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 September 30, 2006**
( ) 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 EmployerIdentification Number)

         incorporation or organization) 

 

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 November 1, 2006, 262,582,597 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 – September 30, 2006and December 31, 2005    (Unaudited) 
4Condensed Consolidated    Statements of Operations for the Three and Nine Months    Ended September 30, 2006 and 2005 (Unaudited) 
6Condensed Consolidated    Statements of Stockholders’ Equity (Deficit)For the Nine Months Ended    September 30, 2006 and the Year EndedDecember 31, 2005    (Unaudited)
7Condensed Consolidated    Statements of Cash Flows for theNine Months Ended September    30, 2006 and 2005 (Unaudited) 
8Notes to Condensed    Consolidated Financial Statements (Unaudited) 
10Item 2. Management's    Discussion and Analysis or Plan of Operation
22Item 3. Controls and    Procedures
33PART II- OTHER INFORMATIONItem 1. Legal Proceedings
34Item 2. Changes in    Securities and Use of Proceeds 
35Item 3 Defaults upon Senior    Securities
36Item 6. Exhibits 
36Certifications
38
 

3

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2006 AND DECEMBER 31, 2005

(UNAUDITED)

 

ASSETS
 
September    30,
December    31, 
2006
2005   CURRENT ASSETS   Cash 
$ 27,707
$ 24,260Accounts receivable, less    allowance for  doubtful accounts, 2006,    $4,600; 2005, $7,600
53,429
21,164Marketable securities,    available for sale
-
91,758Inventories
573,194
592,098Prepaid expenses
73,299
94,447    Total    Current Assets
727,629
823,727   PROPERTY AND EQUIPMENT   Land 
215,000
215,000Building and improvements
1,167,315
1,167,315Design and construction in    progress,   manufacturing facility
102,547
153,896Equipment and furniture 
2,388,275
2,302,984Vehicles 
200,557
200,557Equipment under capital    lease-equipment and furniture 
847,105
851,952Equipment under capital    lease-vehicles
21,741
21,741 
4,942,540
4,913,445Less: Accumulated    depreciation and amortization
2,074,567
1,903,525 
2,867,973
3,009,920OTHER ASSETS   Intangibles 
76,500
76,500Deferred loan fees, net of    amortization
342,223
311,362Deposits
8,108
8,108 
426,831
395,970 
$4,022,433
$4,229,617
4

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
September    30,
December    31, 
2006
2005CURRENT LIABILITIES   Accounts payable 
$ 490,684
$ 437,113Account receivable and    inventory factoring
65,000
-Accrued management salaries    
739,440
599,900Accrued expenses 
188,056
239,130Insurance contracts payable    
38,219
13,738Interest payable to    officer/stockholders
44,264
13,276Interest payable 
191,055
197,708Current maturities of    long-term debt 
44,266
57,414Current maturities of    capital lease obligations 
606,281
730,403Current maturities of    advances from an officer/stockholder
161,525
161,525Current maturities of    capital lease due stockholder
4,827
5,858Current maturities of    convertible notes and accrued interest
3,214,527
2,918,559Convertible debt derivative
4,941,431
3,621,220Warrant and option    liability
402,766
134,212Other 
36,573
35,234Total Current Liabilities 
11,168,914
9,165,290   LONG-TERM LIABILITIES  Long-term debt, less    current maturities 
511,238
534,607Capital lease obligation,    shareholder, less current   maturities 
-
3,319Total Long-Term Liabilities    
511,238
537,926 
11,680,152
9,703,216   STOCKHOLDERS' EQUITY    (DEFICIT)  Preferred stock, par value    $0.001 per share;  authorized 999,500 shares,    issued and outstanding  2006, 0 shares; 2005, 0    shares 
-
-Common stock, par value    $0.001 per share;  authorized 1,000,000,000    shares, issued and outstanding,  253,097,600 at Sept. 30,    2006; 197,148,179 at   December 31, 2005
253,098
197,148Additional paid-in capital 
22,476,592
21,646,307Accumulated deficit 
(30,960,383)
(27,851,571)Common stock to be issued 
568,680
573,993Accumulated other    comprehensive income (loss) 
-
(39,889)Common stock options    outstanding, net 
4,294
413 
(7,657,719)
(5,473,599) 
$ 4,022,433
$ 4,229,617
See Notes to Condensed Consolidated Financial Statements

