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, 2000

( ) 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 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
NO CHANGE 
Former name, former address and former fiscal, if changes since lastreport.

 

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

State the number of shares outstanding of each of the issuer's classes of commonequity, as of the latest practicable date:

As of October 31, 2000, 73,982,350 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

Item 1. Financial Statements

  Condensed Consolidated Balance Sheets – September 30, 2000 and December 31,1999           4

  Condensed Consolidated Statements of Operations and Comprehensive Income for the

   Three and Nine Months Ended September 30, 2000 and 1999.                                6

  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended 

   September 30, 2000 and 1999.                                                            7

  Notes to Condensed Consolidated Financial Statements                                     8

 

Item 2. Management's Discussion and Analysis or Plan of Operation                         10

 

PART II- OTHER INFORMATION

Item 1. Legal Proceedings                                                                 15

Item 2. Changes in Securities and Use of Proceeds                                         15

Item 6. Exhibits and Reports on Form 8-K                                                  16

3

PART I - FINANCIAL INFORMATIONON

Item 1. Financial Statements

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2000 AND DECEMBER 31, 1999

(UNAUDITED)

ASSETS
 
Sept.    30, 2000
Dec.    31, 1999CURRENT ASSETS  Cash 
$ 341,134
$ 142,287Accounts receivable 
225,719
225,089Account receivable,    equipment financing 
2,733
133,669Note receivable,    subscriptions of stock 
9,849
13,591Inventories 
299,483
54,981Deferred loan fees, current    portion 
14,307
7,923Prepaid expenses 
171,944
94,669Total Current Assets 
1,065,169
672,209PROPERTY AND EQUIPMENT  Land 
215,000
215,000Building and improvements 
1,046,298
787,526Plant design/construction    in progress 
4,250
681,225Leasehold improvements 
900
14,212Equipment and furniture 
1,542,024
433,316Vehicles 
98,437
69,155Equipment under capital    lease 
860,680
803,555 
3,767,589
3,003,989Less: Accumulated    depreciation and amortization 
444,562
336,326 
3,323,027
2,667,663OTHER ASSETS  Intangibles 
62,810
71,219Marketable securities,    available for sale 
269,426
165,660Investment in non-public    company 
30,000
30,000Deferred loan fees, less    current portion 
46,737
31,694Investment in American Gold    & Silver Ltd. 
9,250
9,250Deposits 
45,001
29,647 
463,224
337,470 
$4,851,420
$3,677,342   
See Notes to Condensed Consolidated Financial Statements

4

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2000 AND DECEMBER 31, 1999

(UNAUDITED)

LIABILITIES AND STOCKHOLDERS' EQUITY
 
Sept.    30, 2000
Dec.    31, 1999CURRENT LIABILITIES  Accounts payable 
$ 307,943
$ 382,882Accrued management salaries    
12,615
15,513Accrued expenses 
121,715
88,491Insurance contracts payable    
15,070
16,127Interest payable 
10,931
12,490Current maturities of    long-term debt and leases 
200,000
162,855Current maturities of    advances and leases from   stockholders
5,565
35,785Other 
14,031
13,131Total Current Liabilities 
687,870
727,274LONG-TERM LIABILITIES   Long-term debt and leases,    less current maturities
827,999 
777,960Convertible promissory    notes 
2,668,000
100,000Accrued interest,    convertible notes 
161,189             -Accrued salary due    stockholder 
25,854
29,454Deferred gain, less current    maturities 
26,460
34,209Total Long-Term Liabilities    
3,709,502
941,623 
4,397,372
1,668,897STOCKHOLDERS' EQUITY  Preferred stock (-0- shares    outstanding) 
          -
         -Common stock (73,937,350    shares outstanding at    September 30, 2000    and 70,828,231 outstanding    at December 31,    1999) 
73,937
70,828Additional paid-in capital 
9,379,183
8,013,746Accumulated deficit 
(9,116,606)
(6,276,762)Common stock to be issued 
200,233
104,061Accumulated other    comprehensive income 
(79,031)
92,799Common stock options    outstanding, net 
(3,668)
3,773 
454,048
2,008,445 
$4,851,420
$3,677,342
See Notes to Condensed Consolidated Financial Statements

