UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM l0-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
( ) 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 registrant 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)
Registrant's telephone number, including area code:
(775)689-7696
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 (
)
Indicate by checkmark whether the registrant is a large accelerated, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
"large accelerated filer", accelerated filer" and smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ( )
Accelerated filer ( )
Non-accelerated filer ( ) (Do not check if a
Smaller reporting company (X)
Smaller reporting company)
Indicate by checkmark whether the registrant is a shell company ( as defined in Rule
12b-2 of the Exchange Act). Yes ( ) No (X)
As of August 12, 2008, 1,722,340,113 shares of common stock were outstanding.
2
ITRONICS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL
INFORMATION
|
PAGE
|
|
|
Item 1. Financial
Statements
|
|
Condensed Consolidated
Balance Sheets June 30, 2008 (Unaudited)
|
|
and December 31, 2007
|
4
|
|
|
Condensed Consolidated
Statements of Operations for the Three
|
|
And Six Months
Ended June 30, 2008 and 2007 (Unaudited)
|
6
|
|
|
Condensed Consolidated
Statements of Stockholders Equity (Deficit)
|
|
For the Six Months Ended
June 30, 2008 and the Year Ended
|
|
December 31, 2007
(Unaudited)
|
7
|
|
|
Condensed Consolidated
Statements of Cash Flows for the
|
|
Six Months Ended June 30,
2008 and 2007 (Unaudited)
|
8
|
|
|
Notes to Condensed
Consolidated Financial Statements (Unaudited)
|
10
|
|
|
|
|
Item 2. Management's
Discussion and Analysis or Plan of Operation
|
24
|
|
|
Item 4T. Controls and
Procedures
|
38
|
|
|
|
|
PART II- OTHER INFORMATION
|
|
|
|
Item 1. Legal Proceedings
|
39
|
|
|
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
|
40
|
|
|
Item 3 Defaults upon Senior
Securities
|
41
|
|
|
Item 6. Exhibits
|
41
|
|
|
Certifications
|
43
|
|
|
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2008 AND DECEMBER 31, 2007
ASSETS
|
June 30,
|
December
31,
|
|
2008
|
2007
|
|
(Unaudited)
|
|
CURRENT ASSETS
|
|
|
Cash
|
$ 18,576
|
$92,987
|
Accounts receivable, less
allowance for
|
|
|
doubtful accounts, 2008,
$4,600; 2007, $4,600
|
165,420
|
17,561
|
Inventories
|
1,042,256
|
889,996
|
Prepaid expenses
|
106,150
|
94,952
|
Total Current Assets
|
1,332,402
|
1,095,496
|
|
|
|
PROPERTY AND EQUIPMENT
|
|
|
Land
|
215,000
|
215,000
|
Building and improvements
|
1,312,409
|
1,312,409
|
Design and construction in
progress,
|
|
|
manufacturing facility
|
116,465
|
97,110
|
Equipment and furniture
|
2,881,247
|
2,879,938
|
Vehicles
|
222,298
|
222,298
|
Equipment under capital
lease-equipment and furniture
|
466,571
|
466,571
|
|
5,213,990
|
5,193,326
|
Less: Accumulated
depreciation and amortization
|
2,434,867
|
2,341,004
|
Total Property and
Equipment
|
2,779,123
|
2,852,322
|
|
|
|
OTHER ASSETS
|
|
|
Intangibles
|
76,500
|
76,500
|
Deferred loan fees, less
accumulated amortization 2008,
|
|
|
$407,406; 2007, $521,727
|
266,149
|
323,042
|
Deposits
|
8,508
|
8,508
|
Total Other Assets
|
351,157
|
408,050
|
|
$4,462,682
|
$4,355,868
|
The accompanying notes are an integral part of these financial
statements
4
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
June 30,
|
December
31,
|
|
2008
|
2007
|
|
(Unaudited)
|
|
CURRENT LIABILITIES
|
|
|
Accounts payable
|
$ 841,763
|
$ 672,163
|
Accrued management salaries
|
929,166
|
779,873
|
Accrued expenses
|
375,288
|
272,267
|
Insurance contracts payable
|
36,831
|
13,761
|
Interest payable to
officer/stockholders
|
262,481
|
157,181
|
Interest payable, long-term
debt and lease obligations
|
239,590
|
225,533
|
Current maturities of
long-term debt
|
424,301
|
436,523
|
Current maturities of
capital lease obligations
|
423,885
|
463,996
|
Advances from stockholder
|
188,025
|
143,025
|
Current maturities of
convertible notes and accrued interest
|
3,709,964
|
3,497,838
|
Convertible debt
derivatives
|
10,643,814
|
13,003,762
|
Warrant and option
liability
|
246,126
|
231,224
|
Other
|
131,027
|
40,498
|
Total Current Liabilities
|
18,452,261
|
19,937,644
|
|
|
|
LONG-TERM LIABILITIES
|
|
|
Long-term debt, less
current maturities
|
80,379
|
82,197
|
Capital lease obligations,
less current maturities
|
-
|
-
|
Total Long-Term Liabilities
|
80,379
|
82,197
|
|
|
|
Commitments and
Contingencies (see Note 4)
|
-
|
-
|
Total Liabilities
|
18,532,640
|
20,019,841
|
|
|
|
STOCKHOLDERS' EQUITY
(DEFICIT)
|
|
|
Preferred stock, par value
$0.001 per share;
|
|
|
authorized 999,500
shares; issued and outstanding
|
|
|
2008, 0 shares;
2007, 0 shares
|
-
|
-
|
Common stock, par value
$0.0001 per share;
|
|
|
authorized 20,000,000,000 shares; issued and outstanding,
|
|
|
1,209,103,913 at
June 30, 2008 and 999,996,999 at December
|
|
|
31, 2007
|
120,913
|
999,997
|
Additional paid-in capital
|
25,919,145
|
24,692,645
|
Accumulated deficit
|
(40,949,986)
|
(42,143,980)
|
Common stock to be
issued
|
839,970
|
787,365
|
Total Stockholders
Equity (Deficit)
|
(14,069,958)
|
(15,663,973)
|
|
$4,462,682
|
$4,355,868
|
The accompanying notes are an integral part of these financial
statements.
5
ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|
2008
|
2007
|
2008
|
2007
|
REVENUES
|
|
|
|
|
GOLDn GRO
fertilizer
|
$1,232,490
|
$839,910
|
$1,829,779
|
$1,367,812
|
Mining
technical services
|
31,373
|
1,675
|
87,215
|
6,628
|
Total Revenues
|
1,263,863
|
841,585
|
1,916,994
|
1,374,440
|
|
|
|
|
|
COST OF
REVENUES (exclusive of
|
|
|
|
|
depreciation and amortization
|
|
|
|
|
shown
separately below)
|
|
|
|
|
GOLDn GRO
fertilizer
|
922,544
|
722,869
|
1,439,711
|
1,234,740
|
Mining
technical services
|
21,668
|
7,667
|
51,918
|
15,730
|
Total Cost of
Revenues
|
944,212
|
730,536
|
1,491,629
|
1,250,470
|
Gross Profit
(Loss)(exclusive
|
|
|
|
|
of
depreciation and amortization
|
|
|
|
|
shown
separately below
|
319,651
|
111,049
|
425,365
|
123,970
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
Depreciation
and amortization
|
46,944
|
52,392
|
93,863
|
104,621
|
Research and
development
|
68,512
|
91,572
|
146,841
|
188,854
|
Sales and
marketing
|
153,737
|
283,703
|
346,593
|
560,914
|
Delivery and
warehousing
|
87,236
|
66,220
|
118,805
|
91,136
|
General and
administrative
|
255,181
|
239,744
|
454,593
|
474,396
|
Total Operating
Expenses
|
611,610
|
733,631
|
1,160,695
|
1,419,921
|
Operating
(Loss)
|
(291,959)
|
(622,582)
|
(735,330)
|
(1,295,951)
|
OTHER INCOME
(EXPENSE)
|
|
|
|
|
Interest
expense
|
(324,550)
|
(310,070)
|
(629,327)
|
(591,746)
|
Gain (loss) on
derivative instruments
|
6,169,281
|
(311,142)
|
2,516,212
|
(168,753)
|
Gain (loss) on
sale of investments
|
-
|
7,718
|
-
|
352,009
|
Other
|
-
|
471
|
42,439
|
471
|
Total Other
Income (Expense)
|
5,844,731
|
(613,023)
|
1,929,324
|
(408,019)
|
|
|
|
|
|
Income (Loss)
before provision
for income tax
|
5,552,772
|
(1,235,605)
|
1,193,994
|
(1,703,970)
|
Provision for
income tax
|
-
|
-
|
-
|
-
|
Net
Income(Loss)
|
5,552,772
|
(1,235,605)
|
1,193,994
|
(1,703,970)
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
Unrealized
gains (losses) on
securities
|
-
|
868
|
-
|
3,115
|
Comprehensive
Income (Loss)
|
$5,552,772
|
$(1,234,737)
|
$1,193,994
|
$(1,700,855)
|
|
|
|
|
|
Weighted
average number of shares
|
|
|
|
|
Outstanding
(1,000s)
|
1,071,615
|
374,749
|
1,045,106
|
366,715
|
Earnings
(Loss) per share: Basic
|
$0.005
|
$(0.003)
|
$0.001
|
$(0.005)
|
Diluted
|
$0.001
|
N/A
|
$0.0002
|
N/A
|
The accompanying notes are an integral part of these financial
statements.
6
ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND THE YEAR ENDED DECEMBER 31,
2007
(UNAUDITED)
|
COMMON STOCK
|
|
|
COMMON
|
|
|
NUMBER
OF
|
|
ADDITIONAL
|
|
STOCK TO
|
STOCK
|
|
|
SHARES
|
|
PAID-IN
|
ACCUMULATED
|
BE
|
OPTIONS,
|
|
|
(1,000s)
|
AMOUNT
|
CAPITAL
|
DEFICIT
|
ISSUED
|
NET
|
TOTAL
|
Balance, Dec. 31, 2006
|
337,582
|
$337,582
|
$23,305,788
|
$(31,661,456)
|
$ 583,868
|
$4,713
|
$(7,429,505)
|
Issue of common stock:
|
|
|
|
|
|
|
|
For cash
|
|
|
|
|
|
|
|
For services
|
99,274
|
99,274
|
588,713
|
-
|
217,097
|
-
|
905,084
|
For debt conversion
|
555,410
|
555,410
|
698,057
|
-
|
(13,600)
|
-
|
1,239,867
|
For asset acquisition
|
7,731
|
7,731
|
100,087
|
-
|
-
|
-
|
107,818
|
Net (loss) for the year
|
|
|
|
|
|
|
|
ended Dec. 31, 2007
|
-
|
-
|
-
|
(10,482,524)
|
-
|
-
|
(10,482,524)
|
Common stock options
|
|
|
|
|
|
|
|
outstanding
|
-
|
-
|
-
|
-
|
-
|
(4,713)
|
(4,713)
|
Balance, Dec. 31, 2007
|
999,997
|
999,997
|
24,692,645
|
(42,143,980)
|
787,365
|
-
|
(15,663,973)
|
Issue of common stock
|
|
|
|
|
|
|
|
For services
|
22,117
|
2,214
|
92,315
|
-
|
2,815
|
-
|
97,344
|
For debt conversion
|
186,990
|
18,699
|
234,188
|
-
|
49,790
|
-
|
302,677
|
Adjustment for new par
|
|
|
|
|
|
|
|
value
|
-
|
(899,997)
|
899,997
|
-
|
-
|
-
|
-
|
Net income for the
six
months ended
June 30, 2008
|
-
|
-
|
-
|
1,193,994
|
-
|
-
|
1,193,994
|
Balance, June 30, 2008
|
1,209,104
|
$ 120,913
|
$25,919,145
|
$(40,949,986)
|
$ 839,970
|
$ -
|
$(14,069,958)
|
The accompanying notes are an integral part of these financial
statements.
