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, 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 otherjurisdiction of         (IRS EmployerIdentification 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 October 31, 2005, 197,057,628 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, 2005and December 31, 2004 
4Condensed Consolidated    Statements of Operations for the Threeand NIne Months    Ended September 30, 2005 and 2004 
6Condensed Consolidated    Statements of Cash Flows for theNine Months Ended September    30, 2005 and 2004 
7Notes to Condensed    Consolidated Financial Statements 
9Item 2. Management's    Discussion and Analysis or Plan ofOperation 
16Item 3. Controls and    Procedures
27PART II- OTHER INFORMATIONItem 1. Legal Proceedings
27Item 2. Changes in    Securities and Use of Proceeds 
28Item 3 Defaults upon Senior    Securities
29Item 6. Exhibits and    Reports on Form 8-K 
30Certifications
32
3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2005 AND DECEMBER 31, 2004

(UNAUDITED)

 

ASSETS
 
September    30,
December    31, 
2005
2004CURRENT ASSETS   Cash 
$702,014
$ 5,180Accounts receivable, less    allowance for  doubtful accounts, 2005,    $5,700; 2004, $5,700
102,187
188,805Marketable securities,    available for sale
109,735
26,180Inventories
567,834
571,704Prepaid expenses
168,429
142,509Current portion of deferred    loan fees
113,929
14,152Total Current Assets
1,764,128
948,530   PROPERTY AND EQUIPMENT   Land 
215,000
215,000Building and improvements
1,167,315
1,167,315Design and construction in    progress,     manufacturing    facility
178,921
121,171Equipment and furniture 
3,095,572
3,080,430Vehicles 
216,474
220,700 
4,873,282
4,804,616Less: Accumulated    depreciation and amortization
1,851,671
1,670,668 
3,021,611
3,133,948OTHER ASSETS   Intangibles, net of    amortization 
77,051
8,435Deferred loan fees, less    current portion, net of  amortization 
204,952
34,502Deposits
17,212
22,525 
299,215
65,462 
$5,084,954
$4,147,940
4

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

September 30,
December 31,
2005
2004CURRENT    LIABILITIES Accounts    payable 
$ 429,041
$ 558,566Account    receivable and inventory factoring
94,777
51,229Accrued    management salaries 
570,771
389,127Accrued    expenses 
191,968
398,731Insurance    contracts payable 
27,309
15,048Interest    payable to officer/stockholders
12,917
6,307Interest    payable 
252,454
204,909Current    maturities of long-term debt 
57,779
522,845Current    maturities of capital lease obligations 
665,697
807,746Current    maturities of advances from an officer/stockholder
161,525
161,525Current    maturities of capital lease due stockholder
5,600
5,420Current    maturities of convertible notes and accrued interest
2,839,502
1,020,946Other 
31,621
21,429Total Current    Liabilities 
5,340,961
4,163,828LONG-TERM    LIABILITIESLong-term debt,    less current maturities 
541,045
97,022Callable    secured convertible notes, net of unamortizeddiscount of    $2,135,418
114,582
-Convertible    promissory notes, less current maturities 
-
1,517,000Accrued    interest, convertible notes, less current maturities
-
925,216Capital lease    obligation, shareholder, less current 
maturities
4,965
9,144Total Long-Term    Liabilities 
660,592
2,548,382
6,001,553
6,712,210STOCKHOLDERS'    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,     196,907,628 at September 30, 2005; 164,863,938 at   December    31, 2004
196,908
164,864Additional    paid-in capital 
23,895,053
19,438,213Accumulated    deficit 
(25,609,971)
(22,944,959)Common stock to    be issued 
579,530
786,426Accumulated    other comprehensive income (loss) 
(21,911)
(9,568)Common stock    options outstanding, net 
43,792
754
(916,599)
(2,564,270)
$5,084,954
$4,147,940
 

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, 2005 AND 2004

(UNAUDITED)
 