5

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,2000 AND 1999

(UNAUDITED)

 
 
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30, 
2000
1999
2000
1999REVENUES    Fertilizer
$ 47,638
$ 16,765
$ 108,918
$ 50,374Photobyproduct recycling 
51,923
33,566
144,777
93,101Silver 
27,675
23,610
78,171
94,554Mining technical services 
205,178
229,816
532,962
389,106Total Revenues 
332,414
303,757
864,828
627,135COST OF SALES 
376,690
367,523
995,568
818,588   Gross Profit 
(44,276)
(63,766)
(130,740)
(191,453)OPERATING EXPENSES    Depreciation and    amortization 
67,449
24,989
140,332
59,165Research and development 
9,192
15,734
33,919
41,882Sales and marketing 
481,166
261,907
1,450,557
638,461Plant start-up costs 
53,488
229
174,979
26,935General and admin. 
270,157
154,637
702,169
413,179 
881,452
457,496
2,501,956
1,179,622   Operating    Income (Loss) 
(925,728)
(521,262)
(2,632,696)
(1,371,075)OTHER INCOME (EXPENSE)    Interest expense 
(108,742)
(28,593)
(262,888)
(66,767)Interest income 
9,518
6,058
55,740
13,706   Total Other    Income (Expense) 
(99,224)
(22,535)
(207,148)
(53,061)   Income (Loss)    before provision        for    income taxes 
(1,024,952)
(543,797)
(2,839,844)
(1,424,136)Provision for income taxes 
     -
   -
     -
    -   Net Income    (loss) 
(1,024,952)
(543,797)
(2,839,844)
(1,424,136)Other comprehensive income    Unrealized gains (losses)    on securities 
(41,669)
(8,170)
(171,830)
(3,532)   Comprehensive    Loss 
$(1,066,621)
$(551,967)
$(3,011,674)
$(1,427,668)Weighted average number of    shares outstanding    (1,000's) 
73,682
68,267
72,925
64,102Earnings (loss) per share 
$(0.0139)
$(0.0080)
$(0.0389)
$(0.0222)
See Notes to Condensed Consolidated Financial Statements

6

ITRONICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,2000 AND 1999

(UNAUDITED)

 

Nine Months Ended Sept. 30,
2000
1999CASH FLOWS FROM    (FOR) OPERATING ACTIVITIESNet income    (loss) 
$(2,839,844)
$(1,424,136)Adjustments to    reconcile net income (loss) to cash used by    operations     Depreciation and amortization 
140,332
59,165  Interest    on convertible notes 
161,189
      -  Option    compensation 
27,612
      -  Bad    debts 
4,750
      -  Other 
4,516
      -  Expenses    paid with issuance of common stock 
711,524
150,178     (Increase) decrease:      Trade receivables 
(5,380)
(43,210)      Interest receivable-stock subscription 
    -
917      Inventories 
(244,502)
(3,402)      Prepaid expenses 
(75,123)
(47,746)      Deposits 
(15,354)
(16,920)  Increase    (decrease):      Accounts payable 
(74,477)
145,109      Accrued expenses and contracts 
26,569
(78,857)      Accrued interest 
( 1,559)
( 7,559)      Net Cash Used by Operating Activities 
(2,179,747)
(1,266,461)CASH FLOWS FROM    (FOR) INVESTING ACTIVITIESAcquisition of    property and equipment 
(739,520)
(772,399)Acquisition of    marketable securities 
(275,596)
(34,629)Acquisition of    intangibles 
(2,838)
(36,882)      Net Cash Used by Investing Activities 
(1,017,954)
(843,910)CASH FLOWS FROM    (FOR) FINANCING ACTIVITIESProceeds from    sale of common stock 
714,781
2,110,839Proceeds from    debt 
2,883,000
179,435Payments on    debt 
(201,233)
(168,292)      Net Cash Provided by Financing Activities 
3,396,548
2,121,982      Net Increase (Decrease) in Cash 
198,847
11,611Cash, beginning    of period 
142,287
348,829Cash, end of    period 
$ 341,134
$ 360,440
 