7
ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
|
Six Months Ended June 30,
|
|
2008
|
2007
|
Cash flows from operating
activities
|
|
|
Net income (loss)
|
$1,193,994
|
$(1,703,970)
|
Adjustments to reconcile
net income (loss) to
cash used by operating activities:
|
|
|
Depreciation and
amortization
|
188,556
|
221,803
|
Interest on convertible
notes
|
375,450
|
332,183
|
(Gain) loss on
change in fair value of derivative
instruments
|
(2,516,212)
|
168,753
|
(Gain) on sale of
investments
|
-
|
(352,009)
|
Addition of silver
in solution inventory by
|
|
|
offsetting
photochemical processing fees
|
(135,814)
|
(171,971)
|
Stock and option
compensation
|
(12,474)
|
1,725
|
(Gain) on debt
forgiveness
|
(42,439)
|
|
Bad debts
|
264
|
-
|
Expenses paid with
issuance of common stock:
|
|
|
Consulting expenses
|
35,226
|
181,929
|
Director
fees
|
6,000
|
10,388
|
Salaries
|
78,517
|
159,942
|
(Increase) decrease
in:
|
|
|
Trade
accounts receivable
|
(148,123)
|
(42,921)
|
Inventories
|
(7,304)
|
(56,413)
|
Prepaid
expenses, deposits and other
|
(43,626)
|
(75,725)
|
Increase (decrease)
in:
|
|
|
Accounts
payable
|
173,824
|
(18,426)
|
Accrued
management salaries
|
149,293
|
113,326
|
Accrued
expenses and other
|
216,620
|
97,342
|
Accrued
interest
|
128,271
|
8,919
|
Net cash used by operating
activities
|
(359,977)
|
(1,125,125)
|
|
|
|
Cash flows from investing
activities:
|
|
|
Acquisition of
property and equipment
|
(11,008)
|
(37,762)
|
Sale of investments
|
-
|
312,156
|
Net cash provided by
investing activities
|
(11,008)
|
274,394
|
|
|
|
Cash flows from financing
activities:
|
|
|
Proceeds from
officer/stockholder advances
|
45,000
|
8,000
|
Proceeds from debt
|
300,000
|
1,290,000
|
Debt issuance costs
|
(27,800)
|
(87,142)
|
Bank overdraft
|
-
|
(13,834)
|
Payments on debt
|
(20,626)
|
(86,011)
|
Net cash provided by
financing activities
|
296,574
|
1,111,013
|
|
|
|
Net increase (decrease) in
cash
|
(74,411)
|
260,282
|
Cash, beginning of period
|
92,987
|
-
|
Cash, end of period
|
$ 18,576
|
$ 260,282
|
The accompanying notes are an integral part of these financial
statements.
8
ITRONICS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
|
Six Months Ended June 30,
|
|
2008
|
2007
|
Supplemental Disclosures of
Cash Flow
|
|
|
Information:
|
|
|
Cash paid during the period
for interest
|
$ 30,912
|
$ 144,274
|
|
|
|
Non-cash financing and
investing activities:
|
|
|
Marketable securities
received for sale of investment
|
-
|
138,353
|
Common stock issued to
settle:
|
|
|
Convertible notes
|
302,677
|
128,150
|
Accrued management salaries
|
-
|
246,000
|
Accounts payable
|
4,221
|
-
|
Acquisition of assets by
issuance of common stock:
|
|
|
Equipment
|
9,656
|
46,736
|
Inventory
|
9,142
|
27,300
|
Amounts withheld from
proceeds of debt, unrelated:
|
|
|
Deferred loan costs
|
10,000
|
45,000
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
9
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
1. The unaudited condensed consolidated financial statements presented
herein have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and disclosures required by U.S. 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, 2007. These financial statements reflect all
adjustments that are, in the opinion of management, necessary to fairly state the results
for the interim periods reported. All adjustments are of a normal recurring nature.
Certain amounts from the prior period have been reclassified to be consistent with the
current period presentation.
2. The Company's consolidated financial statements have been presented
on the basis that it is a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The Company and its
subsidiaries have reported recurring losses from operations, including an operating loss
of $735,330 during the six months ended June 30, 2008, a working capital deficit of
$17,119,859, and a stockholders deficit balance of $14,069,958 as of June 30, 2008.
These factors indicate the Company and its subsidiaries' ability to continue in existence
is dependent upon their ability to obtain additional long-term debt and/or equity
financing and achieve profitable operations. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be necessary
should the Company and its subsidiaries be unable to continue in existence. The results of
operations for the three and six months ended June 30, 2008 are not necessarily indicative
of the results to be expected for the full year.
3. Beginning in July 2005, the Company has arranged a series of
callable secured convertible debt financings (Notes) with an accredited investment group
totaling $6,620,000. The Notes bear interest at rates ranging from 6% to 8% and are due
three years from issuance. In connection with these financings, the Company has issued
warrants to acquire common stock in varying amounts and at varying exercise prices. During
2007 the Company signed Notes that added accrued interest totaling $342,170 to the
outstanding principal balance. These Notes bear interest at 2% and have a three year term.
Following is a summary of the financings:
10
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
|
ORIGINAL
|
CONVERTED
|
PRINCIPAL
|
NUMBER OF
|
WARRANT
|
|
PRINCIPAL
|
TO
|
BALANCE
|
WARRANTS
|
EXERCISE
|
DATE
|
AMOUNT
|
STOCK
|
6/30/08
|
ISSUED
|
PRICE
|
July
2005
|
$1,250,000
|
$1,250,000
|
$ -
|
1,153,846
|
$0.15
|
August
2005
|
1,000,000
|
1,000,000
|
-
|
923,077
|
$0.15
|
January
2006
|
500,000
|
214,855
|
285,145
|
961,539
|
$0.15
|
February
2006
|
500,000
|
-
|
500,000
|
461,539
|
$0.15
|
July
2006
|
500,000
|
3,068
|
496,932
|
20,000,000
|
$0.05
|
November
2006
|
500,000
|
-
|
500,000
|
20,000,000
|
$0.04
|
January
2007
|
500,000
|
-
|
500,000
|
20,000,000
|
$0.01
|
March
2007
|
500,000
|
122,505
|
377,495
|
20,000,000
|
$0.01
|
June
2007
|
335,000
|
-
|
335,000
|
10,000,000
|
$0.01
|
August
2007
|
250,000
|
-
|
250,000
|
20,000,000
|
$0.0014
|
October
2007
|
275,000
|
-
|
275,000
|
15,000,000
|
$0.004
|
December
2007
|
200,000
|
|
200,000
|
15,000,000
|
$0.001
|
March
2008
|
310,000
|
-
|
310,000
|
10,000,000
|
$0.0001
|
Totals
|
$6,620,000
|
$2,590,428
|
4,029,572
|
153,500,001
|
|
|
|
|
|
|
|
Accrued
interest
|
|
|
|
|
|
added to
principal
|
|
|
342,170
|
|
|
Balance
6/30/08
|
|
|
$4,371,742
|
|
|
|
|
|
|
|
|
The Notes are convertible into common shares at the lesser of $0.10 or
35% of the market price of the Companys common stock, as defined. The Company may
prepay the Notes at 150% of the outstanding principal and accrued interest balance, if
sufficient authorized shares are available to convert all of the outstanding principal and
accrued interest. Additionally, the Notes are secured by substantially all of the
Companys assets. The Notes are further secured by 14,550,558 Company common shares
owned by an officer/stockholder.
The Notes are potentially convertible into an unlimited number of
common shares. Accordingly, the Company has accounted for the Notes under SFAS 133, EITF
00-19 and DIGs B38 and B39 which require the beneficial conversion features and the
prepayment penalties of each of the Notes to be treated as embedded derivatives, to be
recorded as a collective liability equal to the estimated fair value of the embedded
derivatives. As of June 30, 2008 and December 31, 2007 the Notes were convertible into
5,553,788,718 and 6,450,658,596 common shares, respectively, and the conversion features
had estimated fair values of $10,643,814 and $13,003,762, respectively. As of December 31,
2007, the Company did not have enough authorized shares to allow conversion of all of the
outstanding debt into stock. Consequently, the prepayment option was not available and no
value for the prepayment feature was included in the computation of the estimated fair
value of the derivatives for December 31, 2007. As of June 30, 2008 the Company did have
enough authorized shares to convert the debt. Consequently, the prepayment option was
available and the estimated fair value of this feature was included in the computation of
11
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
the estimated fair value of the derivative as of June 30, 2008.
In addition, all warrants and options that are exercisable during the
period that the Notes are outstanding are required to be recorded as liabilities at their
estimated fair value. At June 30, 2008 and December 31, 2007 warrants and options to
acquire a total of 160,891,001 and 156,729,001 common shares, respectively, were
outstanding and had estimated fair values of $246,126 and $231,224, respectively.
The Company estimates the fair value of the embedded conversion and
prepayment options of the callable secured convertible debt in a single pricing model with
an embedded weighted average calculation. The assumptions used are to (1) determine the
number of shares it would take to convert the debt under the terms of the agreements as of
the balance sheet date; (2) estimate the future rate of debt conversions by the investors
based on recent conversion history; (3) estimate the debt balance at specified dates,
using 6 month intervals, based on the conversion rate determined in step 2; (4) value each
of the components, including the conversions and the prepayment balances determined in
step 3, using the Black-Scholes option pricing model; and (5) compute the estimated fair
value of the combined derivatives by taking a weighted average of the values of the debt
derivative and the prepayment options for the estimated prepayment dates based on
estimated probability of occurrence of each event. Volatility rates ranged from 95% to
144% and 90% to 107% for the six months ended June 30, 2008 and 2007, respectively. Risk
free interest rates ranged from 1.22% to 3.99% and 4.28% to 5.07% for the six months ended
June 30, 2008 and 2007, respectively. Volatility is calculated each reporting period and
the calculation involves matching data points of our common share market price to the
length of the option period. Fluctuations in volatility between individual derivatives and
between periods are primarily due to the length of the option period.
The Company estimates the fair value of warrants and options using the
Black-Scholes option pricing model and assumes all warrants and options would be exercised
on their respective expiration dates. Volatility and risk free interest rate ranges are
included in the ranges listed above.
The following table is a summary of the transactions and adjustments
that comprised the calculation of the estimated fair value of the derivatives from January
1, 2007 to June 30, 2008:
12
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
|
Convertible
|
Warrant
|
|
Debt
|
And Option
|
|
Derivative
|
Liability
|
Estimated fair value as of
|
|
|
December 31, 2006
|
$ 4,876,175
|
$ 380,083
|
Additional borrowing in 2007
|
2,060,000
|
-
|
Accrued interest
|
134,554
|
-
|
Warrants issued for services and
|
|
|
expensed or capitalized in 2007
|
-
|
7,337
|
Debt conversions into common shares
|
(1,021,367)
|
-
|
Year to date adjustment to Estimated
|
|
|
Fair Value at December 31, 2007
|
6,954,400
|
(156,196)
|
Estimated Fair Value at December 31, 2007
|
13,003,762
|
231,224
|
|
|
|
Additional borrowing in 2008
|
310,000
|
-
|
Accrued interest
|
163,325
|
-
|
Options issued for services and
|
|
|
expensed or capitalized in 2008
|
-
|
518
|
Debt conversions
|
(302,677)
|
-
|
Year to date adjustment to
Estimated
|
|
|
Fair Value at June 30, 2008
|
(2,530,596)
|
14,384
|
Estimated Fair Value at June 30, 2008
|
$10,643,814
|
$ 246,126
|
The fair value of the beneficial conversion option, prepayment
penalties, warrants and options are estimated each reporting period with the change in
fair value recorded as gain or loss on derivative instruments. As the Companys
common stock is highly volatile, material gains or losses for the change in estimated fair
value are likely to occur in future periods.
