UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM l0-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTlON 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
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
incorporation or organization) Number)
6490 S. McCarran Blvd., Bldg C-23, Reno, Nevada 89509
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(Address of principal executive offices)
Issuer's telephone number, including area code: (702)689-7696
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NO CHANGE
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Former name, former address and former fiscal, if changes since last report.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements during the past 90 days.
Yes (X) No ( )
<PAGE>
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of July 31, 1997, 32,550,546 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)
<PAGE>
ITRONICS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 2
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1996. 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996. 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II- OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 3. Defaults Upon Senior Securities 10
Item 6. Exhibits and Reports on Form 8- K 10
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, 1997 Dec. 31, 1996
-------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 21,753 $ 1,091
Accounts receivable 41,808 60,626
Note receivable, shareholder 39,375 -
Inventories 30,031 28,003
Prepaid expenses 20,046 19,869
---------- ----------
Total Current Assets 153,013 109,589
---------- ----------
PROPERTY AND EQUIPMENT
Leasehold improvements 14,212 14,212
Equipment 219,214 219,214
Vehicles 32,858 32,858
Equipment under capital lease 79,690 79,690
---------- ----------
345,974 345,974
Less: Accumulated depreciation and
amortization 227,790 221,730
---------- ----------
118,184 124,244
---------- ----------
OTHER ASSETS
Intangibles 8,702 9,002
Note receivable, shareholder 20,625 -
Deposits 2,598 1,993
---------- ----------
31,925 10,995
---------- ----------
$ 303,122 $ 244,828
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS'(DEFICIT)
<TABLE>
<CAPTION>
March 31, 1997 Dec.31, 1996
-------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 124,287 $ 121,200
Accrued expenses 201,629 157,839
Contracts payable 7,349 18,205
Current maturities of long-term debt 31,115 31,115
Due to stockholders 111,525 69,609
Capital lease obligation due
stockholder 39,800 37,136
Interest payable 40,281 33,374
Other 6,327 6,326
---------- ----------
Total Current Liabilities 562,313 474,804
---------- ----------
LONG-TERM LIABILITIES
Due to stockholders, less current
maturities 110,815 117,057
Accrued salary due officer/stockholder 250,000 250,000
Capital lease obligation due stockholder
less current maturities 10,189 13,204
Deferred gain, less current maturities 22,264 23,143
---------- ----------
Total Long-Term Liabilities 393,268 403,404
---------- ----------
955,581 878,208
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Series "A" cumulative convertible
redeemable preferred non-voting shares 606,748 596,868
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STOCKHOLDERS' (DEFICIT)
Preferred stock (247 shares outstanding) - - -
Common stock ( 30,128,546 shares outstanding at
March 31, 1997 and 29,748,046 outstanding at
December 31, 1996) 30,129 29,748
Additional paid-in capital 1,472,327 1,444,913
Accumulated deficit (2,951,531) (2,819,500)
Common stock to be issued 189,868 114,591
---------- ----------
(1,259,207) (1,230,248)
---------- ----------
$ 303,122 $ 244,828
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
REVENUES
Mining technical services $ 51,444 $ 130,238
Photobyproduct recycling 25,685 104,923
Silver 24,259 20,422
Fertilizer - 1,372
---------- ----------
Total Revenues 101,388 256,955
COST OF SALES 132,930 224,514
---------- ----------
Gross Profit (31,542) 32,441
---------- ----------
OPERATING EXPENSES
Depreciation and amortization 5,481 5,335
Research and development 9,943 9,719
Sales and marketing 20,521 13,990
General and administration 48,411 46,847
---------- ----------
84,356 75,891
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Operating Income (Loss) (115,898) (43,450)
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OTHER INCOME (EXPENSE)
Forgiveness of debt - 33,000
Interest expense (16,134) (11,136)
Other, net - -
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Total Other Income (Expense) (16,134) 21,864
---------- ----------
Loss before provision for income taxes (132,032) (21,586)
Provision for income taxes - -
---------- ----------
Net Income (Loss) $ (132,032) $ (21,586)
========== ==========
Weighted average number of shares
outstanding 29,943,496 28,710,326
========== ==========
Earnings (Loss) per share $ ( 0.0047) $ ( 0.0011)
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES
Net loss $ (132,032) $ (21,586)
Adjustments to reconcile net loss to cash
used by operations
Depreciation and amortization 5,481 5,335
Forgiveness of debt - (33,000)
Expenses paid with stock/notes 12,736 2,986
(Increase) decrease:
Trade receivables 18,818 (13,963)
Inventories ( 2,028) ( 5,510)
Prepaids and other assets 3,885 6,954
Increase (decrease):
Accounts payable 4,088 12,041
Accrued expenses 37,934 1,412
Accrued interest 6,907 3,827
---------- ----------
Net Cash Used by Operating Activities ( 44,211) ( 41,504)
---------- ----------
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES
Acquisition of property and equipment - ( 17,501)
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CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
Proceeds from sale of common stock 29,550 75,000
Proceeds from debt, stockholders 44,500 17,000
Payments on debt ( 9,177) ( 23,937)
---------- ----------
Net Cash Provided by Financing Activities 64,873 68,063
---------- ----------
Net Increase (Decrease) in Cash 20,662 9,058
Cash, beginning of period 1,091 43,411
---------- ----------
Cash, end of period $ 21,753 $ 52,469
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. The unaudited condensed consolidated financial statements presented
here have been prepared in accordance with the instructions to Form 10-QSB
and do not include all of the information and disclosures required by
generally accepted accounting principles. Therefore,these financial statements
should be read in conjunction with the consolidated financial statements and
related footnotes included in the Company's Form 10-KSB for the year ended
December 31,1996. These financial statements reflect all adjustments that are,
in the opinion of management, necessary to fairly state the results for the
interim periods reported.