See Notes to Condensed Consolidated Financial Statements

7

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2000

(UNAUDITED)

 

1. The unaudited condensed consolidated financial statements printedherein have been prepared in accordance with the instructions to Form 10-QSB and do notinclude all of the information and disclosures required by generally accepted accountingprinciples. Therefore, these financial statements should be read in conjunction with theconsolidated financial statements and related footnotes included in the Company's Form10-KSB for the year ended December 31, 1999. These financial statements reflect alladjustments that are, in the opinion of management, necessary to fairly state the resultsfor the interim periods reported.

2. The results of operations for the three and nine months endedSeptember 30, 2000 are not necessarily indicative of the results to be expected for thefull year.

3.The Private Placement of 9% Convertible Notes was completedduring the quarter ended March 31, 2000 and totaled $2,621,000. The notes are due in threeyears with dates ranging from January 2003 through March 2003. Interest is compoundedannually and payable at maturity. The notes and accrued interest are convertible, at anytime during the three year period, into the Company’s restricted Common Stock, atprices ranging from $0.65 to $1.18 per share, depending on the date of purchase. TheCompany may call the notes prior to the due date and, in that event, the note holder has30 days to decide whether to convert the note and accrued interest into stock. 
New lease financing on plant equipment during the first quarteramounted to approximately $206,000, of which $174,000 was received in cash. In addition,the purchase of a new service truck was financed with a promissory note amounting toapproximately $30,400. A used service truck was acquired with lease financing in the thirdquarter in the amount of $16,100.

 

4. Following is financial information for each of the Company’ssegments. No changes have occurred in the basis of segmentation since December 31, 1999. 

Reconciliation of segment revenues and operating income (loss) to therespective consolidated amounts and to consolidated income (loss) before taxes:
 
Three Months Ended Sept 30,
Nine Months Ended Sept 30, 
2000
1999
2000
1999Revenues:      Photobyproduct    Fertilizer 
$ 127,236
$ 73,941
$ 331,866
$ 238,029  Mining Technical    Services 
205,178
229,816
532,962
389,106   Consolidated    Revenues 
$ 332,414
$ 303,757
$ 864,828
$ 627,135Operating Income (Loss):      Photobyproduct    Fertilizer 
$(831,948)
$(463,110)
$(2,336,784)
$(1,155,636)  Mining Technical    Services 
( 93,780)
( 58,152)
(295,912)
(215,439)   Consolidated    Operating         Income    (Loss) 
(925,728)
(521,262)
(2,632,696)
(1,371,075)   Other Income    (Expense) 
(99,224)
( 22,535)
(207,148)
(53,061)   Consolidated    Net Income         (Loss)    before taxes 
$(1,024,952)
$(543,797)
$(2,839,844)
$(1,424,136)
8

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2000

(UNAUDITED)

Identifiable assets by business segment for the major assetclassifications and reconciliation to total consolidated assets:
 
September    30,
December    31, 
2000
1999Current Assets:    Photobyproduct    Fertilizer 
$ 450,256
$ 261,740  Mining Technical    Services 
298,359
233,822 
748,615
495,562Property and Equipment,    net:    Photobyproduct    Fertilizer 
2,947,190
2,432,872  Mining Technical    Services 
375,837
234,791 
3,323,027
2,667,663Other Assets, net:    Photobyproduct    Fertilizer 
50,556
45,434  Mining Technical    Services 
1,843,413
2,926,206 
1,893,969
2,971,640Total Assets:     Photobyproduct    Fertilizer 
3,448,002
2,740,046  Mining Technical    Services 
2,517,609
3,394,819   Total Segment    Assets 
5,965,611
6,134,865Itronics Inc. assets 
12,472,504
9,528,737Less: intercompany    elimination 
(13,586,695)
(11,986,260)      Consolidated    Assets 
$4,851,420
$ 3,677,342
9