Following is a summary of the gains and (losses) on derivative instruments by reporting
period for the three and six months ended June 30, 2008 and 2007:
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|
2008
|
2007
|
2008
|
2007
|
Convertible
debt derivative
|
$5,654,651
|
$(605,468)
|
$2,530,596
|
$
620,988
|
Warrant and
option liability
|
514,630
|
294,326
|
(14,384)
|
(789,741)
|
|
$6,169,281
|
$(311,142)
|
$2,516,212
|
$(168,753)
|
In connection with the above described financings, the Company entered
into Registration Rights Agreements with the Noteholders that either require the Company
to use its best efforts to file a registration statement within 120 days of funding or to
file a registration statement within 10 days of written demand from the Noteholders. The
2005 Agreements required the Company to increase the authorized shares by October 31, 2005
or use its best efforts to
13
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
do so. The Agreement specifies penalties of 2% per month for failing to
register the shares timely and 3% per month for failing to increase the authorized shares.
The Company registered 50 million shares in February 2006 and increased the authorized
shares in March 2006. Because it used its best efforts, the Company did not incur any
penalties. The Company completed registrations of 75 million shares each in October 2006
and June 2007. After converting their debt into the 75 million common shares from the June
2007 registration, the Noteholders began utilizing Rule 144 to convert their debt into
common shares as several of the Notes qualified for Rule 144 treatment since they were
more than two years old. In February 2008 Rule 144 was revised to allow sale of shares
after being held for six months. The holding period for debt instruments begins on the
date of the investment, and due to the shortened time period, the Company anticipates that
the Noteholders will utilize Rule 144 for future debt conversions and that no future
registrations will be necessary.
In December 2007 the Company had issued substantially all of its
authorized shares. A shareholder meeting to increase the authorized shares to 20 billion
from 1 billion shares was held on May 6, 2008, at which time the shareholders approved the
increase. Consequently, the Company believes it has used its best efforts to be in
compliance with the terms of the various Registration Rights Agreements as of June 30,
2008, and therefore believes the probability of incurring any penalties is remote.
From May 14, 2008 through June 30, 2008, the Noteholders converted a
total of $302,677 into 236,780,000 common shares. During 2007 the Noteholders converted a
total of $1,021,367 of the Notes into 546,758,396 common shares. Subsequent to June 30,
2008, through August 12, 2008, the Noteholders converted a total of $212,357 into
422,933,700 common shares.
Subsequent to June 30, 2008, the Company completed an additional
financing with the same investor group in the gross amount of $210,000. The conversion
discount rate on the new and all previous Notes was increased from 65% to 70%. In
addition, the interest rate on the new and all previous notes was increased to 12%
retroactively to January 1, 2008. The Noteholders also received seven year warrants to
acquire 20 million common shares at an exercise price of $0.001. Also subsequent to June
30, 2008, the Company signed Notes that added accrued interest totaling $163,852 to the
outstanding principal balance. These Notes have the same terms as the other Callable
Secured Convertible Notes.
4.
As of June 30, 2008 we have
accrued for liabilities, including interest, of $557,078 which relate to various lawsuits
and claims for the collection of the funds due. These include 8 leases totaling $366,911
(reflected in Capital Lease Obligations) plus $70,035 in additional interest (reflected in
Accrued Interest) and one trade payable totaling $85,801 (reflected in Accounts Payable)
plus $34,331 in additional interest (reflected in Accrued Interest). The leases are
individually secured by specified equipment.
The accrued interest noted above was recorded based on our assessment
of three cases that are seeking $251,522, which we believe are probable. The
14
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
creditors have received judgments in these cases, but have taken no
further collection action. The Company will continue to accrue interest until these cases
are settled or paid in full.
The Company has two cases, that originally sought $171,853, that we
deem to have a remote possibility of incurring an additional unrecorded loss. The Company
has negotiated payment agreements on these cases and, as of June 30, 2008, the recorded
liability for these cases was $163,681. We are delinquent in our payments under the
respective settlement agreements, but are in contact with counsel for the creditor, and no
collection action has been taken.
In addition to the above leases that are subject to litigation, there
are three leases, with a recorded liability of $151,071, that are in default. As required
by U.S. Generally Accepted Accounting Principles, the principal balance of the leases that
are in default have been classified as current liabilities.
Successful settlement of the above claims is dependent on future
financing.
The Company may become involved in a lawsuit or legal proceeding at any
time in the ordinary course of business. Litigation is subject to inherent uncertainties,
and an unexpected adverse result may arise that may adversely affect its business. Certain
lawsuits have been filed against the Company for collection of funds due that are
delinquent, as described above. The Company is not aware of any additional legal
proceeding or claims that it believes will have, individually or in the aggregate, a
material adverse affect on its business, financial condition or operating results.
5. In the first quarter of 2006 all of the Series 2000 Convertible
Promissory Notes became due and are now in default. The total principal and interest due
at June 30, 2008 is $3,709,964. The Company is formulating a plan to seek extensions of
these notes and has recorded these notes as current liabilities. No collection action has
been taken to date.
When these notes came due in 2006, they were convertible into
22,229,551 common shares. If the Company is successful in negotiating extensions of these
notes, the convertible options may be renewed and the eventual number of potential options
could be significantly higher than the amount that expired.
The Companys mortgage loan on the manufacturing facility is in
default due to delinquent property taxes totaling $14,378. The lender is aware of the
situation and has taken no collection action. As a result of the default, the entire
principal balance, in the amount of $406,130, is included in current liabilities.
As of June 30, 2008 the Company owed $144,802 plus penalties and
interest for federal payroll taxes. Subsequent to June 30, 2008 $66,177 plus related
penalties and interest of this amount was paid. The Company is in contact with the IRS and
believes a payment arrangement can be made for the remaining
15
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
balance due. The IRS may file federal tax liens and seize Company
assets if satisfactory arrangements cannot be made.
6. Following is a summary of finished goods, work in progress, and raw
materials inventories as of June 30, 2008 and December 31, 2007. The raw material and work
in progress balances below include $741,309 and $640,484 in silver bearing unprocessed
photochemicals or partially processed materials as of June 30, 2008 and December 31, 2007,
respectively.
|
June 30,
|
Dec. 31,
|
|
2008
|
2007
|
Finished goods
|
$ 59,599
|
$ 46,211
|
Work in progress
|
616,983
|
522,273
|
Raw materials
|
469,835
|
425,673
|
|
1,146,417
|
994,157
|
Less: Silver recoverability
|
|
|
and slow moving reserves
|
104,161
|
104,161
|
Net Inventory
|
$1,042,256
|
$889,996
|
7. The Company has outstanding three categories of warrants and options
that may be exercised to acquire common stock; these include warrants, convertible debt
options, and employee options. The following table summarizes warrant and option activity
for the period January 1, 2007 through June 30, 2008:
|
|
Convertible
|
Employee
|
|
|
Warrants
|
Debt Options
|
Options
|
Total
|
Under option, December 31, 2006
|
58,599,501
|
586,181,548
|
6,322,000
|
651,103,049
|
Granted
|
100,000,000
|
6,411,235,444
|
252,000
|
6,511,487,444
|
Exercised
|
-
|
(546,758,396)
|
-
|
(546,758,396)
|
Expired/Adjusted
|
(8,134,500)
|
-
|
(310,000)
|
(8,444,500)
|
Under option, December 31, 2007
|
150,465,001
|
6,450,658,596
|
6,264,000
|
6,607,387,597
|
Granted
|
10,000,000
|
-
|
117,000
|
10,117,000
|
Exercised
|
-
|
-
|
-
|
-
|
Expired/Adjusted
|
(5,725,000)
|
(896,869,878)
|
(230,000)
|
(902,824,878)
|
Under option, June 30, 2008
|
154,740,001
|
5,553,788,718
|
6,151,000
|
5,714,679,719
|
|
|
|
|
|
The average price for all warrants and options granted and exercised
was $0.002 for the six months ended June 30, 2008 and $0.0009 for the year ended December
31, 2007.
The following table summarizes the warrants and options outstanding as
of June 30, 2008:
16
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
|
|
|
Weighted
|
|
|
|
Average
|
|
No. of
|
Exercise
|
Exercise
|
Expiration Dates
|
Shares
|
Price
|
Price
|
Warrants:
|
|
|
|
March 2015
|
10,000,000
|
$0.0001
|
|
December 2014
|
15,000,000
|
0.001
|
|
August 2014
|
20,000,000
|
0.0014
|
|
October 2014
|
15,000,000
|
0.004
|
|
January to June 2014
|
50,000,000
|
0.010
|
|
November 2013
|
20,000,000
|
0.040
|
|
July 2013
|
20,000,000
|
0.050
|
|
March 2010
|
1,000,000
|
0.100
|
|
July 2010 to February 2011
|
3,740,001
|
0.150
|
|
Total Warrants
|
154,740,001
|
|
$0.0198
|
|
|
|
|
Convertible Debt Options:
|
|
|
|
August 2008 to March 2011
|
5,553,788,718
|
$0.0008
|
$0.0008
|
|
|
|
|
Employee Options:
|
|
|
|
August 2008 to February 2018
|
454,000
|
$0.150
|
|
One year after employment ends
|
1,450,000
|
0.150
|
|
May 2017 to May 2018
|
80,000
|
0.160
|
|
January 2015 to January 2018
|
150,000
|
0.200
|
|
One year after employment ends
|
1,000,000
|
0.250
|
|
One year after employment ends
|
3,000,000
|
0.300
|
|
October 2012 to October 2013
|
17,000
|
0.500
|
|
Total Employee Options
|
6,151,000
|
|
$0.2417
|
|
|
|
|
Total Warrants and Options
|
5,714,679,719
|
|
$0.0016
|
The 5,553,788,718 convertible debt options listed above relate to the
callable secured convertible debt discussed in Note 3 above. As of June 30, 2008
$4,535,594 of principal and accrued interest was convertible into common stock at the
lower of $0.10 per share or 35% of a calculated market price. Consequently, the number of
shares and the conversion price can vary up or down materially, depending on the
Companys stock price at any point in time.
8. Earnings (Loss) per Common Share:
Basic Earnings (loss) per common share is calculated based on the
consolidated net income (loss) for the period divided by the weighted average number of
common shares outstanding during the three and six months ended June 30, 2008 and 2007.
17
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
Diluted Earnings (loss) per common share assumes that any dilutive
convertible debt outstanding and stock options and warrants were converted on the first
day of the period. Interest expense (net of tax) incurred the period that is related to
convertible debt is added back to net income for purposes of the computation. Any stock
options or warrants with exercise prices below the weighted average market price for the
quarter are excluded from the computation. For purposes of computing diluted earnings per
common share, common stock equivalents are excluded for periods with net losses as their
effect would be antidilutive.
