UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-KSB

(Mark One)

(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the Transition period from______to_______

Commission file number 33-18582



ITRONICS INC.

(Name of small business issuer in its charter)



Texas
                                  
75-2198369

(State or other jurisdiction of
        (I.R.S. Employer Identification Number)

incorporation
or organization)

6490 South McCarran Boulevard, Building C, Suite 23 Reno, Nevada   89509

(Address of Principal Executive Offices)
                 
Zip Code

Issuer's telephone number: (775) 689-7696

Securities registered under Section 12(b) of the Exchange Act:

Title of each class
               Name
of each exchange on

which registered

None
                               
None

Securities registered under Section 12(g) of the Exchange Act:

None

(Title of class)

Check whether the issuer is not required to file reports pursuant
Section 13 or 15(d) of the Exchange Act. ( )

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes (x) No ( )

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. (x)



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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ( ) No (X)

State issuer's revenues for its most recent fiscal year: $1,884,412.

The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the average bid and asked price of such
common equity, as of March 31, 2007, was $7,256,768.

As of March 31, 2007 there were issued and outstanding 368,705,921
shares of the Registrant's Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

None

Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)

2

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ITRONICS INC. AND SUBSIDIARIES

2006 FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS

|PART I   |                                                                                                                                        | PAGE
|-------- | -------------------------------------------------------------------------------------------------------------------------------------- | ----
|Item 1.  | Description of Business                                                                                                                | 4   
|Item 2.  | Description of Property                                                                                                                | 19  
|Item 3.  | Legal Proceedings                                                                                                                      | 19  
|Item 4.  | Submission of Matters to a
    Vote of Security Holders                                                                                | 20  
|         |                                                                                                                                        |     
|PART II  |                                                                                                                                        |     
|Item 5.  | Market for Common Equity
    and Related Stockholder Matters and Small Business Issuer Purchases of Equity
    Securities              | 21  
|Item 6.  | Management's Discussion and
    Analysis or Plan of Operation                                                                          | 22  
|Item 7.  | Financial Statements                                                                                                                   | 32  
|Item 8.  | Changes in and
    Disagreements with Accountants on Accounting and Financial Disclosure                                               | 33  
|Item 8A  | Controls and procedures                                                                                                                | 33  
|PART III |                                                                                                                                        |     
|Item 9.  | Directors, Executive
    Officers, Control persons and Corporate Governance; Compliance with Section 16(a) of
    the Exchange
    Act | 33  
|Item 10. | Executive Compensation                                                                                                                 | 36  
|Item 11. | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder Matters                                     | 37  
|Item 12. | Certain Relationships and
    Related Transactions, and Director Independence                                                          | 40  
|Item 13. | Financial Statements and
    Exhibits                                                                                                  | 41  
|Item 14. | Principal Accountant Fees
    and Services                                                                                             | 76  
|         |                                                                                                                                        |     

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ITEM 1. DESCRIPTION OF BUSINESS.



INTRODUCTION

We are the inventor and developer of the "Beneficial Use
Photochemical, Silver, and Water Recycling" technology that produces environmentally
beneficial GOLD'n GRO fertilizers and silver bullion.

We are an environmental process technology company that has developed
what we believe is a unique technology for photochemical recycling. We, through our
subsidiary, Itronics Metallurgical, Inc., extract more than 99% of the silver and
virtually all of the other toxic heavy metals from used photoliquids and use this
"Beneficial Use Photochemical, Silver and Water Recycling" technology to produce
environmentally beneficial chelated liquid fertilizer sold under the trademark GOLDn
GRO, animal repellant/fertilizer to be sold under the trademark GOLDn GRO Guardian,
and silver bullion. We also provide development planning and technical services to the
mining industry.

OUR PRODUCTS AND SERVICES

We currently operate the following two business segments under separate
wholly owned subsidiaries:

GOLDn GRO Fertilizer: This segment, known as Itronics
Metallurgical, Inc., operates a fertilizer manufacturing, photochemical recycling, and
silver refining facility. Revenues are generated by photochemical management services,
sales of photochemical concentrators, sales of silver, and sales of GOLDn GRO liquid
fertilizer products.

Mining Technical Services: This segment, known as Whitney &
Whitney, Inc. (WWI), provides mineral project planning and technical services to the
mining industry. It has specialized knowledge in all aspects of mineral project
development and has been deeply involved in gold mine development for more than 25 years.
It employs technical specialists with expertise in the areas of mining, geology, mining
engineering, mineral economics, material processing, and technology development. Technical
services have been provided to many of the leading U.S. and foreign mining companies,
several public utilities with mineral interests, to various state agencies, the U.S. and
foreign governments, and the United Nations and the World Bank. WWI was under contract
with the Country of Bolivia from 1986 through early 1992 to assist it in developing its
mining industry. In 2005 WWI launched an internet website to provide gold mining company
profiles to the interested public.

We have three wholly owned subsidiaries, Whitney & Whitney, Inc.
("WWI"), Itronics Metallurgical, Inc. ("IMI"), and Itronics
California, Inc. (ICI), a 92.5% owned partnership, Nevada Hydrometallurgical Project
("NHP"), and an 82.53% owned joint venture, American Hydromet. A brief
description of each organization follows:

Itronics Metallurgical, Inc.:

IMI was established in 1981 to manage the metallurgical and materials
processing operations being developed under WWI and American Hydromet research and
development programs. IMI has been the main provider of management services to American
Hydromet since 1986. IMI is now managing the photochemical/GOLD'n GRO fertilizer segment
as discussed below.

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Nevada Hydrometallurgical Project:

Nevada Hydrometallurgical Project ("NHP") is a research and
development partnership formed in 1981 to fund research into potential commercial
applications for certain hydrometallurgical process techniques developed by the U.S.
Bureau of Mines Research Center in Reno, Nevada between 1970 and 1979. A number of
potential commercial applications were defined by NHP, one of which is the American
Hydromet silver/gold refining technique. In late 1985, NHP assigned its interest in the
silver/gold refining technique to American Hydromet. NHP retained its proprietary interest
in the other potential commercial applications for future developments. NHP continues as a
financing and technology owning partnership. We own 92.5% of NHP.