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30, 
2005
2004
2005
2004REVENUES    Photochemical fertilizer 
$ 231,166
$ 251,888
$1,015,007
1,152,395Mining technical services 
12,230
37,846
95,690
170,349Total Revenues 
243,396
289,734
1,110,697
1,322,744COST OF REVENUES (exclusive    of     depreciation and    amortization    shown separately below)    Photochemical fertilizer 
279,011
291,322
1,084,298
1,185,096Mining technical services 
15,698
51,199
108,177
186,596Total Cost of Revenues
294,709
342,521
1,192,475
1,371,692Gross Profit (Loss) 
(51,313)
(52,787)
(81,778)
(48,948)OPERATING EXPENSES    Depreciation and    amortization 
81,834
82,119
212,718
239,568Research and development 
64,313
45,338
197,969
94,249Sales and marketing 
214,325
215,549
739,596
698,956Delivery and warehousing
9,366
10,807
62,357
62,688General and administrative 
204,381
210,405
689,950
672,605Total Operating Expenses 
574,219
564,218
1,902,590
1,768,066Operating (Loss) 
(625,532)
(617,005)
(1,984,368)
(1,817,014)OTHER INCOME (EXPENSE)    Interest expense 
(215,511)
(191,379)
(581,285)
(602,474)Interest-amortization of    note 
discount
(114,582)
-
(114,582)
-Gain (loss) on sale of 
investments
-
38,418
(10,116)
136,220Other
23,607
10
25,339
23Total Other Income    (Expense) 
(306,486)
(152,951)
(680,644)
(466,231)     Income (Loss) before    provision 
for income tax
(932,018)
(769,956)
(2,665,012)
(2,283,245)Provision for income tax 
-
-
-
-     Net Income(Loss) 
(932,018)
(769,956)
(2,665,012)
(2,283,245)     Other comprehensive income    (loss)    Unrealized gains (losses)    on 
  securities 
(2,269)
(53,966)
(12,343)
(343,819)     Comprehensive Income (Loss)    
$(934,287)
$(823,922)
$(2,677,355)
$(2,627,064)     Weighted average number of    shares       Outstanding    (1,000’s)
195,625
144,755
187,671
136,715Earnings (Loss) per share,    basic       and diluted
$(0.005)
$(0.005)
$(0.014)
$(0.017)
See Notes to Condensed Consolidated Financial Statements

6

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(UNAUDITED)
 
Nine Months Ended Sept. 30, 
2005
2004Cash flows from operating    activities   Net income (loss) 
$(2,665,012)
$(2,283,245)Adjustments to reconcile    net loss to 
cash used by operating activities:    Depreciation and    amortization 
212,718
239,568  Interest on    convertible notes
286,537
383,572  Amortization of note    discount
114,582
-  Marketable    securities received for services
(116,193)
(33,318)  (Gain) Loss on    investments
10,116
(136,220)  Addition of silver    in solution inventory by 
    offsetting photochemical processing fees
(28,598)
(82,549)  Stock option    compensation 
43,379
536  (Gains)on debt    forgiveness
(24,832)
-  Other
2,200
-  Expenses paid with    issuance of common stock 
480,322
478,045  (Increase) decrease    in:      Trade    accounts receivable 
86,618
(33,593)       Inventories 
32,468
(14,427)    Prepaid    expenses and deposits 
(25,021)
(3,207)  Increase (decrease)    in:      Accounts    payable 
(117,678)
52,706    Accrued    management salaries
181,644
104,711    Accrued    expenses and contracts payable 
(184,310)
174,700    Accrued    interest
67,360
35,339         Net cash used by operating activities 
(1,643,700)
(1,117,382)   Cash flows from investing    activities:  Acquisition of property and    equipment 
(57,142)
(16,506)Acquisition of intangibles
(195,490)
-Proceeds from sale of    investments
10,177
320,390Proceeds from sale of    equipment
500
-         Net cash provided (used) by investing activities 
(241,955)
303,884   Cash flows from financing    activities:  Proceeds from sale of stock    
570,000