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, 1998
( ) 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
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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 ( ).
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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, 1998, 45,004,542 shares of common stock were
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)
2
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ITRONICS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1998
and December 31, 1997 4
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1998 and 1997. 6
Condensed Consolidated Statements of Cash Flows for the
Six months Ended June 30, 1998 and 1997. 8
Notes to Condensed Consolidated Financial Statements 9
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 3. Defaults Upon Senior Securities 16
Item 6. Exhibits and Reports on Form 8-K 16
3
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
ASSETS
June 30, 1998 Dec. 31, 1997
-------------- -------------
CURRENT ASSETS
Cash $ 7,243 $ 29,213
Accounts receivable 49,674 52,272
Notes receivable, subscription of stock 43,186 37,337
Inventories 32,369 47,973
Prepaid expenses 31,312 22,462
--------- ---------
Total Current Assets 163,784 189,257
--------- ---------
PROPERTY AND EQUIPMENT
Plant lease/option acquisition costs 31,213 3,546
Leasehold improvements 14,212 14,212
Equipment and furniture 341,748 327,635
Vehicles 32,858 32,858
Equipment under capital lease 32,012 32,012
--------- ---------
452,043 410,263
Less: Accumulated depreciation and amortization 263,465 247,073
--------- ---------
188,578 163,190
--------- ---------
OTHER ASSETS
Intangibles 8,979 7,121
Note receivable, subscription of stock 62,747 82,663
Deposits 7,612 2,823
Acquisition of minority interest 9,250 -
--------- ---------
88,588 92,607
--------- ---------
$ 440,950 $ 445,054
========= =========
See Notes to Condensed Consolidated Financial Statements
4
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ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS'(DEFICIT)
June 30, 1998 Dec. 31, 1997
-------------- -------------
CURRENT LIABILITIES
Accounts payable $ 171,786 $ 92,654
Accrued management salaries 154,852 82,997
Accrued expenses 106,148 67,515
Contracts payable 15,765 15,394
Current maturities of long-term debt - 5,000
Current maturities of advances from
stockholders 104,400 60,085
Capital lease obligations due stockholders 25,000 24,419
Interest payable 23,932 17,314
Other 6,326 6,326
--------- ---------
Total Current Liabilities 608,209 371,704
--------- ---------
LONG-TERM LIABILITIES
Advances from stockholders, less current
maturities 60,451 70,946
Accrued salary due officer/stockholder 20,000 140,000
Capital lease obligations due stockholders,
less current maturities 1,068 2,803
Deferred gain, less current maturities 17,869 19,627
--------- ---------
Total Long-Term Liabilities 99,388 233,376
--------- ---------
707,597 605,080
--------- ---------
STOCKHOLDERS' (DEFICIT)
Preferred stock (-0- shares outstanding) - -
Common stock ( 44,881,542 shares outstanding at
June 30, 1998 and 43,050,532 outstanding at
December 31, 1997) 44,882 43,051
Additional paid-in capital 3,269,254 3,039,981
Accumulated deficit (3,784,254) (3,350,421)
Common stock to be issued 203,471 107,363
--------- ---------
( 266,647) ( 160,026)
--------- ---------
$ 440,950 $ 445,054
========= =========
See Notes to Condensed Consolidated Financial Statements
5
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ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
REVENUES
Mining technical services $ 67,265 $ 124,671 $ 149,977 $ 176,115
Photobyproduct recycling 28,914 28,787 60,811 54,472
Silver 46,217 24,804 99,671 49,063
Fertilizer 17,968 2,490 28,051 2,490
-------- -------- -------- --------
Total Revenues 160,364 180,752 338,510 282,140
COST OF SALES 198,249 172,592 402,752 305,522