Item 2. Management's Discussion and Analysis or Plan of Operations

I. Results of Operations

The Company reported a net loss of $1,024,952 or $0.0139 per share forthe quarter ended September 30, 2000, compared to a net loss of $543,797 or $0.0080 pershare for the comparable 1999 period. For the first nine months of 2000 the loss was$2,839,844 or $0.0389 per share, compared to a loss of $1,424,136 or $0.0222 per share forthe 1999 comparable period. The primary factor contributing to the increased loss for thequarter was increased operating costs of $424,000. The increased operating costs are dueprimarily due to increased corporate and product marketing and administration costs forfinancial management. The purpose of the substantial change in cost structure is toconvert the photobyproduct fertilizer segment from a small scale semi-works operation tofull commercial scale operation. Management focus is now on expanding sales. Sales andmarketing expenses increased by $219,300 over the 1999 third quarter. Additionally,general and administration costs increased by $115,500 and plant moving and start-up costsincreased $53,300. General and administration costs increased primarily due to additionalmanagement personnel and related costs. The plant moving and start-up costs are discussedmore fully below.

To provide a more complete understanding of the factors contributing tothe changes in sales, operating expenses and the resultant operating loss, the discussionpresented below is separated into the Company's two operating segments.

PHOTOBYPRODUCT FERTILIZER

This segment, managed by Itronics Metallurgical, Inc., operates aphotobyproduct recycling plant, which includes related silver recovery. As part of therecycling process, the Company manufactures and markets a line of liquid fertilizerproducts which are being introduced into the markets in California, Nevada, Oregon, andHawaii. Revenues are generated from photobyproduct management services, silver sales, andfertilizer sales.

 
 
Three Months Ended Sept 30, 
Nine Months Ended Sept 30, 
2000
1999 
2000
1999Sales revenue 
$     127,236
$      73,941 
$        331,866
$       238,029Operating    income (loss) 
$(831,948)
$(463,110)
$(2,336,784)
$(1,155,636)
 

Total segment sales for the third quarter of 2000 were approximately$127,200, compared to $73,900 for the comparable quarter of 1999, an increase of 72%.Fertilizer sales for the quarter were approximately $47,600, compared to $16,800 for the1999 third quarter, an increase of 184%. Photobyproduct recycling revenue for the quarterincreased by $18,400 on an increased volume of 36%, compared to the third quarter of 1999.Silver sales increased $4,100 from the third quarter of 1999, an increase of 17%. Thisincrease reflects the start of silver bullion shipments to the Company’s new refiningand sales agent. Cost of sales for the third quarter of 2000 increased $30,500 from the1999 third quarter. The increase was due to increases in payroll costs of $33,800 andmaterial costs of $7,100, which were partially offset by a decrease in rent expense of$14,500. The increased payroll cost is due primarily to additional drivers and plantpersonnel for handling the increased volume of photobyproducts and to pay rate increasesfor operational and supervisory personnel. The increase in materials cost is related toincreased sales. These factors resulted in a gross loss of $66,000 for the third quarterof 2000, compared to a gross loss of $88,800 for the third quarter of 1999. 

10

Segment operating expenses increased approximately $391,600 over thethird quarter of 1999, due to increases of $201,200 in sales and marketing, $102,800 ingeneral and administration, $53,300 in plant start-up costs, and $40,900 in depreciation.The increase in sales and marketing reflects expenditures for corporate marketing, productadvertising and brand name establishment, expansion of the fertilizer sales department,greater participation in industry trade shows, the ongoing introduction of Gold’n Grofertilizer products to the Western Farm Services sales force in California, Oregon, andHawaii and expansion of the Gold’n Gro fertilizer sales program in Northern Nevada.Management determined that future management of manufacturing and Company administrationfunctions required the acquisition of Enterprise Resource Planning (ERP) computer softwareand related hardware upgrades. A software package that specializes in managing a"process flow" type of manufacturing was acquired late in the first quarter. Thesoftware was operational in early July 2000. The costs related to training personnel inthe operation of the ERP system and to convert data from the previous system were chargedto plant start-up costs. Implementation costs of the ERP system were ongoing into thethird quarter. 