Following is a reconciliation of Net Income (Loss) and Weighted Average
number of shares outstanding, in the computation of basic and diluted earnings (loss) per
common share (EPS) for the three and six months ended June 30, 2008 and 2007.
|
Three months Ended June 30,
|
Six months Ended June 30,
|
|
2008
|
2007
|
2008
|
2007
|
Net Income (Loss)
|
$5,552,772
|
$(1,235,605)
|
$1,193,994
|
$(1,703,970)
|
Less: Preferred stock
dividends
|
-
|
-
|
-
|
-
|
|
|
|
|
|
Basic EPS income (loss)
available to common stockholders
|
$5,552,772
|
$(1,235,605)
|
$1,193,994
|
$(1,703,970)
|
Interest on convertible
securities,
|
|
|
|
|
net of tax
|
87,074
|
-
|
163,326
|
-
|
Diluted EPS income (loss)
available
|
|
|
|
|
to common shareholders
|
$5,639,846
|
$(1,235,605)
|
$1,357,320
|
$(1,703,970)
|
|
|
|
|
|
Weighted average number of
shares outstanding (1,000s)
|
1,071,615
|
374,749
|
1,045,106
|
366,715
|
|
|
|
|
|
Common equivalent shares
(1,000s)
|
5,587,789
|
N/A
|
5,596,455
|
N/A
|
Diluted average number of
shares outstanding (1,000s)
|
6,659,404
|
374,749
|
6,641,561
|
366,715
|
Per share amount -basic
|
$0.005
|
$(0.003)
|
$0.001
|
$(0.005)
|
Per share amount- diluted
|
$0.001
|
$(0.003)
|
$0.0002
|
$(0.005)
|
Warrants, options, and shares to be issued, totaling 717,396,547 shares
as of June 30, 2007 would dilute EPS, and accordingly are not included in the computation
of EPS for the three and six months ended June 30, 2007.
9. The Company adopted the provisions of SFAS 123R,
Share-Based
Payments,
on January 1, 2006. Accordingly, compensation costs for all share-based
awards to employees are measured based on the grant date fair value of those awards and
recognized over the period during which the employee is required to perform service in
exchange for the award (generally over the vesting period of the
18
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
award). We have no awards with market or performance conditions.
Effective January 1, 2006 and for all periods subsequent to that date, SFAS 123R
supersedes our previous accounting under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees
"
("APB 25"). In March
2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107
("SAB 107") relating to SFAS 123R. The Company has applied the provisions of SAB
107 in its adoption of SFAS 123R.
Total estimated share-based compensation expense recognized under SFAS
123R for the three months ended June 30, 2008 and 2007 was $3,667 and $737, respectively,
and is included in general and administrative expenses. Total estimated share-based
compensation expense recognized under SFAS 123R for the six months ended June 30, 2008 and
2007 was $(12,474) and $1,725, respectively. The 2008 amounts include $263 and $518 for
the three and six months ended June 30, 2008, respectively, for the estimated fair value
of stock options granted and $3,404 and $(12,993), respectively in valuation adjustments
of common stock issued to employees and consultants for their compensation.
In addition to a stock option program for employees, certain employees,
directors and various consultants receive the majority of their compensation in common
shares. Shares issued for consulting services include such services as transportation,
contracting, and corporate marketing and investor relations programs. Shares issues to
employees, directors, and consultants are valued at the closing market price of our common
stock on the transaction date. Total expenses paid in common stock for employees,
directors, and consultants was $119,743 and $352,259 for the six months ended June 30,
2008 and 2007, respectively. These expenses are allocated between the two segments and
between expense categories in the Consolidated Statements of Operations based on the type
of service provided.
10. Following is financial information for each of the Companys
segments. No changes have occurred in the basis of segmentation since December 31, 2007.
Reconciliation of segment revenues, gross profit (loss), operating
income (loss), other income (expense), and net income (loss) before taxes to the
respective consolidated amounts follows:
19
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|
2008
|
2007
|
2008
|
2007
|
|
|
|
|
|
Revenues:
|
|
|
|
|
GOLDn GRO Fertilizer
|
$1,232,490
|
$839,910
|
$1,829,779
|
$1,367,812
|
Mining Technical Services
|
31,373
|
1,675
|
87,215
|
6,628
|
Consolidated Revenues
|
$1,263,863
|
$841,585
|
$1,916,994
|
$1,374,440
|
|
|
|
|
|
Gross Profit (Loss):
|
|
|
|
|
GOLDn GRO Fertilizer
|
$309,946
|
$117,041
|
$390,068
|
$133,072
|
Mining Technical Services
|
9,705
|
(5,992)
|
35,297
|
(9,102)
|
Consolidated Gross Profit
(Loss)
|
$319,651
|
$111,049
|
$425,365
|
$123,970
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
GOLDn GRO Fertilizer
|
$(156,846)
|
$(437,214)
|
$(475,010)
|
$(930,615)
|
Mining Technical Services
|
(135,113)
|
(185,368)
|
(260,320)
|
(365,336)
|
Consolidated Operating
Income
(Loss)
|
$(291,959)
|
$(622,582)
|
$(735,330)
|
$(1,295,951)
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
GOLDn GRO Fertilizer
|
$5,844,731
|
$(621,212)
|
$1,929,324
|
$(554,561)
|
Mining Technical Services
|
-
|
8,189
|
-
|
146,542
|
Consolidated Other Income
(Expense)
|
$5,844,731
|
$(613,023)
|
$1,929,324
|
$(408,019)
|
|
|
|
|
|
Net Income (Loss) before
taxes:
|
|
|
|
|
GOLDn GRO Fertilizer
|
$5,687,885
|
$(1,058,426)
|
$1,454,314
|
$(1,485,176)
|
Mining Technical Services
|
(135,113)
|
(177,179)
|
(260,320)
|
(218,794)
|
Consolidated Net
Income
|
|
|
|
|
(Loss) before taxes
|
$5,552,772
|
$(1,235,605)
|
$1,193,994
|
$(1,703,970)
|
20
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
Identifiable assets by business segment for the major asset
classifications and reconciliation to total consolidated assets are as follows:
|
June 30,
|
December
31,
|
|
2008
|
2007
|
|
|
|
Current Assets:
|
|
|
GOLDn GRO Fertilizer
|
$1,298,734
|
$
1,033,487
|
Mining Technical Services
|
5,078
|
15,743
|
|
1,303,812
|
1,049,230
|
|
|
|
Property and Equipment,
net:
|
|
|
GOLDn GRO Fertilizer
|
2,702,596
|
2,769,179
|
Mining Technical Services
|
76,527
|
83,143
|
|
2,779,123
|
2,852,322
|
|
|
|
Other Assets, net:
|
|
|
GOLDn GRO Fertilizer
|
106,692
|
108,318
|
Mining Technical Services
|
3,483
|
3,483
|
|
110,175
|
111,801
|
|
|
|
Total Assets:
|
|
|
GOLDn GRO Fertilizer
|
4,108,022
|
3,910,984
|
Mining Technical Services
|
85,088
|
102,369
|
Total Segment Assets
|
4,193,110
|
4,013,353
|
Itronics Inc. assets
|
28,873,470
|
28,787,327
|
Less: inter-company
elimination
|
(28,603,898)
|
(28,444,812)
|
Consolidated Assets
|
$4,462,682
|
$4,355,868
|
|
|
|
11. The Company periodically holds marketable securities that are
available for sale, which have consisted solely of equity securities. The carrying amount
on the balance sheets of these securities is adjusted to market value at each balance
sheet date. The adjustment to market value is an unrealized holding gain or loss that is
reported in Other Comprehensive Income. At present, these unrealized gains or losses are
the only component of Accumulated and Other Comprehensive Income. The Company had
Accumulated Unrealized Holding Gains of $-0- at June 30, 2008 and December 31, 2007. No
gains or losses were reclassified out of accumulated other comprehensive income into
earnings during the three and six months ended June 30, 2008. No gains were reclassified
out of accumulated other comprehensive income into earnings during the three and six
months ended June 30, 2007. The table below illustrates the amount of
21
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
unrealized holding gains and losses included in other comprehensive
income, net of tax effects of $0. The reclassification adjustment, if any, listed in the
below table represents unrealized holding gains and losses transferred into earnings as
securities are sold.
Following are the components of Other Comprehensive Income:
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|
2008
|
2007
|
2008
|
2007
|
|
|
|
|
|
Unrealized holding gains
(losses)
|
|
|
|
|
arising
during the period
|
$ -
|
$ 2,468
|
$ -
|
$4,715
|
Reclassification
adjustment
|
-
|
(1,600)
|
-
|
(1,600)
|
Other Comprehensive Income
(Loss)
|
$ -
|
$ 868
|
$ -
|
$3,115
|
Following is a summary of gross proceeds and gains and losses from sales of available
for sale marketable securities
:
|
Three Months Ended
|
Six Months Ended
|
|
June 30,
|
June 30,
|
|
2008
|
2007
|
2008
|
2007
|
Gross proceeds from sale of securities
|
$ -
|
$106,218
|
$ -
|
$106,218
|
|
|
|
|
|
Gross gains from sale of securities
|
$ -
|
$7,718
|
$ -
|
$7,718
|
Gross losses from sale of securities
|
-
|
-
|
-
|
-
|
Net Gains
(Losses) from sale of Securities
|
$ -
|
$7,718
|
$ -
|
$7,718
|
12.
Fair value of financial instruments
On January 1, 2008, the Company adopted SFAS 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a three-level valuation hierarchy
for disclosures of fair value measurement and enhances disclosures requirements for fair
value measures. The carrying amounts reported in the balance sheets for receivables,
payables and short term debt qualify as financial instruments are a reasonable estimate of
fair value because of the short period of time between the origination of such instruments
and their expected realization and their current market rate of interest. The three levels
are defined as follow:
- Level 1 inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active markets.
- Level 2 inputs to the valuation methodology include quoted
prices for similar assets and liabilities in active markets, and inputs that are
22
ITRONICS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
observable for the assets or liability, either directly or indirectly,
for substantially the full term of the financial instruments.
- Level 3 inputs to the valuation methodology are unobservable
and significant to the fair value.
The Company analyzes all financial instruments with features of both
liabilities and equity under SFAS 150, "Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity," SFAS No 133, "Accounting
for Derivative Instruments and Hedging Activities" and EITF 00-19, "Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock."
The Companys convertible debt derivatives are carried at fair
value totaling $10,643,814 and $13,003,762, as of June 30, 2008 and December 31, 2007; the
Company carries its options and warrants at fair value totaling $246,126 and $231,224 as
of June 30, 2008 and December 31, 2007. The Company used Level 2 inputs for its valuation
methodology for the convertible debt derivatives, warrant and option liability, and their
fair values are determined by using current conversion rate which is determined by the
lowest three stock prices for the past 20 days at each reporting period.
|
|
Fair Value As of
June 30, 2008
|
|
Fair Value Measurements at June 30, 2008 Using Fair Value
Hierarchy
|
Liabilities
|
|
|
|
Level 1
|
Level 2
|
Level 3
|
Convertible debt derivative
|
$
|
10,643,814
|
|
|
$10,643,814
|
|
Warrant and option liability
|
$
|
246,126
|
|
|
$246,126
|
|
|
|
|
|
|
|
|
The Company recognized gains (losses) of the respective components of
the derivative instruments of $2,530,596 and $(14,384), respectively, for the six months
ended June 30, 2008.
The Company did not identify any other non-recurring assets and
liabilities that are required to be presented on the balance sheet at fair value in
accordance with SFAS No. 157. The Company also adopted SFAS 159, "The Fair Value
Option for Financial Assets and Financial Liabilities" on January 1, 2008. SFAS 159
permits entities to choose to measure certain financial and non-financial items at fair
value that are not otherwise required to be measured at fair value. The Company chose not
to elect the option to measure eligible items at fair value.