American Hydromet:

American Hydromet is a Nevada joint venture that was formed in 1985 to
develop certain silver and gold refining/recovery technology and to create business based
upon such technology. The GOLDn GRO fertilizer segment now being managed by IMI is
owned by American Hydromet. The ownership interests in American Hydromet are: NHP for
76.5%, IMI for 1%, and American Gold & Silver Limited Partnership
("AG&S") for 22.5%. AG&S is a Nevada limited partnership, for which WWI
serves as the general partner and owns a general and limited partnership interest totaling
11%. We own a 37% limited partnership interest in AG&S. In total, we own approximately
83% of American Hydromet.

Itronics California, Inc.:

Itronics California, Inc. (ICI) was acquired in March 1999 by Itronics
Metallurgical, Inc. ICI, originally named PD West, Inc., was acquired for its phosphoric
acid recycling technology. ICI has no business operations but plans are to utilize the
phosphoric acid technology and may eventually operate IMI's photochemical services and
GOLD'n GRO fertilizer business in California.

Whitney & Whitney, Inc.:

WWI was incorporated in 1977. WWI was primarily a mineral consulting
firm that provided planning and technical services to the mining industry. WWI is now
further developing an internet website originally launched in 2005 to provide gold mining
industry data to the investing public, while maintaining a presence in the technical
consulting field.

SUMMARY HISTORY OF OPERATIONS

Whitney & Whitney, Inc. was established to provide a wide range of
technical services to the mining industry. During the 1980's, WWI completed several
multi-client fertilizer marketing studies. Also during this time period, WWI was contacted
by state and local environmental officials concerning the problem of photographic wastes,
laden with silver and other toxic heavy metals, being dumped in local sewer systems.

Over the years, the mining technical services business was highly
cyclical, closely following the base and precious metals industries, and specifically, the
price of copper, other base metals and gold. This condition pointed out the necessity of
expanding our business into new industries. When considering the fertilizer marketing
studies previously performed, along with the growing national issue of sewer system
contamination from toxic photowastes and silver toxicity to fish, it seemed to be a
natural extension of WWI's existing expertise to expand

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into the photowaste recycling business. In 1987 the decision was made
to move forward with research and development of a process to extract silver from
photographic liquid wastes. It took until 1997 to develop and demonstrate a satisfactory
fertilizer and to complete university testing to demonstrate its agronomic viability.

In March 1998 IMI signed a five year definitive licensing,
manufacturing, and distribution agreement with Western Farm Service, Inc. (WFS), one of
the largest liquid fertilizer bulk retailers in the western United States. The agreement
was renewed in March 2003 for another five years, subject to annual cancellation
provisions. The agreement grants WFS an exclusive license and right to manufacture and
market IMI's GOLD'n GRO line of bulk liquid fertilizer products for the Turf &
Ornamental and Specialty Agricultural markets in the states of Arizona, California,
Hawaii, Idaho, Oregon, and Washington. WFS has approximately 90 agricultural retail
outlets in these states. In the discussion below, and elsewhere in this report, we refer
to this group of retail outlets as our licensed distributor network.

A 35,000 square foot manufacturing plant in Reno/Stead, Nevada was
purchased in 1999. Construction of the liquid processing area was completed in early 2000,
and a "shake-out" period was completed in which small batches of photochemicals
were processed and small batches of fertilizer were manufactured. By late 2000 the new
facility had demonstrated the ability to "demetallize" the received photo
liquids to required EPA levels, thereby proving the technical viability of the new
technology on a commercial scale. By the first quarter of 2001 we were positioned to
develop sales for more than a dozen liquid fertilizer products.

In 2001, at the request of our licensed distributor, we developed a
chelated liquid micronutrient zinc fertilizer with the objective of selling the product in
truckload quantities. This fertilizer development was successful and provided the basis
for the first tank truck load sales in the fourth quarter of 2001. During 2002 this new
bulk liquid fertilizer was successfully introduced into the distributor network. During
2002 work on a bulk liquid GOLD'n GRO fertilizer that could be used as a "base
liquid" in the distributor's proprietary field blends was commenced. In 2003
development work on a second chelated liquid micronutrient zinc product for bulk sale was
initiated. Field testing of both new bulk liquid fertilizers was conducted during 2003 and
in late 2003 they were approved for introduction into the distributor sales network for
2004.

During the same 2001 to 2003 period, more than two dozen liquid
fertilizer formulations were evaluated for suitability and market potential. By the end of
2003, product line development had been completed, and 13 fertilizers covering two
categories have been established: chelated liquid multinutrient fertilizers and chelated
liquid micronutrient fertilizers. The fertilizers are sold both to the general public and
through licensed and non-licensed distributors. Product improvement and new product
development will continue, but our focus since 2005 is primarily on GOLD'n GRO Liquid
Fertilizer sales expansion and on expansion of the services business as needed to support
increasing GOLD'n GRO fertilizer sales.

We are developing an animal repellent/fertilizer that will be sold
under the trademark GOLD'n GRO Guardian. This product will use one of the GOLD'n GRO
multi-nutrient liquid fertilizers as a base liquid, which has the property of being taken
into the plant as a fertilizer and imparting odor and taste characteristics that are
offensive to deer and other animals, such as

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rabbits, that eat plants. The GOLD'n GRO Guardian product was field
tested during 2003 and was subsequently approved for use by the North American Deer
Management Network. GOLD'n GRO Guardian is a repellent fertilizer product and must be
registered under both the pesticide regulations and the fertilizer regulations for each
state in which it will be sold. The product must also be registered with the Federal EPA
as a biopesticide. Introduction of this product for commercial sales will be delayed until
the registrations are completed. In 2005 we acquired the interest in the GOLDn GRO
Guardian trademark, product rights, and the repelling product formula owned by Mr. Howland
Green. We now own 100% of all rights related to GOLDn GRO Guardian. Mr. Green has
become one of our directors and is Northeast Manager for GOLDn GRO Sales
Development. Substantial funding over the next twelve months will be required to complete
the EPA and California registration process.

During the period 1999 through 2003 we developed a "low
temperature vacuum distillation" machine that operates at room temperature and is
able to remove up to 80% of the water from photochemical solutions without damaging the
chemicals, producing a high silver content concentrate that can be shipped as a commercial
product in inter-state commerce. The distilled water is clean enough for re-use on site
and the reduction in volume of material needing to be shipped produces an 80 percent
reduction in transportation cost making shipment possible anywhere in the United States.
These machines are being sold under the trademark "Itronics Metallurgical
Photochemical Silver Concentrators".