-------- -------- -------- --------
Gross Profit (Loss) (37,885) 8,160 (64,242) (23,382)
-------- -------- -------- --------
OPERATING EXPENSES
Depreciation and amort. 7,638 5,481 15,276 10,962
Research and development 21,469 12,298 41,637 25,841
Sales and marketing 67,571 20,150 113,758 37,071
Plant start-up costs 4,789 - 4,789 -
General and administration 82,203 56,156 175,428 112,692
-------- -------- -------- --------
183,670 94,085 350,888 186,566
-------- -------- -------- --------
Operating Income (Loss) (221,555) (85,925) (415,130) (209,948)
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest expense (11,182) (17,503) (22,026) (33,637)
Other, net 3,152 594 3,322 594
-------- -------- -------- --------
Total Other Income
(Expense) ( 8,030) (16,909) (18,704) (33,043)
-------- -------- -------- --------
Income (Loss) before provision
for income taxes (229,585) (102,834) (433,834) (242,991)
Provision for income taxes - - - -
-------- -------- -------- --------
Net income (loss) before cumu-
lative effect of a change in
accounting principle (229,585) (102,834) (433,834) (242,991)
Cumulative effect on prior
years (to December 31, 1996)
of changing the accrual of
audit and annual meeting
costs - - - ( 31,500)
-------- -------- -------- --------
Net Income (Loss) $(229,585) $(102,834) $(433,834 ) $(274,491)
======== ======== ======== ========
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ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Weighted average number of
shares outstanding (1,000's) 44,370 30,553 43,871 30,250
======== ======== ======== ========
Earnings (loss) per share
before cumulative effect of
a change in accounting
principle $(0.0052) $(0.0037) $(0.0099) $(0.0087)
Cumulative effect on prior
years (to December 31, 1996)
of changing the accrual of
audit and annual meeting
costs (0.0000) (0.0000) (0.0000) (0.0010)
-------- -------- -------- --------
Earnings (loss) per share $(0.0052) $(0.0037) $(0.0099) $(0.0097)
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements
7
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ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
Six Months Ended June 30,
1998 1997
---------- ----------
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES
Net income (loss) $(433,834) $(274,491)
Adjustments to reconcile net income (loss)
to cash used by operations
Depreciation and amortization 15,276 10,962
Expenses paid with stock/notes 60,577 26,502
(Increase) decrease:
Trade receivables 2,598 ( 3,775)
Interest receivable-stock subscription ( 2,933) -
Inventories 15,604 ( 282)
Prepaid expenses 4,099 1,334
Deposits ( 4,789) -
Increase (decrease):
Accounts payable 79,132 ( 8,865)
Accrued expenses 111,621 110,298
Accrued interest 6,618 14,152
-------- --------
Net Cash Used by Operating Activities (146,031) (124,165)
-------- --------
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES
Acquisition of property and equipment
and intangibles (41,780) ( 2,043)
-------- --------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
Proceeds from sale of common stock 138,175 113,550
Proceeds from debt, stockholders 43,527 49,500
Payments on debt (15,861) (18,132)
-------- --------
Net Cash Provided by Financing Activities 165,841 144,918
-------- --------
Net Increase (Decrease) in Cash (21,970) 18,710
Cash, beginning of period 29,213 1,091
-------- --------
Cash, end of period $ 7,243 $ 19,801
======== ========
See Notes to Condensed Consolidated Financial Statements
8
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ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. The unaudited condensed consolidated financial statements printed
herein 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 1O-KSB for
the year ended December 31, 1997. 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 the three and six months ended June 30,
1998 are not necessarily indicative of the results to be expected for the
full year.