23
Item 2. Management's Discussion and Analysis or Plan of Operations
Some of the information in this report contains forward-looking
statements that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate" and
"continue," or similar words. You should read statements that contain these
words carefully because they:
- discuss our future expectations;
- contain projections of our future results of operations or of our
financial condition; and
- state other "forward-looking"
information.
We believe it is important to communicate our expectations. However,
there may be events in the future that we are not able to accurately predict or over which
we have no control. Our actual results and the timing of certain events could differ
materially from those anticipated in these forward-looking statements.
Results of Operations
We reported consolidated revenues of $1,263,863 for the quarter ended
June 30, 2008, compared to $841,585 for the prior year quarter, an increase of 50%. The
increase was due to a combination of increases in GOLDn GRO Fertilizer segment
revenue of $392,600, or 47% and Mining Technical Services segment revenue of $29,700, or
1,773%. Consolidated net income was $5,552,772, or $0.005 per share, for the quarter ended
June 30, 2008, compared to a net loss of $1,235,605 or $0.003 per share for the comparable
2007 period, an improvement of $6,788,400. The significant change from a loss to a profit
is due to an increase in sales and related gross profit, reduction in operating costs, and
to a non-cash gain on derivative instruments related to our financing.
Consolidated revenues for the first six months of 2008 were $1,916,994
compared to $1,374,440 for the prior year period, an increase of 39%. Consolidated net
income was $1,193,994, or $0.001 per share, for the six months ended June 30, 2008,
compared to a net loss of $1,703,970 or $0.005 per share for the comparable 2007 period,
an improvement of $2,898,000.
To provide a more complete understanding of the factors contributing to
the changes in revenues, operating expenses, other income (expense) and the resulting
operating income (loss) and net income (loss) before taxes, the discussion presented below
is separated into our two operating segments.
24
GOLDn GRO FERTILIZER
|
Three months Ended June 30,
|
Six Months Ended June 30,
|
|
2008
|
2007
|
2008
|
2007
|
Revenues
|
|
|
|
|
Fertilizer
|
$1,114,865
|
$ 745,214
|
$1,560,443
|
$
1,158,937
|
Photochemical services
|
$ 36,672
|
$ 42,646
|
$71,318
|
$
87,978
|
Silver
|
$ 80,953
|
$ 52,050
|
$198,018
|
$
120,897
|
Total Revenue
|
$1,232,490
|
$ 839,910
|
$1,829,779
|
$
1,367,812
|
Gross profit (loss)
|
$ 309,946
|
$ 117,041
|
$390,068
|
$
133,072
|
Operating income (loss)
|
$(156,846)
|
$ (437,214)
|
$(475,010)
|
$
(930,615)
|
Other income (loss)
|
$5,844,731
|
$ (621,212)
|
$1,929,324
|
$
(554,561)
|
Net income (loss) before
taxes
|
$5,687,885
|
$(1,058,426)
|
$1,454,314
|
$(1,485,176)
|
Total segment revenues for the second quarter of 2008 were
approximately $1,232,500, an increase of 47% from the second quarter of 2007. Total
fertilizer sales for the quarter were $1,114,900 (1,100 tons), compared to $745,200 (845
tons) for the 2007 second quarter, an increase of 50% in dollars and a 30% increase in
tonnage. Sales of bulk Chelated Liquid Micro-nutrients were $918,600 (788 tons) and
$612,900 (645 tons) for the second quarter of 2008 and 2007, respectively, an increase of
50% in dollars and 22% in tonnage. Sales of bulk Chelated Liquid Multi-nutrients were
$165,400 (312 tons) and $75,000 (181 tons) for the second quarter of 2008 and 2007,
respectively, an increase of 120% in dollars and 72% in tonnage. A new Chelated Secondary
Nutrient product was introduced in the second quarter of 2006. Sales of this product were
$-0- (-0- tons) and $24,600(18 tons) for the second quarter of 2008 and 2007,
respectively. The overall increase in sales was due both to price and volume increases.
Total photochemical services revenue for the quarter decreased $6,000 due primarily to a
reduction in photoliquids from one supplier. This was a decrease of 14% in revenue on
decreased volume of 17%. Silver sales were $81,000 (4,287 ounces) for the quarter,
compared to $52,100 (3,405 ounces) for the prior year first quarter, an increase of 56% in
dollars and 26% in ounces. The increase is due to a combination of increased sales of
silver contained in film and a sharply increased silver price.
World-wide demand for fertilizers increased sharply beginning in the
first quarter, creating shortages of certain basic fertilizer materials. Because of this,
delays were experienced in obtaining raw materials and some GOLDn GRO liquid
fertilizer deliveries were delayed to the third quarter. At the end of the first quarter,
we had the largest backlog of truck load orders since we began fertilizer manufacturing.
Our sales personnel are working closely with our sales distribution network to manage
fertilizer distribution so that the ultimate customer receives ordered materials as
closely as possible to when they are needed in the field.
Cost of sales increased $199,700 due primarily to increases in raw
materials costs of $147,400 resulting from increased sales and payroll costs of $32,500.
The segment recorded a gross profit of $309,900 for the quarter, compared to a gross
profit of $117,000 for the second quarter of 2007, an increased gross profit of $192,900,
or 165%.
We are continuing our efforts on sales of Photochemical Silver
Concentrators in order to provide a long term base of used photochemical supply. In March
2007 we received a deposit on a Photochemical Silver Concentrator and it was delivered in
July 2007. During the second quarter of 2008 we received another order from the same
customer. Delivery is expected to occur in the
25
third quarter. We also are now aggressively seeking new large scale
photochemical recycling customers, and between August 2006 and April 2007, we obtained
three new significant wholesale customers. In April 2008 we obtained another significant
wholesale customer. As a result of these new customers, we expect the rate of growth in
sales volume will be significantly greater than the rate of growth in sales dollars. The
addition of these customers is expected to increase photochemical raw material (on an
unconcentrated basis) up to 400% greater than the volume in 2006.
We have also initiated discussions with other large scale potential
customers. We anticipate that the new customers, along with our existing suppliers, will
provide sufficient raw material for fertilizer production into the spring 2009 fertilizer
season. If we are successful in gaining some of the other potential customers, we expect
raw material needs to be met well into the future.
Segment operating expenses decreased $87,500 from the second quarter of
2007. This was due to a decrease of $93,400 in sales and marketing expenses related
primarily to decreased corporate marketing.
These factors resulted in a 2008 second quarter segment operating loss
of $156,800 compared to a loss of $437,200 for the second quarter of 2007, a decreased
operating loss of $280,400, or 64%.
Other income (expense) was an income of $5,844,700 for the quarter,
compared to a net expense of $(621,200) for the 2007 second quarter, an improvement in
other income (expense) of $6,465,900. The increase in other income is due primarily to an
increase in gain on derivative instruments of $6,480,400. The gain or loss on derivatives
is calculated each quarter and is subject to material changes, either up or down, based on
changes in our stock price, which is highly volatile.
The changes in operating loss and other income resulted in a segment
net income before taxes of $5,687,900 for the quarter ended June 30, 2008, compared to
segment net loss before taxes of $1,058,400 for the prior year quarter, an improvement of
$6,746,300.
For the first six months of 2008, segment revenues were $1,829,800,
compared to $1,367,800 for the comparable 2007 period, an increase of 34%. The increase is
due to increases in fertilizer and silver revenues. Gross profit for the first six months
of 2008 was $390,100, compared to $133,100 for the comparable prior year period, an
improvement of 193%. Operating loss for the first six months of 2008 was approximately
$475,000 compared to $930,600 for the first six months of 2007, a reduced operating loss
of $455,600, or 49%.
Other income (expense) was an income of $1,929,300 for the first six
months of 2008, compared to a loss of $554,600 for the comparable 2007 period, am
improvement of $2,483,900. The improvement is due to a change from a loss to a gain on
derivative instruments totaling $2,685,000, which was partially offset by a decrease in
gains on sale of investments of $205,900. The gain or loss on derivatives is calculated
each quarter and is subject to material changes, either up or down, based on changes in
our stock price, which is highly volatile.
The changes in operating loss and other expenses resulted in a segment
net income before taxes of $1,454,300 for the six months ended June 30, 2008, compared to
segment net loss before taxes
26
of $1,485,200 for the prior year period, an increased income of
$2,939,500.
MINING TECHNICAL SERVICES
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|
2008
|
2007
|
2008
|
2007
|
Revenues
|
$ 31,373
|
$ 1,675
|
$
87,215
|
$ 6,628
|
Gross profit (loss)
|
$ 9,705
|
$ (5,992)
|
$
35,297
|
$
(9,102)
|
Operating income (loss)
|
$(135,113)
|
$(185,368)
|
$(260,320)
|
$(365,336)
|
Other income (expense)
|
-
|
$ 8,189
|
-
|
$
146,542
|
Net income (loss) before
taxes
|
$(135,113)
|
$(177,179)
|
$(260,320)
|
$(218,794)
|
Mining technical services revenue was $31,400 for the quarter ended
June 30, 2008, compared to $1,700 for the comparable quarter of 2007, an increase of
1,773%. The increase came from two technical services projects during the quarter. One was
completed during the quarter and the other is expected to resume late in the third
quarter. Cost of sales increased $14,000, due to an increase in payroll and consulting
expenses of $10,200, which were related to the technical services projects discussed
above. These factors resulted in a second quarter gross profit for the segment of $9,700
compared to a gross loss of $6,000 for the prior year second quarter, an improvement of
$15,700.
The Whitney & Whitney, Inc. reduced emphasis on technical
consulting services and launch an internet information portal is brought about by the fact
that Dr. Whitney, our President, has often been the lead person in generating new
consulting contracts. Our Presidents increased responsibilities for managing the
expanding GOLDn GRO fertilizer segment and overall corporate activities has reduced
his time availability to actively participate in the consulting segment. Part of our
objective in shifting the focus of the technical services segment is to retain our core
professional staff that can provide assistance on technical service contracts as well as
perform administrative duties for the GOLDn GRO fertilizer segment, while at the
same time adding a potential source of revenue that is not dependent upon labor sales and
which can be managed by a professional staff. The information portal also better utilizes
the Whitney & Whitney, Inc. library and information resources that are already in
existence. For the three months ended June 30, 2008 and 2007 we allocated costs of
approximately $46,700 and $62,700, respectively, to the development of the web site. The
site was launched in mid-August 2005 and we are now expanding the content of the site, as
well as improving the profiled mining company information. We expect this level of
spending to continue into at least the fourth quarter of 2008. As improvements to the site
are completed and information maintenance becomes routine, we will reduce or redirect
staff resources as needed. A program to solicit advertising customers was developed and is
being offered to gold exploration companies beginning in the first quarter of 2007. We are
presently evaluating the steps we need to take to improve the revenue growth from the
website.
Total segment operating expenses for the second quarter of 2008
decreased $34,600, due primarily to decreased sales and marketing costs related to
corporate marketing and to the insidemetals.com website discussed above and to decreased
research and development costs related to the insidemetals.com website.
The combination of these factors resulted in a 2008 second quarter
segment operating loss of $135,100, compared to an operating loss of $185,400 for the
second quarter of 2007, a decreased operating loss of $50,300, or 27%.
27
Other income (expense) for the second quarter of 2008 was $-0- compared
to a gain of $8,200 for the prior year second quarter. The prior year gain was from the
sale of stock received in an exchange of our membership interest in our workers
compensation insurance carrier.
The changes in operating loss and other income resulted in a segment
net loss before taxes of $135,100 for the quarter ended June 30, 2008, compared to a loss
of $177,200 for the prior year quarter, a decreased loss of $42,100, or 24%.