After we began producing fertilizer, we noted that the by products of
the process were the main materials needed to manufacture glass and ceramic. Therefore we
began research and development of glass and tile formulations. During 2003, the first
pieces of glass/ceramic tile were produced. With the successful development of a
glass/ceramic tile product, we achieve the ability to recycle 100 percent of the materials
received from customers, including waste that is generated internally during processing.
The silver refining technology and the glass/ceramic tile products development efforts are
being expanded in parallel with expansion of GOLD'n GRO fertilizer sales.

A more detailed discussion of our business, based on our two business
segments described above, follows.

GOLDn GRO FERTILIZER

Operations

We operate a commercial scale plant to receive used photochemical
liquids, recover the silver and other metals, and convert the demetallized solutions to
liquid GOLD'n GRO fertilizer products. A critical component of this integrated
manufacturing system is to match, within a reasonable range, the incoming volume of
photochemical liquids with the utilization of those liquids in fertilizer or other
manufactured products.

Photochemical services operates as a regional business in northern
Nevada, serving more than 200 customers in the northern Nevada market. A satellite service
operation has been established in the San Francisco Bay Area which is a large market with
at least three strong competitors. We believe we are able to compete effectively based
upon pricing and service quality. In October 2006 we began servicing a large company in
northern Nevada and in November 2006 we began servicing a large company in the San
Francisco Bay Area.

Growth of silver bullion output is driven by photochemical processing
to support GOLD'n GRO

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fertilizer sales. There are some opportunities to expand silver output
separate from photochemical recycling, but profit margins for the refining services are
very small when compared to the inventory requirements and the security risk. Because of
these factors, gold and silver refining services are limited to categories of materials
where our proprietary technology can be used and that offer better profit margins than
conventional precious metal refining. We will be actively looking at opportunities to
expand this segment in future years.

Spent photochemical liquids received from customers are logged and
recorded, then tested for silver content and contaminants. We achieve high contaminant
control standards by working proactively with our regular customers. Once testing is
completed, the photographic solutions are available for processing.

Growth Plans and Implementation

With the successful completion of the initial pioneering development
work by the GOLDn GRO Fertilizer Division, we are implementing growth plans that are
expected to drive expansion well into the future. The status of these plans and their
implementation is described below.

Our manufacturing plant is presently configured to produce 1.2 million
gallons (on a single shift basis) of GOLDn 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 2006 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 can be achieved 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.
>       8
>       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 GOLDn 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.

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 performing field trials in Idaho, Oregon, and Washington for
applications on onions, potatoes, and winter wheat. We also have begun field trials in
Rhode Island for lawn, landscape, and nursery application and have started several new
trials in California for silage corn applications.

A GOLD'n GRO base liquid nutrition program is being marketed. The
program is called the "Gallon and a Quart" or "4 to 1" program. It
calls for one gallon of GOLDn GRO base liquid for each quart of GOLD'n GRO chelated
micro-nutrient used in soil applications. Field demonstrations have shown improved
nutrition uptake and crop output under this cost effective program. Marketing of this
program is expected to produce substantial increases in the tonnage of GOLD'n GRO
fertilizer sales.

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 GOLDn 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. We completed registration of select GOLDn GRO
fertilizers in Idaho, Oregon and Washington in 2005 and in Utah in 2006; sales development
is now underway. 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 two 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 will require
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

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customers for our Photochemical Silver Concentrators. We plan to
increase these spending levels in 2007, depending on sales support requirements.

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. In 2006 we added a Ph.D.
agronomist, to support GOLDn GRO sales efforts.

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 added two types of fertilizer
injectors to our "e" store, which is the first step into this market.
Additionally, other fertilizer injectors are already available to consumers through
irrigation supply stores.

4. Expand the GOLD'n GRO specialty fertilizer product line.

We are developing two new specialty products, a calcium plus magnesium
fertilizer named GOLDn GRO 11-0-0+5% Ca (Calcium) and a high magnesium content
fertilizer named GOLDn GRO 8-0-0+3% Mg (Magnesium), both targeting foliar and soil
application. We have registered GOLDn GRO 11-0-0+5% Ca in Nevada and California.
Sales development started in the second quarter of 2006. The registration of GOLDn
GRO 8-0-0+3% Mg is planned for the second quarter of 2007 at which time sales development
will be started.

We are developing a new category of repellent fertilizers that are
expected to be sold at higher profit margins than our other products. The GOLDn 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 $50 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 GOLDn GRO Guardian
trademark, product rights, and the repelling product in 2005. We now own 100% of all
rights related to GOLDn GRO Guardian. Results of the research of the GOLDn GRO
Guardian deer repellent fertilizer has provided a basis for a bird (goose) repellent
fertilizer that will be perfected for small plot field trials and registration after the
registration of GOLDn GRO Guardian is underway. 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 the registration.

We believe the users of the GOLDn GRO deer repellent fertilizer
will be upscale homeowners, commercial landscapers, and municipal facilities, and
wholesale and retail nurseries. The initial sales center will be in Rhode Island.

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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.

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
will be 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 will 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 2007 with the
existing load-out module, we hope to complete construction on the new load out equipment
during the second half of 2007, subject to the availability of financing.

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 GOLDn GRO Guardian technology. Further acquisitions will depend on the
potential benefits and suitable financing.



Competition

Our GOLDn GRO fertilizer products compete with well established
fertilizer companies that have significantly more capital with which to market their
products. Our competitors include large companies such as Scotts Miracle-GRO, Dow
AgroSciences Company, Uniroyal Chemical Corporation, and smaller companies such as Pursell
Technologies, Inc. We believe that our fertilizers compete primarily on the basis of
product quality and performance.

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Our photochemical recycling fees are generated primarily from removing
used photochemicals from our customers sites. We compete for these customers with
large national firms like Safety Kleen and Philips Environmental but our primary
competitors are smaller regional firms. In 2006 we made a decision to offer wholesale
processing services to these established service companies in order to more rapidly expand
photochemical supplies.

We sell our silver bullion to a commercial refiner under standard
industry terms. We are a very small producer of silver; consequently the refiner will
purchase all the silver we can presently produce. For several years, there has been a
global shortage in the supply side of the silver market. Our ability to sell our silver
bullion could only be impacted if there were a dramatic contraction in the demand for
silver, and only then if we grow to be a much larger silver producer than we are now.



