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, 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 orother jurisdiction of   (IRS Employer Identification Number)

             incorporationor 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 August 1, 2006, 248,164,218 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, 2006and December 31, 2005    (Unaudited) 
4Condensed Consolidated    Statements of Operations for the Three and Six Months    Ended June 30, 2006 and 2005 (Unaudited) 
6Condensed Consolidated    Statements of Stockholders’ Equity (Deficit)For the Six Months Ended    June 30, 2006 and the Year EndedDecember 31, 2005    (Unaudited)
7Condensed Consolidated    Statements of Cash Flows for theSix Months Ended June 30,    2006 and 2005 (Unaudited) 
8Notes to Condensed    Consolidated Financial Statements (Unaudited) 
10Item 2. Management's    Discussion and Analysis or Plan ofOperation 
22Item 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 
35Certifications
50
3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2006 AND DECEMBER 31, 2005

(UNAUDITED)

 

ASSETS
 
June 30,
December    31, 
2006
2005   CURRENT ASSETS   Cash 
$ 20,130
$ 24,260Accounts receivable, less    allowance for  doubtful accounts, 2006,    $4,600; 2005, $7,600
161,882
21,164Marketable securities,    available for sale
-
91,758Inventories
604,345
592,098Prepaid expenses
85,285
94,447Total Current Assets
871,642
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
2,017,153
1,903,525 
2,925,387
3,009,920OTHER ASSETS   Intangibles 
76,500
76,500Deferred loan fees, net of    amortization
326,495
311,362Deposits
8,108
8,108 
411,103
395,970 
$4,208,132
$4,229,617
4

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
June 30,
December    31, 
2006
2005CURRENT LIABILITIES   Accounts payable 
$ 534,094
$ 437,113Account receivable and    inventory factoring
65,000
-Accrued management salaries    
691,561
599,900Accrued expenses 
156,054
239,130Insurance contracts payable    
44,073
13,738Interest payable to    officer/stockholders
29,869
13,276Interest payable 
191,476
197,708Current maturities of    long-term debt 
47,660
57,414Current maturities of    capital lease obligations 
655,868
730,403Current maturities of    advances from an officer/stockholder
161,525
161,525Current maturities of    capital lease due stockholder
6,331
5,858Current maturities of    convertible notes and accrued interest
3,091,764
2,918,559Convertible debt derivative
2,519,293
3,621,220Callable secured    convertible debt and accrued interest
249,971
-Warrant and option    liability
30,620
134,212Other 
37,036
35,234Total Current Liabilities 
8,512,195
9,165,290   LONG-TERM LIABILITIES  Long-term debt, less    current maturities 
517,986
534,607Capital lease obligation,    shareholder, less current   maturities 
-
3,319Total Long-Term Liabilities    
517,986
537,926 
9,030,181
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,  226,388,632 at June 30,    2006; 197,148,179 at   December 31, 2005
226,389
197,148Additional paid-in capital 
22,243,661
21,646,307Accumulated deficit 
(27,856,820)
(27,851,571)Common stock to be issued 
561,018
573,993Accumulated other    comprehensive income (loss) 
-
(39,889)Common stock options    outstanding, net 
3,703
413 
(4,822,049)
(5,473,599) 
$4,208,132
$ 4,229,617
See Notes to Condensed Consolidated Financial Statements

5

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005

(UNAUDITED)
 
Three Months Ended June 30,
Six Months Ended June 30, 
2006
2005
2006
2005REVENUES    GOLD’n GRO    fertilizer 
$ 766,563
$ 523,667
$1,098,374
$ 783,841Mining    technical services 
1,460
7,862
21,911
31,864Total Revenues 
768,023
531,529
1,120,285
815,705     COST OF    REVENUES (exclusive of     depreciation    and amortization    shown    separately below)    GOLD’n GRO    fertilizer 
621,356
502,949
964,574
805,287Mining    technical services 
6,856
17,910
22,665
40,883Total Cost of    Revenues
628,212
520,859
987,239
846,170Gross Profit    (Loss)(exclusive     of depreciation    and amortization    shown    separately below
139,811
10,670
133,046
(30,465)     OPERATING    EXPENSES    Depreciation    and amortization 
57,114
61,755
113,628
123,510Research and    development 
68,619
52,920
140,995
133,656Sales and    marketing 
175,055
244,434
361,080
525,271Delivery and    warehousing
52,555
34,908
70,112
52,991General and    administrative 
236,402
225,934
455,562
485,569Total Operating    Expenses 
589,745
619,951
1,141,377
1,320,997Operating    (Loss) 
(449,934)
(609,281)
(1,008,331)
(1,351,462)OTHER INCOME    (EXPENSE)    Interest    expense 
(305,844)
(205,409)
(587,143)
(373,148)Gain (loss) on    derivative instruments
986,137
-
1,492,406
-Gain (loss) on    sale of investments
43,497
(6,431)
97,728
(10,116)Other
91
1,732
91
1,732Total Other    Income (Expense) 
723,881
(210,108)
1,003,082
(381,532)Income (Loss)    before provision 
for income tax
273,947
(819,389)
(5,249)
(1,732,994)    Provision for    income tax 
-
-
-
-Net    Income(Loss) 
273,947
(819,389)
(5,249)
(1,732,994)     Other    comprehensive income (loss)    Unrealized    gains (losses) on 
securities 
(47,783)
(1,192)
39,889
(10,074)Comprehensive    Income (Loss) 
$ 226,164
$(820,581)
$ 34,640
$(1,743,068)     Weighted    average number of shares     Outstanding    (1,000’s)
213,590
192,661
206,315
183,628Earnings (Loss)    per share, basic     and diluted
$0.001
$(0.004)
$ -
$(0.009)
See Notes to Condensed Consolidated Financial Statements

6

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND THE YEAR ENDED DECEMBER 31,2005 

(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
-