For the first six months of 2008, segment revenue totaled $87,200
compared to $6,600 for the first six months of 2007, an increase of 1,216%. This is
primarily attributable to the new technical services projects discussed above. Gross
profit for the first six months of 2008 was $35,300, compared to a gross loss of $9,100
for the comparable prior year period, an improvement of $44,400. Operating loss for the
period was $260,300 compared to an operating loss of $365,300 for the comparable 2007
period, a decreased operating loss of $105,000, or 29%.
Other income (loss) for the first six months of 2008 was $-0- compared
to a gain of $146,500 for the prior year period. The prior year gain was due to the sale
of a membership interest in the Companys workers compensation mutual insurance
company.
The changes in operating loss and other income resulted in a segment
net loss before taxes of $260,300 for the six months ended June 30, 2008, compared to a
net loss of $218,800 for the prior year period, an increased loss of $41,500, or 19%.
SUMMARY
On a consolidated basis, the various changes in revenues and operating
expenses resulted in a second quarter 2008 operating loss of $292,000, compared to
$622,600 for the second quarter of 2007, a decreased operating loss of $330,600, or 53%.
Net income before taxes for the second quarter 2008 was $5,552,800 compared to a net loss
before taxes of $1,235,600 for the prior year second quarter, an improvement of
$6,788,400. The improvement is due to a combination of increased sales, reduced operating
expenses, and an increased non-cash gain on derivatives. For the six month period ended
June 30, 2008 consolidated operating loss was $735,300 compared to $1,296,000 for the
prior year comparable period, a decreased operating loss of $560,600, or 43%. Net income
before taxes for the six months ended June 30, 2008 was $1,194,000 compared to a net loss
before taxes of $1,704,000 for the prior year six month period, an improvement of
$2,898,000.
Changes in Financial Condition; Capitalization
Cash amounted to $18,600 as of June 30, 2008, compared to $260,300 as
of June 30, 2007. Net cash used for operating activities was approximately $360,000 for
the first six months of 2008. The cash used for operating activities during the period was
financed by net proceeds of
28
$300,000 from the issuance of callable secured convertible notes, less
$27,800 in debt issuance costs, loans totaling $45,000 from an officer/stockholder, and
increases in current liabilities of $173,800 in accounts payable, $149,300 in management
salaries, $216,600 in accrued expenses, and $128,300 in accrued interest.
Total assets increased $106,800 during the six months ended June 30,
2008 to $4,462,700. Current assets increased $236,900 due to increases in accounts
receivable of $147,900 and inventory of $152,300. These increases were partially offset by
a decrease in cash of $74,400. Accounts receivable in creased due to spring season sales.
Inventory increased primarily due to the accumulation of silver contained in photographic
wastes received from our customers. Net property and equipment decreased $73,200 due to
current period depreciation and amortization. Other assets decreased $56,900 due to
amortization of deferred loan fees related to the callable secured convertible note
financing.
Current liabilities decreased during the six months ended June 30, 2008
by $1,485,400 and total liabilities decreased by $1,487,200. The decrease is primarily due
to a decrease of $2,360,000 in the estimated fair value of derivative instruments. The
major components of this decrease include $310,000 in new convertible debt borrowing,
$163,300 in accrued interest, conversions to common stock of $302,700 and a net decrease
in estimated fair value of derivative instruments of $2,530,600. The decrease in estimated
fair value of the derivative instruments is primarily due to an increased stock conversion
price at June 30, 2008 compared to December 31, 2007. The current stock price used in the
Black-Scholes model used to compute estimated fair value was $0.0026 at June 30, 2008 and
December 31, 2007. The conversion price used in the same computation was $0.0008 and
$0.0007 for June 30, 2008 and December 31, 2007, respectively. The increased stock
conversion price resulted in a reduction in the number of shares needed to convert the
callable secured convertible debt from 6,450,658,596 common shares at December 31, 2007 to
5,553,788,718 common shares at June 30, 2008, in spite of the increased borrowing. This
reduced the number of months needed to convert all the debt and consequently, reduced the
value of the debt derivative.
Other changes in current liabilities include increases of $212,100 in
current maturities of convertible notes and accrued interest, $169,600 in accounts
payable, $149,300 in accrued management salaries, $103,000 in accrued expenses, $105,300
in interest payable to officer/stockholders, and $90,500 in other liabilities. These
increases were partially offset by decreases of $12,200 in current maturities of long-term
debt and $40,100 in current maturities of capital lease obligations.
Liquidity and Capital Resources
During the six months ended June 30, 2008, working capital improved by
$1,722,300 to a deficit balance of $17,119,900. The improvement is due primarily to the
decrease in estimated fair value of derivative instrument liabilities discussed above.
In order to solve our liquidity problems, management has implemented a
plan of financing its operations through the private placements of common shares,
convertible debt, conversion of debt to common shares, and payment of consulting and other
labor services with common shares. We obtained financing of $2.06 million and $2.0 million
in 2007 and 2006, respectively, through
29
the issuance of callable secured convertible debt. During the first six
months of 2008, we obtained financing of $310,000 from the issuance of callable secured
convertible debt. Subsequent to June 30, 2008 we obtained additional convertible debt
financing of $210,000. We anticipate these funds will provide for our working capital
needs until the latter half of August 2008.
We are actively working to establish a longer term financing plan that
will identify capital sources for our financing needs over a three to five year period.
Once this plan is established, needs for financing will be adjusted and the plan will be
updated annually.
In addition to continuing the above described efforts, development of
the technology necessary to manufacture fertilizer from photochemicals has been completed.
In March 1998 our subsidiary, Itronics Metallurgical, Inc., signed a definitive
manufacturing and distribution agreement with Western Farm Services, Inc. (WFS). The
agreement gives WFS the exclusive license and right to manufacture and market the
GOLDn GRO line of fertilizer products in the states of Arizona, California, Hawaii,
Idaho, Oregon and Washington. The agreement is for five years, with five year renewal
options. In March 2008, the companies entered the third five year term of the agreement.
In addition, to meet short term cash needs, we have negotiated a 10 day
payment period on invoices to our primary distributor, at a cost of 1% of the invoice
amount. We also periodically factor certain inventory items and receivables to help with
short term cash needs. These arrangements are with unrelated individuals, carry interest
at 2% to 3% per month, and the lenders are secured by a blanket UCC on specified inventory
items and on specified invoices. As of June 30, 2008, no factored inventory and
receivables were outstanding.
We are expanding GOLDn GRO fertilizer sales and the related
photochemical and silver sales necessary to achieve profitability, but this growth is
subject to a number of uncertainties, including the annual seasonal nature of fertilizer
sales related to crop cycles, short term weather patterns in specific markets, the rate of
GOLDn GRO fertilizer adoption in existing and new markets, and the availability of
funding to support sales growth.
Growth Plans and Implementation
With the successful completion of the initial pioneering development
work by the GOLDn GRO Fertilizer segment, and with the launch of the
insidemetals.com information portal by the Mining Technical Services Division, we are
implementing growth plans for both divisions that are expected to drive expansion well
into the future. The status of these plans and their implementation is described for each
division.
GOLDn GRO Fertilizer Segment (Itronics Metallurgical, Inc.)
Our manufacturing plant is presently configured to produce 1.2 million
gallons (on a single shift basis) of GOLDn GRO fertilizer annually (about 5,700
tons) and can be expanded to produce 7.2 million gallons of GOLD'n GRO per year, or about
36,000 tons. GOLD'n GRO fertilizer production in 2007 utilized about 5 percent of planned
capacity. Planned expansions to achieve the 36,000 ton volume include increasing both dry
raw material and liquid storage, increasing tank truck loading capacity, and automation of
certain manufacturing functions. Expansion is
30
being done incrementally as fertilizer sales continue to grow.
We have developed the following eight-part approach to growth:
1. Increase sales in the established market segments.
2. Develop GOLD'n GRO fertilizer applications for more crops.
3. Expand sales to new territories.
4. Expand the GOLD'n GRO specialty fertilizer product line.
5. Complete development of and commercialize the new glass/tile
products.
6. Develop and commercialize environmentally friendly metal leaching
reagents for recovery of silver, gold, and other metals.
7. Continue facilities expansion and technology development.
8. Acquire established companies and/or their technologies.
Plans and status of implementing each of the growth categories is
explained in more detail in the following sections.
1.
Increase sales in established market segments.
We are selling into or developing applications for the three major
segments. These are:
a. Specialty Agriculture which includes Avocados, Citrus, Grapes, Fruit
and Nut Trees, and Vegetables.
b. Bulk Field Crops which include alfalfa, cereal grains, corn, cotton,
and soybeans.
c. The Urban Market, which includes Home Lawn and Garden, Landscape
Construction and Maintenance, and Nursery and Greenhouse markets, and Golf Courses.
Our primary focus is to increase bulk GOLDn GRO liquid fertilizer
sales as rapidly as possible. This is being achieved by expanding sales in the Specialty
Agriculture segment and in the Bulk Field Crops segment. There are on-going small package
sales in the Urban Market, but these are small relative to the other two segments.
In the second quarter 2008 the parent company of our distributor
acquired a major competitor. Early in the third quarter the parent company disclosed plans
to integrate the acquired company and its retail outlets into its existing retail
distribution system. Prior to the acquisition our distributor and its sister subsidiaries
had more than 500 retail outlets nationwide, after the merger there are more than 800
retail outlets nationwide.
Our distributor, which sells the GOLDn GRO fertilizers in
Arizona, California, Hawaii, Idaho, Oregon, and Washington, is acquiring new retail
outlets in those states. The increase in the number of retail outlets is expected to
contribute to further increases in GOLDn GRO sales in the third and fourth quarters
this year and in 2009. Consideration is being given to putting the GOLDn GRO
products into a national sales program operated by a subsidiary of the acquired company.
While a commitment has not been made, we have received inquiries from some of the newly
acquired retail outlets in the southern and eastern U.S. about the availability of the
GOLDn GRO fertilizers, and GOLDn GRO Guardian Deer Repellent. The Company
believes that moving the GOLDn GRO product line into a national sales program could
have a major positive impact on the growth of GOLDn GRO fertilizer sales.
31
2.
Develop GOLD'n GRO fertilizer applications for more crops.
Based on our experience to date, it takes approximately two to five
years to develop a new fertilizer product, which includes regulatory approval. It
typically takes another two to four years to achieve market acceptance of successful
products, which includes field trials to demonstrate product effectiveness.
We are continuing to assist with field trials being performed by our
distributors agronomy personnel in Utah and California. We are planning to support
field trials for GOLDn GRO Guardian with potential distributors in several states
beginning in the third quarter 2008.
In the fall of 2007 we began a field evaluation of using GOLDn
GRO 10-0-1+3% Manganese as a manganese fertilizer that could be applied as a spray tank
mix with glyphosate(Round Up) on "Round Up" ready corn. This is important
because most manganese fertilizers are not compatible with glyphosate in spray tank mixes.
The GOLDn GRO fertilizer was found to be compatible and no phyto-toxicity to the
corn plants was experienced. The grower was pleased with the trial results. Subsequent to
that, in the first half 2008, the Company has been working with a fertilizer raw material
supplier who has put out trials on "Round Up Ready" soybeans in several states.
Results have not yet been reported, but the supplier has an extensive nationwide
distribution system and is fully capable of introducing the GOLDn GRO fertilizer in
relevant markets in the mid-west and southern United States where soybeans are a major
crop.