Markets

Fertilizer

The total fertilizer market consists of the "Agricultural
Market" and the "Urban Market". The Urban Market accounts for at least $9
billion in annual sales in the United States. The "Specialty Ag" segment of the
Agricultural Market is a $5 billion segment making the total a $14 billion market.
Substantially all of our present GOLDn GRO fertilizer sales are in the
"Specialty Ag" segment.

More than 50 million tons of fertilizer products are sold annually in
the United States. This includes almost 20 million tons of multi-nutrient fertilizers and
almost 3.5 million tons of secondary nutrient and micro-nutrient products. About 38
percent of the total usage is as fluid fertilizers. Our 2006 sales represent less than
0.04 percent of the specialty ag segment of the fertilizer market.

Our GOLD'n GRO fertilizers are all liquid. There are major differences
in manufacturing, distribution, and sale of liquid fertilizers as compared to dry
fertilizers. Basic differences are described here so that the investor can better
understand the technology, logistics, and application of liquid fertilizers and thereby
gain a better understanding for the market niche that we are entering.

Liquid fertilizer technology is more complex than dry technology.
Typically dry solids can be readily blended into dry mixtures that can then be bagged, or
transported as dry bulk powders. In contrast, liquid fertilizers are reacted products and
must be manufactured using precise recipes so that the final product will remain stable.
Dry products can be stored for years without degradation, whereas liquid products
typically have a limited storage life ranging from a few days for proprietary field
blends, up to 4 years or longer for certain types. Liquid fertilizers can also freeze over
a rather wide range of temperatures, a problem not encountered with dry fertilizers.
Because of these technical factors, bringing a line of liquid fertilizers to market is
much more complex than bringing a line of dry products to market.

Dry fertilizers are typically applied with dry spreaders. Liquids are
sprayed on with tank sprayers or aircraft, injected into the soil using special
applicators, or applied through irrigation systems using sprinklers, micro-sprinklers, or
drip irrigation. Liquid fertilizers

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can also be applied with ditch irrigation by running the fertilizer
into the water at controlled rates. The use of irrigation water to apply the liquid
fertilizers is called fertigation.

Dry fertilizer packaging and transport is typically simpler and less
costly than liquid fertilizer packaging and transport. Bulk liquids must be moved in tank
trucks or tank rail cars and stored in large bulk tanks at distribution points. The
distributors who sell the liquids to farmers must install and operate tank farms and
maintain a fleet of specialized applicators. Distribution and application of liquid
fertilizers typically requires specialized technical knowledge related to mixing and
handling as compared to the use of dry fertilizers. Liquid fertilizers are typically
easier and less costly to apply when irrigation is available, and availability of the
fertilizer nutrients in the soil for uptake by crops is greater when liquid fertilizers
are used. Use of fertigation to apply liquid fertilizers can reduce tractor trips through
the fields, reducing cost and also reducing soil compaction. Because of less cost for
application and improved availability of the liquid nutrients to the plants, liquid
fertilizers in the United States are continuing to gain market share. Use of liquid
starter mixes for dry land crops is also expanding, especially for planting field crops
such as cotton, corn, soybeans, and wheat.

Only certain fertilizer distribution companies have specialized in
marketing liquid fertilizers and have the facilities and equipment required to sell,
deliver, and apply the liquid fertilizers. Our licensed distributor is such a company.

The GOLD'n GRO fertilizers are complex and represent a new category of
liquid nutrition technology. The GOLD'n GRO fertilizers contain bulk chelating agents that
conventional liquid fertilizers do not contain. The chelating agents, which are normally
quite costly, are supplied as components of the starting photographic liquids. The
chelating agents improve the availability of micronutrient metals such as zinc, iron,
manganese, and the secondary nutrients calcium, and magnesium. The photoliquids also have
a natural content of sulfur, the other important secondary nutrient. These chelate
enriched multinutrient characteristics distinguish the GOLD'n GRO liquids from other
liquid fertilizers and are the main reason why the GOLD'n GRO liquid fertilizers represent
a new type of nutrient technology.

The animal repellent/fertilizer market is a new market for us. The
users of this product will be upscale homeowners and commercial and municipal facilities,
and commercial nurseries. The deer population is growing rapidly in the northeastern U.S.
and so the center of gravity for this product is the northeastern seaboard states. The
initial sales center will be in Rhode Island. The markets being served are the Commercial
Landscape and wholesale and retail Nursery segments. The GOLD'n GRO Guardian line of
products is strictly for non-food plant applications so the distribution channels are
different from the channels being developed for GOLD'n GRO fertilizers.

The U.S. market for deer repellents is believed to be well in excess of
$50 million per year. Products currently in the market are believed to have limited
effectiveness so we believe that an opportunity exists for a line of systemic products
that are effective for several weeks after each application. The GOLD'n GRO Guardian is
demonstrating effectiveness for periods of 8 to 12 weeks, and may be able to provide
"year round" protection. We are pursuing development of this line of products as
rapidly as possible.

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Photochemical Recycling

We estimate that there are more than 1,500 generators of photographic
hazardous waste in the State of Nevada and more than 500,000 throughout the United States.
This includes printed circuit board manufacturers, photo off-set printers, photographic
developers, lithographers, photographers, micro-filming (banks, companies, etc.) and x-ray
users (dentists, doctors, hospitals, podiatrists, orthopedic surgeons, veterinarians,
radiologists and industrial x-ray users). We estimate the total annual market for
recycling this category of waste to be in the range of $400 to $500 million.

We are aware of digital imaging and its impact on usage of conventional
photography. The impact is different for each of the major segments; medical, color
photography, and printing/microfiche. Digital imaging has made significant inroads into
printing/microfiche processing with an almost 85% reduction in volume of photographic
liquids over the past ten years. Over the last several years, it became clear to us that
contrary to popular belief, digital photography is creating a new source of photowastes
from Internet companies that combine digital imaging services with the ability to print
high quality photographs for their customers. Digital methods are being adopted in the
medical industry, and although the medical sector is relatively high growth with the aging
U.S. population, digital imaging has had the effect of slowing the growth of waste photo
liquids being generated and may lead to a decline in future years.

A larger impact on photo waste generation has been the pressure for
companies to reduce the amount of waste generated at the operating sites. In photography,
water was used in copious quantities for film rinsing and large quantities of low chemical
content waste liquids were generated. With the tightening of regulation of discharge of
contaminated waters the equipment manufacturers have focused on reducing water usage. This
attention to reduction of waste water has contributed to a reduction in the quantities of
waste liquids being generated. It is expected that efficiency of use and associated waste
reduction will continue, driven by increasing waste disposal costs. On-site photochemical
recovery using a Photochemical Silver Concentrator and re-using the recovered water is
expected to continue to become more and more attractive to photochemical waste generators.