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Item 2. Management's Discussion and Analysis or Plan of Operations
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I. Results of Operations
The Company reported a net loss of $229,585 or $0.0052 per share for
the quarter ended June 30, 1998, compared to a net loss of $102,834 or
$0.0037 per share for the comparable 1997 period. For the first six months
of 1998, the net loss was $433,834 or $0.0099 per share, compared to a net
loss of $274,491 or $0.0097 per share for the comparable 1997 period. The
results for the quarter reflect the ongoing fundamental shift in Company
focus from being a technical services Company, with an R&D project, to being
primarily a photochemical recycler and fertilizer manufacturer. This is
evidenced by a shift in revenues in which technical services comprised 42% of
second quarter 1998 revenue, compared to 69% for the prior year quarter. The
process of converting the R&D project to a commercial operation with
significant sales growth requires a substantial increase in the Company's
cost structure prior to achieving such sales growth. This process has
resulted in consolidated operating costs for the quarter of $183,700,
compared to $94,100 for the prior year quarter. During the current quarter,
management's focus has been on implementing the Western Farm Services, Inc.
(WFS) contract. This effort has resulted in fertilizer sales totaling $18,000
for the quarter, which is more than 170% of fertilizer sales for all of 1997.
While the dollars are relatively small at present, the significance is that
commercial sales in both the golf course and in the professional lawn
maintenance markets have now begun. To illustrate the potential of the WFS
contract, and the effectiveness of its sales force, in mid May 1998 four golf
courses were using or testing Gold'n Gro fertilizer products; at the end of
July 1998, 35 golf courses were using or testing the products. To date, most
of the golf courses that have tested the products have become customers.
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.
During the quarter, the cost allocation between segments was reviewed.
Since the Company's primary focus is now on the photobyproduct fertilizer
segment, it was deemed appropriate that a greater portion of general costs
that benefit both segments be allocated to the photobyproduct fertilizer
segment. Specifically, a greater portion of costs related to general corporate
marketing and financing, certain management positions, and general operating
costs are being allocated to the photobyproduct fertilizer segment. Such
costs for the first quarter of 1998, amounting to approximately $23,000, were
reallocated accordingly. In future years, management intends to review the
cost allocation annually during the first quarter.
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
10
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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.
- -----------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Sales revenue $ 67,265 $124,671 $149,977 $176,115
Operating income (loss) $(45,883) $ 7,641 $(80,916) $(26,264)
- -----------------------------------------------------------------------------
Mining technical services revenue was approximately $67,300 for the
quarter ended June 30, 1998, compared to $124,700 for the comparable quarter
of 1997, a 46.0% decrease. The revenue decrease is due to the third quarter
1997 completion of one major technical services project that has not been
replaced, management focus on the photobyproduct fertilizer segment and the
depressed price of gold, which has resulted in reduced gold mining industry
need for the type of services the Company offers. Cost of sales were reduced
by $18,900, due primarily to decreases in payroll costs. These factors
resulted in a segment gross profit of $5,100 for the current quarter,
compared to $43,600 for the second quarter of 1997. Segment operating
expenses increased $15,000, including $7,200 in marketing costs and $7,700
in general and administration.
The combination of these factors resulted in a 1998 second quarter
segment operating loss of $45,900, compared to operating income of $7,600 for
the comparable 1997 quarter.
For the first six months of 1998, segment revenue totaled $150,000,
compared to $176,100 for the first six months of 1997, a decline of 14.8%.
Operating loss for the period was $80,900, compared to an operating loss of
$26,300 for the comparable 1997 period, an increased loss of $54,700. The
primary factor contributing to the decline was decreased consulting activity
due to management concentration of effort on the photobyproduct fertilizer
segment.
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 selling
liquid fertilizer products. Revenues are generated from photobyproduct
management services, silver sales, and fertilizer sales.