If the GOLDn GRO 10-0-1+3% Manganese proves to work with
glyphosate for spray application on "Round Up Ready" soybeans, then three large
acreage markets will become available for sales development. These are: (1) "Round Up
Ready" sileage corn, (2) "Round Up Ready corn for grain, and (3) "Round Up
Ready" soybeans. The bulk of acreage for these crops is in the mid-west and southern
areas of the United States. There is typically one crop per year, and the demand would be
highly seasonal on a relatively large scale, and pre-season manufacturing of product
inventory would be required.
During the past two years our agronomy staff has been conducting
literature research specific to phosphorous availability and the related availability of
nutrient metals that are placed in the soil by fertilization. The objective of this
research is to establish a theoretical foundation that explains why components of the
demetallized photoliquids used to make the GOLDn GRO liquid fertilizers are
beneficial when applied. The research has identified many studies that have been conducted
relevant to this chemistry. The outcome is that the unique chemistry found in the
GOLDn GRO fertilizers is beneficial when applied to the soil by improving the
availability of phosphorous and the nutrient metals, including iron, zinc, manganese,
calcium, and magnesium. A related benefit is that residuals, to the extent they occur, are
used as a nutrient source by soil microbes producing essentially complete use of the
fertilizers. The main benefit of this nutrient technology is expected to be an ability to
reduce the amount of fertilizer applied, while maintaining adequate nutrient levels in the
crops being fertilized.
The other benefit of GOLDn GRO liquid fertilizer chemistry that
is being identified is that it is making it possible to use phosphate-bearing fertilizer
liquids in fertigation applications in locations that have hard water where this is not
normally possible.
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At a time in history when fertilizer prices, especially for phosphate,
are rising sharply, the ability to improve the availability of phosphorous and nutrient
metals in the soil has significant positive economic and environmental benefits.
These developments with their associated economic and environmental
benefits are expected to lead to expanded use of the GOLDn GRO liquid fertilizers
for fertigation applications on a number of crops, and to increase the use of the
fertilizers with phosphate applications on many different crops.
In 2006 we began contributing to an ongoing Zinc Nutrition Research
Program at Utah State University in Logan, Utah. To date, the research has demonstrated
the effectiveness of GOLDn GRO 9-0-1+7% Zinc as a chelated liquid zinc micronutrient
fertilizer for zinc deficient corn. Results include preventing visual symptoms of zinc
deficiency, significantly increased tissue concentration of zinc compared to untreated
plants, and doubled dry mass.
3.
Expand sales to new territories.
The GOLD'n GRO products are being sold in Arizona, California,
Colorado, Idaho, Nevada, Oregon, Rhode Island, Washington, and Utah, with the majority of
our sales in central California. Two GOLD'n GRO products are registered in seven
northeastern states and all of the products are registered in New York and in New Jersey.
Based on our experience, commercial sales can be generated approximately one to three
years after introductory sales activities are initiated. We are in the process of
identifying distributors for New York and the other seven northeastern states. Each new
geographic area developed requires the same procedural approach.
The expansion into the Northwest states of Idaho, Oregon, Washington,
and Utah is being managed by one field agronomist. The cost of maintaining that position
ranges from $120,000 to $150,000 per year. The expansion into the Northeast states is
being managed by one part time person at an annual cost of approximately $30,000. That
person is also the lead person in seeking customers for our Photochemical Silver
Concentrators.
In general, expansion to new regions of the country will require at
least one field agronomist for each new region at a cost similar to that for the Northwest
region. In addition, each state has varying registration requirements for product labels
and costs of registration. Development of product labels is done internally using existing
staff. Registration fees for each state vary widely, ranging from $25 to $600 per year,
largely depending on how many products are registered in the particular state. For the
near term, we anticipate utilizing present staff and management for corporate support of
the sales efforts for both existing regions and for the new regions. For the longer term,
as we expand we will need to add corporate support personnel.
Our plan to expand sales in Urban Markets requires the consumer to
utilize fertilizer injection equipment. This equipment provides economical, easy use of
liquid fertilizers for consumer lawns and gardens. We are marketing one type of fertilizer
injector to our "e" store, which is the first step into this market.
Additionally, fertilizer injectors are available to consumers through irrigation supply
stores.
33
4.
Expand the GOLD'n GRO specialty fertilizer product line.
We are introducing two new specialty products, a calcium plus magnesium
fertilizer named GOLDn GRO 11-0-0+5% Ca (Calcium) and a high magnesium content
fertilizer named GOLDn GRO 8-0-0+3% Mg (Magnesium), both targeting foliar and soil
application. We have registered GOLDn GRO 11-0-0+5% Ca in Nevada and California.
Registration of GOLDn GRO 8-0-0+3% Mg is planned for the third quarter of 2008 at
which time sales development will be started.
We are working with our distributors in California to introduce a new
chelated micronutrient fertilizer which is GOLDn GRO 9-0-0 Iron Man Z. This
fertilizer is being targeted to the turf and ornamental market and for use on vegetables,
trees, and vines. Addition of this fertilizer to the GOLDn GRO line of chelated
micronutrients fills a nutrient gap and was generated by customer requests for such a
product. The Company is now offering five chelated micronutrient fertilizers for sale. The
GOLDn GRO product line now includes a total of 13 liquid multi-nutrient fertilizers.
We are developing a new category of repellent fertilizers that are
expected to be sold at higher profit margins than our other products. The GOLDn GRO
Guardian deer repellent fertilizer is an example of this type of specialty fertilizer. The
U.S. market for deer repellents is believed to exceed $200 million in annual sales.
Products currently in the market have limited effectiveness so we believe that there is a
real opportunity for a line of systemic products that are effective for several weeks
after each application. GOLD'n GRO Guardian small plot tests have shown effectiveness for
8 to 12 weeks as well as excellent wintertime effectiveness.
We acquired ownership interest in the GOLDn GRO Guardian
trademark, product rights, and the repelling product in 2005. We now own 100% of all
rights related to GOLDn GRO Guardian. Currently, this product line is strictly for
non-food plant applications. We have engaged consultants experienced in the EPA
registration process. We are presently working with them to plan the process and lab work
needed to complete a series of registrations.
We have a three phased registration process underway to get the
repelling ingredient (denatonium benzoate) and GOLDn GRO Guardian into the market.
Phase 1
is to register a "ready-to-use" spray deer
repellent that is essentially similar in the amount of repelling ingredient to a topical
product that is already in the market, but that is being phased out due to high cost and
limited effectiveness. Using this "me too" approach provides a U.S. EPA approved
path to rapid registration to get product sales started by mid-year 2008. This phase was
completed in March 2008.
Phase 2
is to register denatonium benzoate. U.S. EPA has made a
written determination that Itronics would have a 10 year exclusive use right under this
registration that provides use protection to the owner which is similar to use protection
provided by a product patent. This registration is being pursued because denatonium
benzoate has not been registered as an active ingredient for use in animal repellents in
the United States, and the U.S. EPA is now requiring that it be registered for that
purpose. This registration requires that scientific, environmental, and toxicology data be
gathered to become part of the application. We have an agreement in place with a large
foreign manufacturer of denatonium benzoate who has already supplied certain confidential
technical manufacturing and scientific information to U.S. EPA as part of our product
registration application. Our environmental consultants have informed us
34
that the data required will take from two to four years of elapsed time
to gather and could cost in the range of $1 million to $1.5 million. This registration is
on hold until the data requirements can be fulfilled.
Phase 3
is to register the GOLDn GRO Guardian
deer-repellent fertilizer concentrate. This registration will be pursued once denatonium
benzoate has been registered as an active ingredient for use in animal repellents in the
United States. This registration requires that scientific, environmental, and toxicology
data be gathered to become part of the application. Our environmental consultants have
informed us that the data required will take from two to four years of elapsed time to
gather and could cost in the range of $1 million to $1.5 million. A major part of the
toxicology studies for this product have been completed with a finding that the product is
relatively safe, requiring only a caution label for use. Some of the scientific data has
been supplied, but the environmental data has not yet been gathered.
We also need to register GOLDn GRO Guardian in each state in
which it will be sold. We have already registered the fertilizer component, GOLDn
GRO 8-8-8+4%S, in Nevada, Utah, and 9 northeastern states where sales will be started so
that the fertilizer registration requirements will not delay sales once they are
permissible. State
registration
of the "ready-to-use" spray as registered with the U.S. EPA was begun in early
May 2008. The plan is to file registration applications in 13 states. Sales of GOLDn
GRO Guardian can begin in each state when the state registration is received. To date, our
registration applications have been approved in Nevada, Utah, Rhode Island, Colorado,
Massachusetts, New Jersey, and Maryland.
The Company is actively working on GOLDn GRO Guardian packaging
for early customer use. It is also qualifying potential distributors in the states where
registration has been received. The amount of GOLDn GRO Guardian Deer Repellent that
can be sold under the first label registration is limited. Based on interest being
expressed in the product, the Company believes that it could quickly move into a
"sold out" position on the product until the second registration is completed.
Because of this, we are selecting as initial distributors, the companies that appear to
have the best long term potential to grow when more supply becomes available. Also because
of this, the Company plans to only focus on licensed landscape maintenance companies that
have licensed spray divisions as initial customers, along with tree and decorative plant
nurseries in those states in which we are registering the product.
5.
Complete development of and commercialize glass/tile products.
In 2003, we developed and produced glass /tile products proving that
the product concept is technically viable. When the development of the glass/ceramic tile
product is completed, we will achieve the ability to recycle 100 percent of the
photoliquid materials received from customers, including waste that is generated
internally during fertilizer production. We have completed preliminary market research for
the tile markets, but expect to do much more work to develop a plan to enter this market.
6.
Develop and commercialize metal leaching reagents for recovery of
silver, gold, and other metals.
35
We are developing applications of our technology to extract silver from
photoliquids to the mining sector. This work is being expanded and a small pilot circuit
is being established to chemically process certain categories of silver-bearing solid
wastes. The gold mining sector currently uses cyanide and other toxic chemicals in their
leaching process. We believe it may be possible to create and adapt new non-toxic leaching
reagents and leaching procedures for processing other secondary materials and certain
types of mine generated products. The specific markets for leaching reagents in gold and
silver mining is large and world wide, but has not yet been studied in detail for market
development. Our Technical Services Division maintains an extensive library and database
of mines and mining activities worldwide, which provides us ready access to market
information as we need it. Much pilot plant work, including one or more field pilot
operations, must be completed before quantitative market studies can be completed.
7.
Continue facilities expansion and technology development.
As fertilizer sales volume increases, we need to increase tank truck
loading capacity. With the introduction of additional bulk products and increased demand
for our products, load out capacity for shipment of three more bulk products is needed.
The first phase, construction of a containment area, was substantially completed in late
2006. While we believe that we can handle expected growth in 2008 with the existing
load-out module, we hope to complete installation of the new load out tanks during the
second half of 2008, subject to the availability of financing. The estimated capital
required for this project is $400,000.
During the quarter, we completed pilot leach tests which show that the
leach process we are developing will increase per melt refining capacity by up to 10 times
and reduce per ounce refining cost up to 90 percent.
A silver-iron-zinc-sulfur concentrate is presently produced by our
photoliquid demetallization process. The concentrate is dried and sent to the refinery for
silver recovery, refining, and sale. The concentrate has a relatively low silver content
in relation to the iron and sulfur. Presently some of the iron and zinc goes into a glass
slag and some of the iron and zinc combines with the sulfur to form an "iron
matte," which has some silver in it and which must be reprocessed to recover the
remaining silver.