Environmental restrictions on disposal of chemicals are continuing to
tighten throughout the United States with the result that now the rate of growth for our
photochemical recycling business is dependent upon the rate and vigor of fertilizer sales
growth.

Silver

Nationally, more than 50 million ounces of silver are consumed in
photomaterials annually. Approximately 30% of this is lost through disposal. The Silver
Institute indicates that silver usage in photography declined in 2005.

Seasonality and Working Capital

In analyzing the market and industry competitors, it is apparent that
two factors significantly impact our ability to penetrate these markets in a meaningful
way. First, the seasonal aspect of fertilizer sales, which directly results in the second
factor, the need for a much higher level of working capital when compared to other
industries. Based on experience, we expect

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fertilizer sales to continue to have a strong seasonal component, with
the primary sales season running from April through November each year, with an in-season
low in July and August. In addition to the general seasonal nature of sales caused by
normal weather patterns, unusual weather can further affect fertilizer sales, especially
in winter and spring. For example, unusually cold or wet spring seasons may delay the
growing cycle of various crops for which our fertilizer products are utilized. To overcome
weather related effects on fertilizer sales, we are evaluating markets in the southern
areas of the United States where growing seasons are longer and, in some cases, year
round.

Due to the seasonal nature of GOLD'n GRO fertilizer sales, we must
increase our net working capital to a level higher than that of non-seasonal industries.
For example, some of our competitors have working capital equal to their annual sales.
Consequently, ongoing debt and equity funding will be required for us to grow, even after
a profitable level of operations is achieved.

Research, Development, and Technology

The majority of our research and technology is proprietary, which means
it has not been patented, but is protected with strict confidentiality agreements and
limited access to our research and production facilities. A U.S. patent on the silver
separation process was issued in 1987 and is now expired. We made a corporate decision to
not patent our research results as the cost of obtaining and defending patents is
prohibitive.

We conduct field trials to gather agronomic data and to develop
knowledge of how the GOLD'n GRO products work on different crops. This field testing will
continue as it is the most effective method for developing the field data needed to
support claims of product effectiveness for specific crops. On-going field trials of
GOLDn GRO fertilizer products continue to show significant improvements in crop
production and quality. The trials are providing agronomic data that is being used to
develop GOLDn GRO nutrition programs for the crops being tested.

The field trials are demonstrating that the GOLDn GRO products
provide both agronomic and economic benefits in the "specialty agricultural"
markets. Specialty agriculture includes vegetables, cut flowers, herbs and spices, and
fruits and nuts of all types. These crops are relatively high value compared to field
grains such as corn, wheat, and soybeans. Field trials in 2002 on cotton and on silage
corn produced positive results, opening two new large acreage crops for GOLD'n GRO
application development. Alfalfa is typically considered as a "hay" or
"forage" crop and is generally of low to intermediate value when compared to
specialty agricultural crops, however, high nutrient content alfalfa for the dairy market
often commands a significant price premium which puts it at the low end of specialty
agricultural crop values.

A 3 year field trial on Valencia orange trees was carried out with
oversight from a major university in southern California was completed in 2004. Three year
cumulative results were analyzed and positive results were obtained. Fruit output per tree
and fruit quality were both increased.

During 2003, we completed a key phase of the research project to
produce formulated glass products. The research has identified three product categories:
(1) a glass ceramic mixture that can be used to produce tile and other shapes suitable for
glazing and commercial use; (2)

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glass formulations that can be used as "lead free" low and
intermediate temperature glazes for decorative tile and the craft pottery trade; and (3)
specialty boro-silicate glass formulations. The next phase of the research will focus on
production of small quantities of products for evaluation and market studies and is
expected to be completed over the next two to three years.

We continue to be offered the opportunity to explore the feasibility of
recycling other non-photographic materials into fertilizer. We have concluded that certain
acid waste streams generated by aerospace and electronics manufacturers may be able to be
converted to a form that will fit "Beneficial Use" recycling into fertilizer in
association with the processed photochemical materials.

Environment and Regulation

All chemistry has a "cradle to grave" regulatory life span.
This term means under Federal law, the prime generator has the ultimate liability for all
generated waste as long as it exists. For example, conventional services, through storing
and hauling, relocate the waste to a legal landfill or dispose it to sewer. Liability then
remains for the cost of cleanup if the landfill has to be reclaimed or the contamination
of groundwater develops.

However, once the spent chemistry reaches our facility and has been
processed, the generator's hazardous waste liability is eliminated. Using our process,
virtually all metals, including most of the iron, are removed. The end result leaves us
with a non-hazardous "toxic-metal-free" liquid which is legal for use in high
quality GOLDn GRO liquid fertilizers.

While in general our business has benefited substantially from
increased governmental regulation of hazardous disposal by private industry, the waste
management and recycling industry itself has become subject to extensive, costly and
evolving regulation by federal, state and local authorities. We make a continuing effort
to anticipate regulatory, political and legal developments that might affect our
operations, but may not always be able to do so. We cannot predict the extent to which any
legislation or regulation may affect future operations.

In particular, the regulatory process requires firms in our industry to
obtain and retain numerous governmental permits to conduct various aspects of their
operations, any of which permits may be subject to revocation, modification or denial. We
are not in a position at the present time to assess the extent of the impact of such
potential changes in governmental policies and attitudes on the permitting process.

For several years we have been studying the various regulatory
requirements under RCRA and have been working with state and local environmental officials
regarding the extent to which hazardous waste regulations apply to our operations. Through
this process, we reached the conclusion that due to use of photochemicals as a beneficial
ingredient in our fertilizer products, the photochemicals are not "hazardous
waste" as defined in the regulations, and therefore, beneficial materials that are
otherwise regulated as hazardous waste, are exempt from most of such regulations. In early
1996 we received concurrence from State of Nevada environmental officials that our
photochemical fertilizer process meets the existing RCRA requirements for exemption from
all environmental regulation with the exception that certain presently conducted lab
analyses of the photochemicals will continue to be required. Certain of our large scale
customers presently meet the exemption requirements. Present levels of

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fertilizer sales utilize all the photochemicals received. Once sales of
all the photochemical materials are well established in the fertilizer or other commercial
products, all our Nevada customers will be exempt from the regulations, including
hazardous material transport/manifest rules. We believe that this exemption applies
nationwide. Therefore, we intend to pursue similar concurrence from environmental
officials in all applicable states, so that all our customers will be recognized as exempt
from the RCRA regulations.