11
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- -----------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Sales revenue $ 93,099 $ 56,081 $ 188,533 $ 106,025
Operating income (loss) $(175,672) $(93,566) $(334,214) $(183,684)
- -----------------------------------------------------------------------------
Total segment sales for the second quarter of 1998 were approximately
$93,100, an increase of 66.0% from the second quarter of 1997. Photobyproduct
recycling revenue for the quarter increased nominally from the second quarter
of 1997, on a 4.4% increase in volume. Silver sales increased $21,400, or
86.3% from the second quarter of 1997. Silver ounces sold increased 59.1% for
the quarter. Fertilizer sales for the quarter were $18,000, compared to
$2,500 for the 1997 second quarter. Cost of sales for the quarter increased
$44,600 from the second quarter of 1997. The increase is comprised primarily
of $18,700 in direct costs related to increased sales and $20,100 in increased
payroll costs due to additional personnel needed to increase plant production
and to higher pay rates caused by the tight labor market and the Company's
desire to maintain a stable, high quality work force. It should be noted that
the present production facility is a pilot scale plant which results in a
disproportionate need for personnel for production increases. It is
anticipated that once the new facility is fully operational, commercial scale
efficiencies will occur, allowing substantial increases in production with
minor increases in the number of personnel required. These factors resulted
in a gross loss of $43,000 for the second quarter of 1998, compared to a
gross loss of $35,400 for the second quarter of 1997.
Segment operating expenses increased $74,500 over the second quarter
of 1997, due to increases in R&D costs of $9,200, sales and marketing of
$40,200, plant start-up costs of $4,800, and general and administration of
$18,400. The increase in R&D relates to development of fertilizer nutrition
programs tailored specifically for golf courses and for the needs of
professional lawn maintenance organizations. The increase in sales and
marketing reflects the establishment of a photochemical recycling and
distillation machine sales department in late 1997, the establishment of a
fertilizer sales department in the second quarter of 1998, implementation of
the WFS contract, and intensified corporate marketing to inform the investing
public about the Company and its products and services. Plant start-up cost
is a new expense category which will reflect one time costs of moving to the
new plant, rent and plant operating costs prior to the plant being
operational, and costs of closing the old plant. The increase in general and
administration relates to a part time financial management position for a
portion of the quarter and a full time position for the latter part of the
quarter, and to costs related to the Private Placement funding effort.
These factors resulted in a 1998 second quarter segment operating loss
of $175,700, compared to a loss of $93,600 for the second quarter of 1997.
12
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For the first six months of 1998, segment sales totaled $188,500,
compared to $106,000 for the first six months of 1997, an increase
of 77.8%. Operating loss for the first six months of 1998 was approximately
$334,200, compared to $183,700 for the first six months of 1997. The primary
factor contributing to the larger loss was increased operating costs related
to converting the segment from an R&D stage to a commercial stage.
SUMMARY
On a consolidated basis, the operating loss for the second quarter of
1998 was $221,600, compared to an operating loss of $85,900 for the second
quarter of 1997. Consolidated operating loss for the first six months of 1998
was $415,100, compared to an operating loss of $209,900 for the first six
months of 1997.
II. Changes in Financial Condition; Capitalization
Cash amounted to $7,243 as of June 30, 1998, compared to $19,801 as
of June 30, 1997. Net cash used for operating activities was approximately
$146,000 for the first six months of 1998. In addition, $41,800 was invested
in property and equipment. These uses of cash were financed by stockholders,
including $138,200 in proceeds from the private placement of common shares
and $43,500 in advances from stockholders.
Total assets decreased during the six months ended June 30, 1998 by
approximately $4,100 to $441,000. Current assets decreased approximately
$25,500 due primarily to a decrease in cash. Total property and equipment,
before accumulated depreciation and amortization, increased $41,800. Of this
amount, $27,700 was for costs related to acquisition of the Stead facility
lease/option, obtaining the special use permit for the facility, and
engineering of building improvements to be constructed prior to moving into
the facility. Current liabilities increased by $236,500 and total liabilities
increased by $102,500. Increases in liabilities, including $79,100 in
accounts payable, $71,900 in accrued management salaries, $38,600 in payroll
burdens and other accrued expenses, and $43,500 in advances from stockholders,
were partially offset by loan payments to stockholders and an unrelated
party totaling $15,900, and by accrued management salaries totaling $120,800
having been converted into the Company's restricted common stock.