2. The results of operations for three months ended March 31, l997 are
not necessarily indicative of the results to be expected for the full year.
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
I. Results of Operations
The Company reported a net loss of $132,032 or $(.0047) per share for
the quarter ended March 31, 1997, compared to $21,586 or $(0.0011) per share
for the quarter ended March 31, 1996. Several factors contributed to the
decline. First, sales decreased by approximately $155,600 resulting in a gross
loss of $31,542, compared to a gross profit of $32,441 for the prior year
quarter. Second, operating expenses increased by $8,500, due primarily to
increased sales and marketing expenses. Third, the prior year quarter reflects
$33,000 in debt forgiveness income. Lastly, interest expense increased
approximately $5,000 due to interest on accrued management salaries.
To provide a more complete understanding of the factors contributing
to the changes in sales, operating expenses and the resultant operating loss,
the discussion presented below is separated into the Company's two operating
segments.
MINING TECHNICAL SERVICES
This segment, known as Whitney & Whitney, Inc., provides mining
and materials management, geology, engineering and economics consulting, and
publishes specialized mineral economics and materials financial reports. It
employs technical specialists with expertise in the areas of mining, geology,
mining engineering, mineral economics, materials processing and technology
development. Technical services have been provided to many of the leading
U.S. and foreign mining companies, several public utilities with mineral
interests, to various state agencies, the U.S. and foreign governments, and
the United Nations and the World Bank.
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<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996 1997 1996
------------ ------------
<S> <C> <C>
Sales revenue $ 51,444 $ 130,238
Operating income (loss) $ (29,843) $ 18,031
</TABLE>
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Mining technical services revenue was approximately $51,400 for the
quarter ended March 31, 1997, compared to $130,200 for the quarter ended March
31, 1996, a decrease of 60.5%. Pass-through revenues/costs accounted for
approximately $12,900 of the decrease. The remainder of the decrease was
caused by a reduced worklevel on both major technical services projects and
by management concentration of effort on fertilizer sales contract
negotiations. Cost of sales decreased by approximately $31,100 as a result of
the decreased pass-through costs and service activity. These factors
resulted in a segment gross profit of $624, compared to $48,324 for the first
quarter of 1996.
Segment operating expenses increased nominally over the prior year
quarter.
These factors resulted in a segment operating loss of $29,800 for the
first quarter of 1997, compared to operating income of approximately $18,000
for the comparable 1996 quarter, a decline of $47,800.
7
<PAGE>
PHOTOBYPRODUCT FERTILIZER
This segment, known as Itronics Metallurgical, Inc., operates a semi-
works photobyproduct recycling plant, which includes related silver recovery.
As part of the recycling process, the Company is manufacturing and testing a
liquid turf fertilizer. Revenues are generated from photobyproduct management
services, silver sales and fertilizer sales.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
Sales revenue $ 49,944 $ 126,717
Operating income (loss) $( 86,055) $( 61,481)
</TABLE>
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Total segment sales for the quarter ended March 31,1997 were
approximately $49,900, a decrease of $76,800 from the first quarter of 1996.
The decrease is due primarily to the prior year sale and installation of a
distillation and rinse water recycling system at a large Nevada manufacturing
company, amounting to approximately $77,000. Photobyproduct service revenue,
excluding the prior year distillation equipment sale, decreased by
approximately $2,200, on a volume increase of 14.9%, compared to the prior
year. Silver sales increased by approximately $3,800, or 18.8%, compared to
the prior year. The decrease in photobyproduct service revenue, coupled with
the increased volume and silver sales, reflects a shift in revenue sources
caused by arrangements with larger volume customers in which a lower service
fee is charged in exchange for the Company retaining all, or a larger
percentage of, the silver contained in photobyproduct solutions. Cost of sales
declined by approximately $60,500 due primarily to the cost of the distill-
ation and rinse water recycling equipment sale in the prior year. These
factors resulted in a segment gross loss of approximately $32,200 for the
first quarter of 1997, compared to a gross loss of $15,900 for the comparable
1996 quarter, an increased loss of 102.5%.
Segment operating expenses increased approximately $8,300 over the
first quarter of 1996. Approximately $5,000 of the increase is attributable to
increased fertilizer and corporate marketing expenses.
These factors resulted in a first quarter 1997 operating loss for the
segment of approximately $86,100, compared to a loss of $61,500 for the first
quarter of 1996, an increased loss of 40.0%.