These factors resulted in a 2000 third quarter segment operating lossof $831,900, compared to a loss of $463,100 for the third quarter of 1999, an increasedoperating loss of $368,800.

For the first nine months of 2000 segment sales totaled $331,900,compared to $238,000 for the first nine months of 1999, an increase of 39%. Operating lossfor the first nine months of 2000 was approximately $2,336,800 compared to $1,155,600 forthe first nine months of 1999. The primary factor contributing to the larger loss wasincreased operating costs related to converting the segment from an R&D stage to acommercial stage.

 

 

MINING TECHNICAL SERVICES

This segment, known as Whitney & Whitney, Inc., provides mining andmaterials management, geology, engineering and economics consulting, and publishesspecialized mineral economics and materials financial reports. It employs technicalspecialists with expertise in the areas of mining, geology, mining engineering, mineraleconomics, materials processing and technology development. Technical services have beenprovided to many of the leading U.S. and foreign mining companies, several publicutilities with mineral interests, to various state agencies, the U.S. and foreigngovernments, and the United Nations and the World Bank.
 
Three Months Ended Sept 30, 
Nine Months Ended Sept 30, 
2000
1999 
2000
1999Sales revenue 
$     205,178
$ 229,816 
$      532,962
$      389,106Operating    income (loss) 
$ (93,780)
$(58,152)
$(295,912)
$(215,439)
 

Mining technical services revenue was approximately $205,200 for thequarter ended September 30, 2000, compared to $229,800 for the comparable quarter of 1999,a decrease of $24,600, or 11%. The sales decrease reflects decreased pass-through revenuesfrom ongoing technical services projects. Cost of sales decreased by $21,400, due to adecrease of $39,900 in pass-through costs, which was partially offset by an increase of$17,900 in outside consultant fees. These factors resulted in a gross profit for thesegment of $21,700 compared to $25,000 for the prior year third quarter.

11

Segment operating expenses increased by $32,400 due primarily toincreases of $18,100 in sales and marketing costs and $12,800 in general andadministrative costs. The increase in sales and marketing expense reflects both theallocable portion of increased corporate marketing and increased efforts in marketingtechnical services.

The combination of these factors resulted in a 2000 third quartersegment operating loss of $93,800 , compared to a loss of $58,200 for the third quarter of1999, an increased operating loss of $35,600. 

For the first nine months of 2000, segment revenue totaled $533,000compared to $389,100 for the first nine months of 1999, an increase of 37%. Operating lossfor the period was $295,900 compared to an operating loss of $215,400 for the comparable1999 period. The primary factor contributing to the decline was increased expenditures formarketing and financial management.

SUMMARY

On a consolidated basis, the various changes in revenues and operatingexpenses resulted in a third quarter 2000 operating loss of $925,700 compared to anoperating loss of $521,300 for the third quarter of 1999, an increased loss of $404,500Consolidated operating loss for the first nine months of 2000 was $2,632,700 compared to$1,371,100 for the first nine months of 1999.

 

II. Changes in Financial Condition; Capitalization

Cash amounted to $341,134 as of September 30, 2000, compared to$360,440 as of September 30, 1999. Net cash used for operating activities wasapproximately $2,179,700 for the first nine months of 2000. The cash used for operatingactivities during the period was financed primarily by the private placement of $2.6million in proceeds from 9% convertible promissory notes. A total of $739,500 was investedin property and equipment during the period, primarily for completion of the manufacturingfacility and for computer hardware and software. Approximately $275,600 was invested inmarketable securities, of which $198,400 was for Verdant Brands, Inc. (Verdant), with thebalance for an ongoing investment in Golden Phoenix Minerals, Inc. (GPXM). The Verdantinvestment is more fully discussed under new developments. The market value of theseinvestments was reduced by $41,700 during the quarter and $171,800 for the nine monthperiod. GPXM’s stock price increased slightly during the quarter, whileVerdant’s price declined during the quarter, resulting in the $41,700 unrealized lossfor the quarter. 