On March 31, 1998 the Company began a Private Placement Offering to
raise $2,000,000 in equity capital. The Offering is being made in four
$500,000 tranches, with the stock price of each tranche dependent on market
conditions. The first tranche is presently being offered in units consisting
of 54,000 shares and 27,000 warrants at a price of $10,000 per unit, with a
minimum investment of one half unit. As of the date of this report $80,000
has been received.
III. Working Capital/Liquidity
During the six months ended June 30, 1998, the working capital
deficit increased by approximately $262,000 to a deficiency of $444,400.
Management is continuing 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
13
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services with common shares. During the six months ended June 30, 1998, a
total of $138,200 was received from the private placement of common shares
and $60,600 in various expenses were paid with common shares.
IV. New Developments
In April 1998 IMI began the introduction of the Gold'n Gro line of
fertilizer products to WFS store managers and sales staff. WFS has 45 stores
in California, with one to three sales people each. Most of these people are
being briefed about the product line. Substantial company resources were
devoted to this process during the second quarter, and the process is
continuing into the third quarter.
WFS has a manufacturing plant in south central California. The other
activity related to implementing the manufacturing and sales agreement with
WFS is establishing the logistics for movement of materials between Reno and
the WFS manufacturing plant. The logistics and warehousing locations for
delivery of manufactured goods from both the IMI Reno manufacturing plant and
the WFS manufacturing plant are also being established. WFS is in the process
of designating locations that will be used to make customer deliveries. Once
these arrangements are in place, it will be possible for product to flow from
the two manufacturing plants to customer locations as customer demand
requires. In July 1998 WFS began manufacturing Gold'n Gro 8-12-9, a plant
starter product, and Gold'n Gro 20-1-7, the number one ranked fertilizer in
a two year University of California Riverside study.
In April 1998 IMI entered into an exclusive sales agreement with
Calfran International of Springfield, Massachusetts. The contract grants IMI
the exclusive right to sell "Cold Vaporization" Vacuum Distillation equipment
to its photowaste customers. The sales territory is the United States,
Canada and Mexico, with an option to expand to other territories as demand
justifies. This equipment is designed to remove the water from used liquid
photochemicals, producing two products: a commercial chemical concentrate,
and clean distilled water. Removal of the water from the photochemicals
produces a relatively high value concentrate product that can be shipped cost
effectively over long distances. The photochemical recycling sales department
is concentrating on developing customer contacts for potential distiller
sales. Sale of distillers is an integral part of expanding the supply of
photochemicals needed to support expanding fertilizer sales.
During the first quarter, IMI entered into a lease/option agreement
to acquire a 35,000 square foot manufacturing facility on three acres of land
in the Reno-Stead, Nevada area. On March 14, 1998 the Special Use Permit for
the facility became effective. Building occupancy is now dependent on
obtaining the necessary Environmental Control Permit, which requires obtaining
of funding to support the move, completion of engineering drawings for
specified improvements, receipt of necessary building permits, construction
of a new floor and required spill containment, and inspection/approval by
the City of Reno Environmental Control Department.. The move to the new
facility was scheduled for mid to late June 1998, but delays in acquisition
of necessary financing and the time required to make site improvements have
pushed the move into September/October 1998. Exact timing is still dependent
upon acquisition of necessary financing. As of this date the required funding
has not been acquired, but discussions are on-going with several entities
which have expressed interest in providing the needed funding. Management
now projects that the first tranche of $500,000 may be fully funded by mid
to late September 1998.
14
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In June 1998 the Company hired a full time finance manager to
concentrate on completing the Private Placement, which is necessary for the
move into the new plant and for subsequent sales growth.
V. Forward-Looking Statements
The statements in this Form 10-QSB that are not historical facts or
statements of current status are forward-looking statements (as defined in
the Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties. Actual results may differ materially.
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. W&W's liability insurance carrier
defended against the suit, and in March 1997, the suit was dismissed on the
grounds that the claim had no legal basis. The individual has exercised his
right to appeal 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 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.