The purpose of the new technology is to remove the iron, zinc, and the
sulfur from the concentrate to reduce the amount of concentrate sent to the refinery, and
to reduce the amount of glass slag and iron matte produced by the refinery. The expected
financial benefits of the process are to: (1) increase per melt silver refining capacity
by up to 10 times with no increase in per melt cost by reducing the amount of silver
concentrate sent to the refinery by up to 90 percent; (2) reduce waste by producing an
iron-zinc bearing liquid (Itromet FeLix Process), and a sulfur bearing liquid (Itromet
SuLix Process) that can be used as raw materials in GOLDn GRO fertilizers.
Small pilot scale leaching tests conducted in the first half of 2008
are producing a recovery of iron and zinc of more than 85 percent and up to 90 percent of
the contained sulfur. The bulk volume of the residual silver bearing solids is reduced by
up to 90 percent. The residual solids contain all of the silver along with other
non-nutrient impurities. With a 90 percent reduction in bulk volume, the melting furnace
will now be able to produce up to 10 times more silver with each melt, at no increase in
cost. The other positive outcome is that the iron, zinc, and sulfur content in the
produced liquids is high enough to work well for GOLDn GRO
36
fertilizer manufacturing. This will help stabilize some of our
fertilizer raw material costs once it is implemented.
We are now working on the leach plant design, preparing a capital
budget, and a construction schedule. We project the leach plant can be built within six
months after obtaining capital funding, which is estimated at $380,000.
We have identified several other potential applications where the FeLix
and SuLix processes could reduce processing costs and reduce waste by profitably
converting material presently being wasted into commercial products:
- Processing steel wool (ion exchange) cartridges which are widely used
in the United States to perform on site silver removal from photographic liquids at user
sites where hauling is not required. Both iron and silver would be recovered. This is a
large source of iron and photo silver.
- Processing the cores of non-mercury bearing silver batteries to
recover zinc and silver.
- Processing the cores of non-mercury bearing alkaline batteries to
recover zinc and manganese.
- Processing flue dusts produced by steel mills to recover zinc and
iron. This is a potentially large future use.
- Processing of concentrates produced by certain silver-zinc mines.
While this would require more application development work to match the processes to
specific concentrates, its potential is huge.
8.
Acquire established companies and/or their technologies.
To enhance our operations and market presence, we intend to acquire
small established companies or their technologies. In 2005, we completed our acquisition
of the GOLDn GRO Guardian technology. Further acquisitions will depend on the
potential benefits and suitable financing.
Mining Technical Services Segment (Whitney & Whitney, Inc.)
Historically, this division provided consulting services to the mining
industry. In August 2005, we launched an Information Portal on the Internet. This division
has a two-part approach to growth:
- Continue to provide consulting services.
- "e-commerce" Internet Information
Portal-"insidemetals.com".
Plans and status of implementing each of the growth categories is
explained in more detail in the following sections.
a.
Continue to provide consulting services
We intend to continue a low level effort to solicit and perform
technical services for mining companies and other businesses or government agencies that
have mineral interests or minerals related responsibilities. These efforts resulted in two
consulting projects during the first half of 2008. One project has been completed and has
a small potential for future services, and
37
the other project is expected to resume late in the third quarter and
continue for two to three months.
b.
"e-commerce" Internet Information
Portal-"insidemetals.com".
In August 2005, we launched the website "insidemetals.com,"
an Information Portal targeting the companies and individuals interested in the mining and
precious metals industry. The website is beginning to generate revenue by charging a
subscription fee for monthly access to the site and by selling advertising to gold
exploration companies. Currently, the site contains an array of information about gold and
companies in the gold industry. We intend to add information on other mineral sectors
gradually.
We anticipate that mining company professionals, all government
agencies with minerals related responsibilities, financial industry investment
professionals, and individual investors who have an interest in investing in mining
companies but who have limited mineral industry knowledge will benefit from this
Information Portal. The market scope for this service is global and is accessible with a
"click of a mouse" in all countries of the world through the Internet. Whitney
& Whitney, Inc. has contacts throughout the world and expects that the good will
generated over a period of more than 25 years will provide market support for this
service.
A program to solicit advertising customers was developed and is being
offered to gold exploration companies.
In September 2007, our Board of Directors approved the formation of a
subsidiary to acquire multi-mineral properties and strategic small specialty companies
that are in early stage or commercial operation. These can be combined to form a larger
operating company that will utilize our advanced environmentally compatible technologies
to mine, extract, and sell mineral and metal products from multi-mineral properties. Our
plan anticipates that shares in the subsidiary will be placed with private investors. The
plan will include provisions for taking the subsidiary public to provide an exit strategy
for the initial private investors.
Item 4T. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures.
As of the
end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our principal executive and financial officer
and principal accounting officer of our disclosure controls and procedures (as defined in
Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our
principal executive and financial officer and principal accounting officer concluded that
because of the material weakness in internal control over financial reporting described
below, our disclosure controls and procedures were not effective as of June 30, 2008.
Disclosure controls and procedures refer to controls and other
procedures designed to ensure that information required to be disclosed in the reports we
file or submit under the Securities Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms promulgated by the SEC
and that such information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance
38
of achieving the desired control objectives, and management is required
to apply its judgment in evaluating and implementing possible controls and procedures.
Accounting and Reporting Oversight
Because
of our small size, we have ineffective segregation of duties relative to key financial
reporting functions. Additionally, only one person in our company, our Principle
Accounting Officer/Controller has extensive US GAAP accounting and SEC reporting
experience. However, we do not have anyone else on staff with sufficient knowledge to
review his work for completeness and accuracy. We do not have anyone with financial
expertise on our Board so we have been unable to form an audit committee to perform
oversight of this function.
In order to correct the foregoing weaknesses, we will continue to
search for independent directors; however, given our current financial condition, we
expect we will not be successful until we can become profitable and/or adequately funded.
(b)
Changes in internal controls.
There was no change in our
internal controls or in other factors that could affect these controls during our fiscal
quarter ended June 30, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
As of June 30, 2008 we have accrued for liabilities, including
interest, of $557,078 which relate to various lawsuits and claims for the collection of
the funds due. These include 8 leases totaling $366,911 (reflected in Capital Lease
Obligations) plus $70,035 in additional interest (reflected in Accrued Interest) and one
trade payable totaling $85,801 (reflected in Accounts Payable) plus $34,331 in additional
interest (reflected in Accrued Interest). The leases are individually secured by specified
equipment.
The accrued interest noted above was recorded based on our assessment
of three cases that are seeking $251,522, which we believe are probable. The creditors
have received judgments in these cases, but have taken no further collection action. We
will continue to accrue interest until these cases are settled or paid in full.
We have two cases, that originally sought $171,853, that we deem to
have a remote possibility of incurring an additional unrecorded loss. We have negotiated
payment agreements on these cases and, as of June 30, 2008, the recorded liability for
these cases was $163,681. We are delinquent in our payments under the respective
settlement agreements, but are in contact with counsel for the creditor, and no collection
action has been taken.
Successful settlement of the above claims is dependent on future
financing.
We may become involved in a lawsuit or legal proceeding at any time in
the ordinary course of business. Litigation is subject to inherent uncertainties, and an
unexpected result may arise that may adversely affect our business. Certain lawsuits have
been filed against us for
39
collection of funds due that are delinquent, as described above. We are
not aware of any additional legal proceeding or claims that we believe will have,
individually or in the aggregate, a material adverse affect on our business, financial
condition or operating results.
Item 2. Unregistered sales of Equity Securities and Use of Proceeds
(a) Recent Sales of Unregistered Securities:
In June 2008, we issued an aggregate of 500,000 and 214,286 shares of
common stock valued at $1,500 for each issuance to John W. Whitney, our President, as
compensation for services performed on our behalf in his capacity as a director of our
Company for the fourth quarter of 2007 and the first quarter of 2008, respectively.
In June 2008, we issued an aggregate of 75,000 shares of common stock
valued at $6,000 to Duane H. Rasmussen, our Vice President, as compensation for services
performed on our behalf in his capacity as Vice President of our Company for periods in
2003 and prior.
In June 2008, we issued an aggregate of 40,000 shares of common stock
valued at $160 to two employees as compensation for services performed on our behalf in
their capacities as employees of our Company for the fourth quarter of 2007 and the first
quarter of 2008.
In June 2008 we issued an aggregate of 908,172 shares of common stock
valued at $2,906 to Wayne Baker as compensation for consulting services performed on our
behalf in 2008.
During the second quarter of 2008 we issued an aggregate of 236,780,000
common shares to four accredited investors upon the conversion of $302,677 in callable
secured convertible notes.
We issued options to purchase an aggregate of 9,000 shares of common
stock to Michael C. Horsley, our Controller, on May 1, 2008. The options are exercisable
at $0.15 per share and expire three years after grant.
We issued options to purchase an aggregate of 37,000 shares of common
stock to four of our employees in May 2008. The options are exercisable at $0.15 to $0.16
per share and expire in three to ten years from grant.
All of the above offerings and sales were deemed to be exempt under
rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The offerings
and sales were made to a limited number of persons, all of whom were accredited investors,
our business associates or our executive officers, and we restricted transfers in
accordance with the requirements of the Securities Act of 1933, as amended. In addition to
representations by the above-referenced persons, we have made independent determinations
that all of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment, and that
they understood the speculative nature of their investment. Furthermore, all of the
above-referenced persons were provided with access to our Securities and Exchange
Commission filings.
40
Except as expressly set forth above, the individuals and entities to
whom we issued securities as indicated in this Item 2 are unaffiliated with us.
Item 3. Defaults Upon Senior Securities
In the first quarter of 2006 all of the Series 2000 Convertible
Promissory Notes became due and are now in default. The total principal and interest due
at June 30, 2008 is $3,709,964. We are formulating a plan to seek extensions of these
notes and have recorded these notes as current liabilities. No collection action has been
taken to date.
When these notes came due in 2006, they were convertible into
22,229,551 common shares. If the Company is successful in negotiating extensions of these
notes, the convertible options may be renewed and the eventual number of potential options
could be significantly higher than the amount that expired.
The Companys mortgage loan on the manufacturing facility is in
default due to delinquent property taxes totaling $14,378. The lender is aware of the
situation and has taken no collection action. As a result of the default, the entire
principal balance, in the amount of $406,130, is included in current liabilities.
As of June 30, 2008 the Company owed $144,802 plus penalties and
interest for federal payroll taxes. Subsequent to June 30, 2008 $66,177 plus related
penalties and interest of this amount was paid. The Company is in contact with the IRS and
believes a payment arrangement can be made for the remaining balance due. The IRS may file
federal tax liens and seize Company assets if satisfactory arrangements cannot be made.
In addition to the above leases that are subject to litigation, there
are three leases, with a recorded liability of $151,071, that are in default. As required
by U.S. Generally Accepted Accounting Principles, the principal balance of the leases that
are in default have been classified as current liabilities.
Item 6. Exhibits
Exhibit 31.1 CERTIFICATION OF PRINCIPAL
EXECUTIVE AND FINANCIAL
OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
43
Exhibit 31.2 CERTIFICATION OF PRINCIPAL
ACCOUNTING OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
45
Exhibit 32.1 CERTIFICATIONS OF
PRINCIPAL EXZECUTIVE AND FINANCIAL
OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
47
Exhibit 32.2 CERTIFICATIONS OF
PRINCIPAL ACCOUNTING OFFICER PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
48
41
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 14, 2008
By:
/S/JOHN W. WHITNEY
John W. Whitney
President
(Principal Executive and Financial
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 14, 2008
By:
/S/JOHN W. WHITNEY
John W. Whitney
President
(Principal Executive and Financial
Officer)
DATED:
August 14, 2008
By:
/S/MICHAEL C. HORSLEY
Michael C. Horsley
Controller
(Principal Accounting Officer)
42
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