Environmental regulation of photowaste generators has strengthened over
the last several years, and that trend is expected to continue. In the past year, heavy
metal contamination of fertilizers has become a significant issue in California and other
parts of the country. Public concern over this issue is expected to intensify. We believe
that the GOLDn GRO line of fertilizer products is uniquely suited to alleviating
this environmental concern and that we are well positioned to meet future environmental
needs.

Permits and Inspections

To the best of our knowledge, we have obtained permits from all
governmental agencies having jurisdiction, such as the U.S. EPA, Nevada Department of
Environmental Protection, Washoe County Health Department and the City of Reno, Nevada. We
are not required to obtain federal permits, but are required to have, and have obtained,
local permits for our photochemical recycling facility under the provisions of the U.S.
EPA. Similar permits will be required of all facilities that we may construct. Our
recycling facility is subject to frequent inspections and to regulations (including
certain requirements pursuant to federal statutes) which may govern operating procedures
for land, water and air pollution, among other matters. In particular, our operations are
subject to the Safe Drinking Water Act, TSCA (Toxic Substances Control Act-pursuant to
which the EPA has promulgated regulations concerning the disposal of PCBs), the Clean
Water Act (which regulates the discharge of pollutants into surface waters and sewers by
municipal, industrial and other sources) and the Clean Air Act (which regulates emissions
into the air of certain potentially harmful substances). Employee safety and health
standards under the Occupational Safety and Health Act are also applicable to our
employees.



MINING TECHNICAL SERVICES

Services offered

Our Mining Technical Services segment offers a wide range of technical
services to the mining industry, including management support, mineral project
development, ore reserve and material balance reviews, expert assistance in contract
dispute or litigation, and mineral economics and cost studies

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Operations

The Mining Technical Services Division originally provided typical
consulting services to the mining industry which required high level technical personnel,
including our President, devoted to each project. To reduce our dependence on our
President to generate new consulting contracts, while better utilizing our core
professional staff, the division is being reconfigured to focus most of its efforts on a
global Internet Information Portal  "insidemetals.com". The information
portal operates 24 hours per day 7 days per week anywhere in the world where computers and
the Internet are available. Anyone with access to the Internet anywhere in the world can
subscribe to the service at any time using their credit card to pay the subscription fee.

We launched the insidemetals.com website in 2005, targeting the
companies and individuals interested in the mining and precious metals industry. The
website will generate revenue by charging a subscription fee for monthly access to the
site. Currently, the site contains an array of information about gold mining and companies
in the gold industry. We intend to add information on other mineral sectors gradually over
time. A program to solicit advertising customers is being developed and is being offered
to gold exploration companies. To assist with the sales development program of the
website, we hired a manager of marketing and sales in October 2006. He is responsible for
marketing efforts for both the insidemetals.com website and for technical consulting
services to the mining industry.

Expansion Plans

In 1999 WWI initiated a long term R&D project to replace the use of
cyanide in the extraction of metals from silver/gold and gold/copper ores. The new
thiosulfate leaching technology being developed under this program utilizes the same
technology as our proprietary photochemical recycling process. The project, called
Itronics Thiomet, may seek to establish operating joint ventures at specific mine sites to
apply the thiosulfate leaching technology. This project is on hold pending further
commercial development of fertilizer sales.

In 2004 a project to establish a subscription based gold industry and
gold company Internet publication was begun. The web publication, called
"insidemetals.com", provides the customer with gold industry and producing gold
company financial, production, and ore profiles. Initially, the companies to be profiled
are in the Gold Company sector, which includes gold, silver, platinum, and palladium
producers. The profiled companies are publicly traded on the New York and American Stock
Exchanges and on NASDAQ. The publication was launched in August 2005 and the target market
includes gold company employees, governmental agencies, both domestic and foreign, and
individual investors interested in the gold markets. In addition to providing subscription
revenue, it is anticipated that the publication will enhance our opportunity to obtain new
sources for technical consulting work. This subscription based Internet Information Portal
provides an opportunity for relatively unrestricted growth by being available to a diverse
global base of potential customers.

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

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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.

Competition

Our consulting services are generally in the area of management support
and mineral economics. Management support projects include advice on mineral development
strategies, audits of ore reserves and appraisals on mineral properties primarily to
mining companies. Our projects tend to be short term, generally less than one year, and
are typically sole sourced to us based on the reputation of our president. Other companies
that provide similar services include local and regional mineral consulting firms.

Our competition for the Internet Information Portal is other websites
that provide gold and other precious metal information to the interested public.





ITEM 2. DESCRIPTION OF PROPERTY.

I. FACILITIES.

Itronics leases approximately 3,000 square feet of office space at 6490
South McCarran Blvd., Building C-23, Reno, Nevada. IMI leases approximately 2,000 square
feet of warehouse space in Reno, Nevada. This space is being used for supply storage.

IMI owns a 35,000 square foot manufacturing facility in Reno-Stead,
Nevada. The building contains all the equipment used for treating the used photochemicals,
preparing the recovered silver for sale, and manufacturing the GOLDn GRO fertilizer
products.



II. EQUIPMENT.

The equipment being used in the recycling and fertilizer manufacturing
process is proprietary information. However, the plant for recycling liquid photochemicals
into fertilizer is a fairly typical chemical process facility consisting of appropriate
arrangement of tanks and pumps. Solids produced by processing are recovered by filtration.

The refining operation consists of a material handling section, solids
drying, and a melting section. The equipment arrangements are proprietary, but the main
items are pumps, tanks, filtration equipment, drying ovens, and the melting furnaces.



ITEM 3. LEGAL PROCEEDINGS.

As of December 31, 2006 we have accrued for liabilities, including
interest, of $589,508 which relate to various lawsuits and claims for the collection of
the funds due. These include 15 leases totaling $432,616 (reflected in Capital Lease
Obligations) plus $47,235 in additional interest (reflected in Accrued Interest) and two
trade payables totaling $87,206 (reflected in Accounts Payable) plus $22,451 in additional
interest (reflected in Accrued Interest). The

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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 a total of ten cases, that originally sought $471,655, 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 December 31, 2006, the recorded
liability for these cases was $230,835. We are current in our payments under the
respective settlement agreements. Subsequent to December 31, 2006, all but two of these
cases were paid off.