In May 1998 agreement was reached with the plaintiff that if the appeal of
the first suit fails, the second suit will be dropped. Due to a civil court
backlog, the appeal hearing has been delayed for at least 25 months from July
31, 1998. As of the date of this report, a hearing 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 the
three months ended June 30, 1998. All securities were issued as restricted
common shares 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 in their ability to sell such
shares. There have been no underwriters of these securities and no commissions
or underwriting discounts have been paid.
Shares Value
Issued Received
-------- --------
Private placement for cash and option
exercises 866,750 $104,675
15
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Acquisition of a minority interest in
American Gold & Silver Ltd. and a
fertilizer customer list 60,000 11,750
Interest on deferred salaries to
management and professional employees 17,492 4,373
Current labor services of officers,
directors and professional employees 189,700 40,600
--------- --------
1,133,942 $161,398
========= ========
The above transactions qualified for exemption from registration
under Sections 3(b) or 4(2) of the Securities Act of 1933. Private placements
for cash were non-public transactions. The Company believes that all such
investors are either accredited or, either alone or with their purchaser
representative, have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the
prospective investment.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
(a) As of June 30, 1998, the Company and its subsidiaries were in
default on various promissory notes and secured leases with stockholders
totaling $84,563. 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, 1997. No collection action has been taken by
the note and lease holders.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibit 11, "Computation of Loss Per Share ", is presented on page
18 of this report.
Exhibit 27, "Financial Data Schedule", is presented on page 19 of
this report.
(b) No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1998.
16
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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 13, 1998 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 13, 1998 By: JOHN W. WHITNEY
----------------- ---------------------------------
John W. Whitney
President, Treasurer and Director
(Principal Executive Officer)
DATED: August 13, 1998 By: MICHAEL C. HORSLEY
----------------- ---------------------------------
Michael C. Horsley
Controller
(Principal Accounting Officer)
17
<PAGE>
1
4
ITRONICS INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
EXHIBIT 11
Three Months Ended June 30, Six Months Ended Sept 30,
--------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- --------- ----------
Common and common
equivalent shares used in
determining net loss per
share
Weighted average number of
common shares outstanding
during the period(1,000's) 44,370 30,553 43,871 30,250
Common equivalent shares - - - -
---------- ---------- ---------- ----------
44,370 30,553 43,871 30,250
========== ========== ========== ==========
Net income (loss) $(229,585) $(102,834) $(433,834) $(274,491)
Cumulative preferred dividends
for the period - ( 9,880) - (19,760)
---------- ---------- ---------- ----------
Net income (loss) less
cumulative preferred
dividends for the period $(229,585) $(112,714) $(433,834) $(294,251)
========== ========== ========== ==========
Earnings (Loss) per share $( 0.0052) $( 0.0037) $( 0.0099) $( 0.0097)
========== ========== ========== ==========
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 7,243
<SECURITIES> 0
<RECEIVABLES> 51,080
<ALLOWANCES> 1,406
<INVENTORY> 32,369
<CURRENT-ASSETS> 163,784
<PP&E> 452,043
<DEPRECIATION> 263,465
<TOTAL-ASSETS> 440,950
<CURRENT-LIABILITIES> 608,209
<BONDS> 99,388
0
0
<COMMON> 44,882
<OTHER-SE> (311,529)
<TOTAL-LIABILITY-AND-EQUITY> 440,950
<SALES> 188,533
<TOTAL-REVENUES> 338,510
<CGS> 273,856
<TOTAL-COSTS> 402,752
<OTHER-EXPENSES> 56,913
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,026
<INCOME-PRETAX> (433,834)
<INCOME-TAX> 0
<INCOME-CONTINUING> (433,834)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (433,834)
<EPS-PRIMARY> (.010)
<EPS-DILUTED> (.010)
</TABLE>
