771)
$(1,743,068)
$(1,803,142)     Weighted average number of    shares     Outstanding (1,000’s)
192,661
137,761
183,628
132,651Earnings (Loss) per share,    basic     and diluted
$(0.004)
$(0.006)
$(0.009)
$(0.011)
See Notes to Condensed Consolidated Financial Statements

6

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

(UNAUDITED)
 
Six Months Ended June 30, 
2005
2004Cash flows from operating    activities   Net income (loss) 
$(1,732,994)
$(1,513,289)Adjustments to reconcile    net loss to 
cash used by operating activities:    Depreciation and    amortization 
130,884
157,449  Interest on    convertible notes
180,038
261,411  Marketable    securities received for services
(116,193)
(15,256)  (Gain) Loss on    investments
10,116
(97,802)  Stock option    compensation 
37,112
123  Other
(1,725)
-Expenses paid with issuance    of common stock 
429,453
310,925  (Increase) decrease    in:    Trade accounts    receivable 
36,770
(71,142)  Inventories 
(11,784)
(104,371)  Prepaid expenses and    deposits 
(15,295)
1,805Increase (decrease) in:    Accounts payable 
43,990
77,479  Accrued management    salaries
139,672
52,431  Accrued expenses and    contracts payable 
(48,119)
58,077  Accrued interest
65,864
16,358Net cash used by operating    activities 
(852,211)
(865,802)   Cash flows from investing    activities:    Acquisition of    property and equipment 
(5,589)
(8,922)  Acquisition of    intangibles
(5,000)
-  Proceeds from sale    of investments
10,177
223,139Net cash provided (used) by    investing activities 
(412)
214,217   Cash flows from financing    activities:    Proceeds from sale    of stock 
570,000
712,000  Proceeds from debt,    stockholder
90,000
-  Proceeds from short    term debt, unrelated
125,000
-  Proceeds from    receivable/inventory factoring, net
93,081
38,641  Payments on debt 
(60,846)
(112,080)Net cash provided by    financing activities 
817,235
638,561   Net increase (decrease) in    cash 
(35,388)
(13,024)