In addition to the above leases that are subject to litigation, there
are four leases, with a recorded liability of $200,420, 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.

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 adverse result may arise that may adversely affect our business. Certain
lawsuits have been filed against us for collection of funds due that are delinquent, as
described above. Other than as described above, we are currently not aware of any
litigation pending or threatened for any reason other than collection of funds due and
already recorded nor are we aware of any additional legal proceeding or claims that the
Company believes will have, individually or in the aggregate, a material adverse affect on
our business, financial condition or operating results.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF ITS SECURITY HOLDERS.

None.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY

(a). Market Information. The Companys common shares are traded on
the over-the-counter market under the symbol ITRO.OB, and quoted in the National Quotation
Bureau, Inc.'s "pink sheets" and on the NASD Electronic Bulletin Board. In 2003
the Companys stock began trading on the Frankfurt, Germany Stock Exchange under the
symbol ITG. In March 2004 the Companys stock began trading on the Berlin Bremen
Stock Exchange (Germany) under the symbol ITG.

The following table sets forth the high and low bid prices for the
Company's common stock for each quarter for 2005, 2006, and through March 31, 2007.

High Bid
    Low Bid3/31/05
    $0.13
    $0.056/30/05
    $0.08
    $0.059/30/05
    $0.09
    $0.0612/31/05
    $0.07
    $0.043/31/06
    $0.08
    $0.046/30/06
    $0.05
    $0.029/30/06
    $0.04
    $0.0112/31/06
    $0.02
    $0.013/31/07
    $0.03
    $0.01


These quotations reflect inter-dealer prices without retail markup,
markdown, or commissions, and may not represent actual transactions.

(b) On March 31, 2007 the number of record holders of the Common Shares
was approximately 1,048.

(c) Dividends.

The Company has paid no dividends.

Recent Sales of Unregistered Securities:

In October 2006 we issued an aggregate of 2,500 shares of common stock
valued at $50 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 third quarter of 2006.

In October 2006, we issued an aggregate of 119,518 shares of common
stock valued at $8,000 to Duane H. Rasmussen, our Vice President, as compensation for
services performed on our behalf in his capacity as Vice President of our Company in part
for the second quarter of 2005 and in part for periods in 2003 and prior.

In November 2006, we entered into a Securities Purchase Agreement with
four accredited investors (the "Investors") for an aggregate amount of (i)
$500,000 in secured convertible notes, and (ii) warrants to purchase 20,000,000 shares of
our common stock (the "Financing").

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The Investors received three year convertible notes (the
"Notes") bearing simple interest at 6% per annum. The Notes are convertible into
our common stock at a price equal to the lesser of (i) $0.10 or (ii) 55% of the average of
the lowest 3 intraday trading prices during the 20 trading day period ending one trading
day before the conversion date. Further, the Investors received seven year warrants to
purchase a total of 20,000,000 shares of our common stock at an exercise price of $0.04
per share.

In December 2006, we issued an aggregate of 15,000,000 shares of common
stock valued at $250,000 to Wallstreet Direct Inc. for corporate marketing services to be
performed in 2007.

We issued options to purchase an aggregate of 9,000 shares of common
stock to Michael C. Horsley, our Controller, on November 1, 2006. The options are
exercisable at $0.15 per share and expire three years after grant.

We issued options to purchase an aggregate of 21,000 shares of common
stock to four of our employees in November 1, 2006. The options are exercisable at $0.15
per share and expire in three 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,
business associates of Itronics Inc. or executive officers of Itronics Inc., and transfer
was restricted by Itronics Inc. in accordance with the requirements of the Securities Act
of 1933. 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.

Except as expressly set forth above, the individuals and entities to
whom we issued securities as indicated in this section of the registration statement are
unaffiliated with us.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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.

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General Overview

We are the inventor and developer of the "Beneficial Use
Photochemical, Silver, and Water Recycling" technology that produces environmentally
beneficial GOLD'n GRO fertilizers and silver bullion.

We are a process technology company that has developed what we believe
is a unique technology for photochemical recycling. We, through our subsidiary, Itronics
Metallurgical, Inc., extract more than 99% of the silver and virtually all of the other
toxic heavy metals from used photoliquids and use this "Beneficial Use Photochemical,
Silver and Water Recycling" technology to produce environmentally beneficial chelated
multinutrient liquid fertilizer products sold under the trademark GOLDn GRO, animal
repellent/fertilizer products to be sold under the trademark GOLDn GRO Guardian, and
silver bullion. We also provide process planning and technical services to the mining
industry and are operating and continuing to develop an internet website to provide gold
mining company profiles to parties interested in the gold mining and precious metals
industry.

Our fertilizer is sold primarily through Western Farm Service, Inc.
(WFS), a wholly owned subsidiary of Agrium, Inc. (a NYSE company). Our distribution
agreement with WFS gives them exclusive rights to sell our fertilizer products in Arizona,
California, Hawaii, Idaho, Oregon, and Washington, which represented 95% of our fertilizer
sales in 2006 and 96% of such sales in 2005. This agreement is discussed in more detail in
the Business section. Our plans to increase GOLDn GRO fertilizer sales, including
plans to expand the product line, expand to more geographical regions in the U.S., enter
new market segments, and add new distributors, are also discussed in more detail in the
Business section.

We obtain a significant portion of our raw materials to manufacture
fertilizer from used photoliquids. A byproduct of our fertilizer manufacturing process is
silver. We sell three types of silver: silver bullion, 5 troy ounce 99.9% pure Silver
Nevada Miner numismatic bars, and recycled film containing silver. Our processed silver
bullion is sold to a commercial refiner under standard industry terms, which include
pricing the silver based on published market quotes and applicable service fees. The
Silver Nevada Miner bars sell to the consumer collectibles market. Recycled film is
primarily X-ray film from hospitals that we sort and sell to a commercial film recycler;
we are paid based on the value of contained silver, 45 to 60 days after shipment.

Our fertilizer manufacturing process uses several commodities. We
separate silver from photochemicals, then we add zinc and other raw materials to the
demetallized liquid to make our fertilizer formulations. Prices for fertilizer raw
materials are generally increasing over time. We maintain limited quantities of these
commodities and purchase them on a just in time basis. When prices of these commodities
rise, we pass this cost on to our customers, so commodity price fluctuations have not had
a significant impact on our results of operations.