Total assets increased during the nine months ended September 30, 2000by approximately $1,174,100 to $4,851,400. Current assets increased approximately $393,000due to increases in cash of $198,800, inventory of $244,500, and prepaid expenses of$77,300. These increases were partially offset by a decrease of $130,900 in receivablefrom equipment financing. The increase in inventory is due to a build-up of silverproducts in anticipation of future sales and to the lack of sales of refined productsrelated to losing Handy & Harman as a refining and sales agent. The increase inprepaid expenses is due primarily to consulting expenses that are paid quarterly inadvance. 

Current liabilities decreased by approximately $39,400 and totalliabilities increased by $2,728,500. The increase to total liabilities is relatedprimarily to the private placement of $2.6 million of 9% convertible notes and accruedinterest of $161,200 as discussed above and lease financing of $206,000 in equipment,which was partially offset by debt payments of $201,200.

 

III. Working Capital/Liquidity

During the nine months ended September 30, 2000, working capitalimproved by approximately $432,400 to $377,300. Management has continued the Company'songoing program of improving working capital and liquidity through exercise of warrantsand payment of consulting and other labor services with common shares. In addition, aprivate placement of $2.6 million of 9% convertible promissory notes was completed duringthe first quarter. During the nine months ended September 30, 2000, a total of $714,800was received from the exercise of warrants and options and approximately $711,500 invarious expenses were paid with common shares.

12

Subsequent to September 30, 2000 the Company lease financed existingequipment and to date, has received a total of $219,000 in cash from the financing.Additional lease financings are in progress. 

In late September 2000 the Company filed a registration statement onForm S-2 to register 10 million common shares as part of its agreement with Swartz PrivateEquity, LLC (Swartz) of Atlanta, Georgia. The registration statement was declaredeffective by the Securities and Exchange Commission on October 27, 2000. Under theagreement, Swartz has agreed to purchase up to $15 million of the Company’s commonshares over three years. The amount and timing of the purchases is based on marketconditions, including current price and trading volume. The Company is now evaluating thetiming of the first draw of funds under the agreement. 

 

IV. New Developments

With the plant becoming fullyoperational at the end of the first quarter, management’s focus has shifted togrowing sales. The full sales effort was not initiated until it was clear that the plantwould be able to operate as planned. Now the near term goal is to grow sales as rapidly aspossible to increase plant capacity utilization and to achieve operational break-even. Thelonger term goal is to continue growing sales and to support that sales growth with futureplant expansions. During April the Company launched an expanded advertising program forthe Hallmark "Silver Nevada Miner" bars. The Gold’n Gro Valu-Paks for homelawn fertilization are now being offered on the Company’s web page. A shopping cartsystem for customers to purchase Gold’n Gro products and "Silver NevadaMiner" bars from the web page is now being tested and is expected to be implementedby the end of November. A "Home-Pak" containing the Gold’n Gro 20-1-7 lawnfertilizer and the Gold’n Gro 6-3-9 plant food is being introduced on the web pageshopping cart. An advertising program for introducing the Gold’n Gro product line togolf course superintendents in California and Nevada was launched in mid-May, with thefirst ads appearing in July. 
Gold’n Gro multi-nutrientliquid fertilizer sales development efforts are being focused in California and Nevada andexpanded into Oregon, Hawaii, and Utah. Early in the second quarter, two fertilizerinjection systems were successfully installed, including one to a northern Nevada turffarm, which is a new customer for the Company. Fertilizer injection system sales are nowan integral part of the plan to increase sales volumes to existing and new customers. Alsoduring the second quarter, two additional Northern Nevada turf farms became Gold’nGro customers and sales were expanded into the alfalfa and tree farm markets. Initialfield application tests of Gold’n Gro fertilizers on alfalfa resulted in a 33 percentincrease in output and an improvement in quality to "Supreme", the highestattainable nutrition reading. In the fourth quarter, sales of Gold’n Gro fertilizerproducts began to Intermountain Farmers Association (IFA) of Salt Lake City, Utah. IFAwill distribute Gold’n Gro fertilizers in southern Nevada, and in Utah where it hasmore than 20 stores.
The University of California at Davis has agreed to continue anexpanded nutrition evaluation program for diseased wine grapes. Protocols and productsthat are to be used have been provided by the Company. The results of the 1999 testapplications were positive and the information has been used to revise the Gold’n Groproduct application parameters for wine grapes. Plans are in place to continue and expandthe field trials through 2001 and into 2002.