5

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

(UNAUDITED)
 
Three Months Ended Sept 30,
Nine Months Ended Sept 30, 
2006
2005
2006
2005REVENUES    GOLD’n GRO    fertilizer 
$294,849
$ 231,166
$1,393,223
$1,015,007Mining    technical services 
3,300
12,230
25,211
44,094Total Revenues 
298,149
243,396
1,418,434
1,059,101COST OF    REVENUES (exclusive of     depreciation    and amortization    shown    separately below)    GOLD’n GRO    fertilizer 
303,080
279,011
1,267,654
1,084,298Mining    technical services 
6,951
15,698
29,616
56,581Total Cost of    Revenues
310,031
294,709
1,297,270
1,140,879Gross Profit    (Loss)(exclusive     of depreciation    and amortization    shown    separately below
(11,882)
(51,313)
121,164
(81,778)     OPERATING    EXPENSES    Depreciation    and amortization 
57,414
61,903
171,042
185,413Research and    development 
80,106
64,313
221,101
197,969Sales and    marketing 
182,118
214,325
543,198
739,596Delivery and    warehousing
19,186
9,366
89,298
62,357General and    administrative 
232,843
204,381
688,405
689,950Total Operating    Expenses 
571,667
554,288
1,713,044
1,875,285Operating    (Loss) 
(583,549)
(605,601)
(1,591,880)
(1,957,063)     OTHER INCOME    (EXPENSE)    Interest    expense 
(297,204)
(235,442)
(884,347)
(608,590)Gain (loss) on    derivative instruments
(2,222,810)
(481,236)
(730,404)
(481,236)Gain (loss) on    sale of investments
-
-
97,728
(10,116)Other
-
23,607
91
25,339Total Other    Income (Expense) 
(2,520,014)
(693,071)
(1,516,932)
(1,074,603)     Income (Loss)    before provision 
for income tax
(3,103,563)
(1,298,672)
(3,108,812)
(3,031,666)Provision for    income tax 
-
-
-
-     Net    Income(Loss) 
(3,103,563)
(1,298,672)
(3,108,812)
(3,031,666)Other    comprehensive income (loss)    Unrealized    gains (losses) on 
securities 
-
(2,269)
39,889
(12,343)     Comprehensive    Income (Loss) 
$(3,103,563)
$(1,300,941)
$(3,068,923)
$(3,044,009)     Weighted    average number of shares     Outstanding    (1,000’s)
246,864
195,625
219,980
187,671Earnings (Loss)    per share, basic     and diluted
$(0.013)
$(0.007)
$(0.014)
$(0.016)
See Notes to Condensed Consolidated Financial Statements

6

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND THE YEAR ENDED DECEMBER31, 2005 

(UNAUDITED)
 
COMMON STOCK   
ACCUMULATED
COMMON 
NUMBER    OF 
ADDITIONAL 
COMMON
OTHER
STOCK  
SHARES  
PAID-IN
ACCUMULATED
STOCK TO 
COMPREHENSIVE
OPTIONS,  
(1,000’s)
AMOUNT
CAPITAL
DEFICIT
BE    ISSUED
INCOME
NET
TOTALBalance, Dec. 31, 2004 
164,864
$164,864
$19,438,213
$(22,944,959)
$786,426
$ (9,568)
$754
$(2,564,270)Issue of common stock:         For cash
12,050
12,050
590,450
-
(32,500)
-
-
570,000For services
6,003
6,003
406,323
-
(9,933)
-
-
402,393For debt conversion
12,893
12,893
1,114,209
-
(170,000)
-
-
957,102For asset acquisition
1,338
1,338
97,112
-
-
-
-