SUMMARY
On a consolidated basis, then, the various changes in revenues and
operating expenses resulted in a first quarter operating loss of $115,898,
compared to an operating loss of $43,450 for the first quarter of 1996, an
increased loss of 166.7%.
8
<PAGE>
II. Changes in Financial Condition; Capitalization
Cash amounted to $21,753 as of March 31, 1997, compared to $52,469 as
of March 31, 1996. Net cash used for operating activities increased from
approximately $41,500 for the first quarter of 1996 to $44,200 for the first
quarter of 1997. The cash used for operating activities during the current
quarter was financed primarily by stockholders, which included $29,550 in
proceeds from the private placement of common shares and $44,500 in loan
proceeds.
Total assets increased during the quarter by approximately $58,300 to
$303,122 as of March 31, 1997. This includes an increase in current assets of
approximately $43,400. The increase in current and total assets is due to an
interest bearing promissory note, totaling $60,000, that resulted from a
private placement of stock with an existing stockholder. Current liabilities
increased by approximately $87,500 and total liabilities increased by $77,400.
The increases reflect short-term loans from stockholders amounting to $44,500
and the accrual of management salaries totaling approximately $38,900.
III. Working Capital/Liquidity
During the quarter, the working capital deficit increased by approx-
imately $44,100 to a deficiency of $409,300, due to the increase in current
liabilities as discussed above. Management has continued the Company's ongoing
program of improving working capital and liquidity through private placements
of common shares, conversion of debt to common shares, and payment of
consulting and other labor services with common shares. During the quarter
ended March 31,1997, a total of $29,550 was received from the private place-
ment of common shares, $6,000 in salary and legal fees were converted to
common shares, and approximately $12,700 in various expenses were paid with
common shares.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
1. The former president of Seahawk, Inc. (Seahawk) filed suit on June
30, 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
from consulting work W&W had done for Seahawk. The suit sought unspecified
damages to be proven at trial, plus punitive or exemplary damages. W&W's
liability insurance carrier defended against the suit, and in March 1997, the
suit was dismissed. The individual has filed an appeal of the dismissal. In
February 1997, this individual served a second suit that includes the Company,
W&W, and a key employee as codefendants, along with several unrelated parties.
The suit alleges breach of contract and other causes of action and seeks in
excess of $5 million plus punitive damages. The Company's liability insurance
carrier has agreed to assume the defense of this action with a reservation of
rights, including the right to disclaim insurance coverage. Management
believes the allegations are without merit and is vigorously defending against
the suit.
Item 3. Defaults Upon Senior Securities
(a) As of March 31, 1997, the Company and its subsidiaries were in
default on various promissory notes and secured leases with stockholders
totaling $151,455. Details of these notes are more fully described in Note 3
to the Consolidated Financial Statements included in the Company's Form 10-
KSB for the year ended December 31, 1996. Subsequent to March 31, 1997,
one of these notes, totaling $5,000, has been paid in full.
Item 6. Exhibits and Reports on Form 8-K
(a)- Exhibit 11, "Computation of Loss Per Share", is presented on page
12 of this report.
-
Exhibit 27, "Financial Data Schedule", is presented on page 13 of
this report
(b) No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1997
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ITRONICS, INC.
DATED: August 29,1997 By: 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 has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
DATED: August 29, 1997 By: JOHN W. WHITNEY
--------------- ----------------------------------
John W. Whitney
President, Treasurer and Director
(Principal Executive Officer)
DATED: August 29, 1997 By: MICHAEL C. HORSLEY
--------------- ---------------------------------
Michael C. Horsley
Controller
(Principal Accounting Officer)
11
<PAGE>
ITRONICS INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
Common and common equivalent shares
used in determining net loss per share
Weighted average number of common
shares outstanding during the period 29,943,496 28,710,326
Common equivalent shares - -
---------- ----------
29,943,946 28,710,326
========== ==========
Net loss $ 132,032 $ 21,586
Cumulative preferred dividends for the period 9,880 9,880
---------- ----------
Net loss plus cumulative preferred dividends
for the period $ 141,912 $ 31,466
========== ==========
Loss per share $ .0047 $ .0011
========== ==========
</TABLE>
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1997 FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 21753
<SECURITIES> 0
<RECEIVABLES> 43214
<ALLOWANCES> 1406
<INVENTORY> 30031
<CURRENT-ASSETS> 153013
<PP&E> 345974
<DEPRECIATION> 227790
<TOTAL-ASSETS> 303122
<CURRENT-LIABILITIES> 562313
<BONDS> 393268
606748
0
<COMMON> 30129
<OTHER-SE> (1289336)
<TOTAL-LIABILITY-AND-EQUITY> 303122
<SALES> 49944
<TOTAL-REVENUES> 101388
<CGS> 82110
<TOTAL-COSTS> 132930
<OTHER-EXPENSES> 15424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16134
<INCOME-PRETAX> (132032)
<INCOME-TAX> 0
<INCOME-CONTINUING> (132032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (132032)
<EPS-PRIMARY> (.005)
<EPS-DILUTED> (.005)
</TABLE>