Research to develop an application for citrus has been underway forseveral years and a set of foliar application products and parameters have now beendeveloped. These product applications were tested on lemon and valencia orange trees inApril, resulting in a 40 percent increase in weight and juice content and a 12

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percent increase in size in valencia oranges and a 54 percent increasein the number of lemons, compared to non-fertilized trees. An application demonstrationprogram is now underway in southern California and is expected to be on-going for one ormore years. Based on the above interim results with valencia oranges and lemons, a secondapplication demonstration program is being developed with a large southern Californiacitrus grower and the University of California at Riverside. This program will be amulti-year program and was launched early in the fourth quarter. Research conducted by theUniversity of California at Riverside has shown that both the quantity and quality oforanges can be increased with the use of foliar applied lo-biuret urea at appropriatetimes during the year. This information has been used to develop the Gold’n Groapplication program for citrus.

Planning is underway to expand on site tank storage at the Stead plantfor finished liquid fertilizer products and a tank truck loading and unloading facility.The Company is also developing a consumer sales product plan and is planning to install asmall packaging line to package the consumer products. This is being planned forcompletion in the first quarter of next year, subject to availability of financing.

The Company had originally planned to expand the refining operationsonce the plant was operational. The bankruptcy of Handy & Harman caused the Company toimplement this expansion sooner than was originally planned. The new silver refiningprocess produces high purity silver bullion and reduces the cost of silver refining bymore than 50%. A replacement refining and sales agent has been found and regular silverbullion shipments began in the third quarter.

During the second quarter the Company initiated its acquisition programby entering into discussions with companies that it has identified which will, ifacquired, accelerate the Company’s internal product sales growth. Future acquisitionsare planned to acquire market access to expand fertilizer sales and to expandphotochemical handling services. The types of companies being considered are eitherfertilizer marketing companies or photochemical service companies. The acquisition programis being focused to speed up the Company’s geographic expansion and the rate ofmarket penetration. Presently the Company does not have funding specifically allocated tomake acquisitions, which is one of the reasons for entering into the Swartz Agreementdiscussed above to raise $15 million over the next 3 years. The Company is also seekingfunding that will be used to expand the new Stead manufacturing plant. The firstexpansion, which is now being planned, is expected to require between $2 million and $2.5million to complete. 

In late July the Company’s subsidiary, Whitney & Whitney, Inc.(WWI), completed the acquisition of a 5.2% interest in Verdant Brands, Inc. (Verdant), apublicly traded company that is listed on the OTC Bulletin Board, as a strategicinvestment. Verdant is a leading fertilizer marketing company and is a developer,manufacturer and supplier of pest control products and fertilizers to the retail,agricultural and professional markets utilizing a variety of national, proprietary andprivate label brands. Verdant has pursued a strategy of growth through merger andacquisition since 1996, joining four businesses together and increasing sales revenuesfrom approximately $15 million to $75 million in 1999. While successfully building therevenue base, the complexity of the businesses acquired, combined with decreased demandfor some product lines because of industry changes and unfavorable weather patterns, hasled to ongoing losses and cash flow problems. Verdant recently named new management and isrestructuring the company’s operations. In WWI’s opinion, a major part ofVerdant’s difficulties are due to a lack of adequate permanent working capital. Nowthat WWI has established an equity interest in Verdant, it is in a position to supportVerdant management’s restructuring efforts. WWI will continue to evaluate thepotential acquisition of additional shares from time to time, although no decisions on thenumber of shares or the timing of purchases has been made. 

Late in the third quarter, Whitney & Whitney, Inc. (WWI) signed aPilot Program Contract with a major generator of a material that may be usable as a rawmaterial for the recycling program operated by Itronics Metallurgical, Inc. (IMI). WWIwill evaluate whether the material is suitable for use in Gold’n Gro fertilizerproducts. If the Program is successful, both parties have agreed to work together todevelop and implement a plan for marketing the fertilizer products. Each of the technicalapplications now being operated by IMI took from 2 to 6 years to develop. This newmaterial could take a similar amount of time. 

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V. Forward-Looking Statements

The statements in this Form 10-QSB that are not historical facts orstatements of current status are forward-looking statements (as defined in the PrivateSecurities Litigation Reform Act of 1995) that involve risks and uncertainties. Actualresults may differ materially.

PART II- OTHER INFORMATION

Item 1. Legal Proceedings

1. The former president of Seahawk, Inc. (Seahawk) filed suit on June30, 1995 in the Superior Court of California, County of Orange, against the Company,W&W, and several W&W employees, alleging libel and slander resulting fromconsulting work W&W had done for Seahawk. The suit sought unspecified damages to beproven at trial, plus punitive or exemplary damages. W&W's liability insurance carrierdefended against the suit, and in March 1997, the suit was dismissed. The individual hasfiled an appeal of the dismissal. In February 1997, this individual served a second suitthat includes the Company, W&W, and a key employee as codefendants, along with severalunrelated parties. The suit alleges breach of contract and other causes of action andseeks in excess of $5 million plus punitive damages. The Company's liability insurancecarrier has agreed to assume the defense of this action with a reservation of rights,including the right to disclaim insurance coverage. Management believes the allegationsare without merit and is vigorously defending against the suit.

In May 1998 agreement was reached with the plaintiff that if the appealof the first suit fails, the second suit will be dropped. Due to a civil court backlog,the appeal hearing has been delayed for several years. As of the date of this report, ahearing date has not been set. 

Item 2. Changes in Securities and Use of Proceeds

(c) Recent Sales of Unregistered Securities:

Following is a summary of sales of unregistered securities for thethree months ended September 30, 2000. All securities were issued as restricted commonshares which are subject to Rule 144 of the Securities and Exchange Commission. Generally,Rule 144 requires shareholders to hold the shares for a minimum of one year before sale.In addition, officers, directors and more than 10% shareholders are further restricted intheir ability to sell such shares. There have been no underwriters of these securities andno commissions or underwriting discounts have been paid.
 
Shares
Value 
Issued
ReceivedExercise of warrants for    cash 
267,309
$ 56,000Labor services of    management,   directors and consultants 
72,500
34,325Other 
5,242
2,900 
345,051
$ 93,225
The above transactions qualified for exemption from registration underSections 3(b) or 4(2) of the Securities Act of 1933. Private placements for cash werenon-public transactions. The Company believes that all such investors are eitheraccredited or, either alone or with their purchaser representative, have such knowledgeand experience in financial and business matters that they are capable of evaluating themerits and risks of the prospective investment.

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Item 6. Exhibits and Reports on Form 8-K

(b) A Form 8-K dated August 28, 2000 was filed during the quarter ended September 30,2000. The 8-K stated that the Company had completed a $15 million equity financingagreement with a private institutional investor.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

                                                           ITRONICS INC.

 

DATED: November 10, 2000                                   By: /S/JOHN W. WHITNEY
                                                               John W. Whitney 

                                                               President, Treasurer and Director

                                                               (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report hasbeen signed below by the following persons on behalf of the Company and in the capacitiesand on the dates indicated

 

DATED: November 10, 2000                                   By: /S/JOHN W. WHITNEY
                                                               John W. Whitney

                                                               President, Treasurer and Director

                                                               (Principal Executive Officer)

 

DATED: November 10, 2000                                   By: /S/MICHAEL C. HORSLEY
                                                               Michael C. Horsley

                                                               Controller

                                                               (Principal Accounting Officer)

 

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