The majority of our raw material inventory is comprised of silver in
photochemical solutions. The table below indicates that silver prices were relatively
stable in 2001 to 2003, then rose dramatically in 2004 through 2006. We regularly compare
our weighted average cost of silver per ounce to current market prices; historically we
have not had impairment losses. The average London spot price of silver per ounce is shown
as follows:

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Year

Year      2001    2002
   2003   2004   2005   2006

Silver   $4.36   $4.60  $4.88  $6.67
  $7.32  $11.55



We also provide consulting services to the mining industry. To
supplement this business line, we recently launched an internet website. Our plans with
regard to the website are discussed more fully in the Growth Plan and Implementation
section below.

Critical Accounting Policies and Estimates.

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires that management make a number
of assumptions and estimates that affect the reported amounts of assets, liabilities,
revenues and expenses in our consolidated financial statements and accompanying notes.
Management bases its estimates on historical information and assumptions believed to be
reasonable. Although these estimates are based on managements best knowledge of
current events and circumstances that may impact the Company in the future, actual results
may differ from these estimates.

Our critical accounting policies are those that affect our financial
statements materially and involve a significant level of judgment by management.

Revenue Recognition.

We operate two divisions: Photochemical Fertilizer and Technical
Services. Within the fertilizer division, revenue is derived from three sources (1) sales
of fertilizer, (2) photochemical recycling including pick up and transportation of
photochemical waste and sales of Photochemical Silver Concentrators, and (3) sales of
silver. Revenue from the sale of fertilizer, Photochemical Silver Concentrators, and
silver is recognized in income when the goods are shipped. Returns since inception have
been nominal; therefore, the Company has not established a returns allowance.
Photochemical recycling fees are recognized in income after the used photochemical
solution is removed from our customer sites and transported to our manufacturing facility.

Within the technical services division, revenue is derived from
consulting services. Revenue is recognized in income as services are rendered. When the
Company is responsible for subcontractor services and related expenses, such pass-through
costs are included in both revenue and cost of revenues. Markups, if any, are included in
revenues.

Inventory.

Inventory is carried on the balance sheet at the lower of cost or
market value using the average cost valuation method. Because a large part of our
inventory is silver contained in used photochemical materials and the market value of
silver changes daily on the commodities market, we regularly monitor the carrying value of
our silver inventory to ensure it is carried at the lower of cost or its current market
value. If silver on the open market were less than our carrying value, we would write down
the carrying value of our inventory by reducing

24

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recorded inventory and increasing cost of sales. If the amount of the
write down were material, we would separately include the item in our statement of
operations.

Convertible Debt Derivative

The fair value of the conversion feature and the prepayment penalty are
estimated using the Black-Scholes option pricing model and taking a weighted average value
based on various probabilities that the debt would be paid off prior to maturity at
specified dates and therefore incurring the prepayment penalty. This model requires
management to use significant assumptions in applying the model to estimate the fair
value. As the Companys stock price is highly volatile, and the underlying debt
amounts are relatively large, the valuation of the derivatives is subject to material
gains and losses from period to period.

Recent Accounting Pronouncements

In June 2005 the Derivative Implementation Group issued DIGs
B38 and B39 to specify the accounting treatment of put or call options embedded in
hybrid debt instruments. Both DIGs became effective for the first fiscal quarter
beginning after December 15, 2005. These new standards require us to treat the prepayment
option included in the terms of our callable secured convertible debt financing (Notes) as
an embedded derivative. Under the guidance of FAS 133 and EITF 00-19, if there is more
than one embedded derivative in a hybrid debt instrument, the embedded derivatives must be
valued as a whole. We adopted this new standard effective for the first fiscal quarter of
2006. The estimated fair value of the conversion feature and the prepayment penalty were
estimated using the Black-Scholes option pricing model and taking a weighted average value
based on various probabilities that the debt would be paid off prior to maturity at
specified dates and therefore incurring the prepayment penalty. The effect on the
estimated fair value of the combined derivatives, compared to the prior year valuation
method, was a reduction of $301,511 as of December 31, 2006.

In December 2006 the FASB staff issued FSP EITF 00-19-2 "Accounting
for Registration Payment Arrangements" to specify the accounting treatment of
contingent obligations to make future payments or otherwise transfer consideration under a
registration payment arrangement. Our callable secured convertible debt includes an
obligation for us to file registration statements with the Securities and Exchange
Commission (SEC) to register sufficient common shares for the note holders to convert the
debt into common stock frames and also obligates us to have the registration statements
declared effective by the SEC. This new standard requires us to evaluate the contingent
future payments under the criteria of a probable loss under FAS 5. The Company will adopt
this new standard effective for the first fiscal quarter of 2007 and it has not yet
determined what impact this standard will have on its financial position or results of
operations.

In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 ("SFAS 157"), "Fair Value Measurements,"
which defines fair value, establishes guidelines for measuring fair value and expands
disclosures regarding fair value measurements. SFAS 157 does not require any new fair
value measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007 with earlier adoption permitted. We are currently evaluating

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the impact of SFAS 157, but do not expect the adoption of SFAS 157 to
have a material impact on our consolidated financial position, results of operations or
cash flows.

In July 2006, the FASB issued Financial Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48"), which is a change in accounting for income taxes. FIN 48specifies how tax
benefits for uncertain tax positions are to be recognized, measured, and derecognized
in financial statements; requires certain disclosures of uncertain tax matters; specifies
how reserves for uncertain tax positions should be classified on the balance sheet; and
provides transition and interim period guidance, among other provisions. FIN 48 is
effective for fiscal years beginning after December 15, 2006. We do not expect the
adoption of FIN 48 to have a material impact on our consolidated financial position,
results of operations or cash flows.

In February 2006, the FASB issued Statement of Financial Accounting
Standards No. 155 ("SFAS 155"), "Accounting for Certain Hybrid
Financial Instruments". SFAS 155 simplifies the accounting for certain
derivatives embedded in other financial instruments by allowing them to be accounted for
as a whole if the holder elects to account for the whole instrument on a fair value basis.
SFAS 155 is effective for all financial instruments acquired, issued or subject to a
re-measurement event occurring in fiscal years beginning after September 15, 2006. Earlier
adoption is permitted, provided the Company has not yet issued financial statements,
including for interim periods, for that fiscal year. The Company will adopt SFAS 155 in
the first quarter of 2007. We do not expect the adoption of SFAS 155 to have a
material impact on our consolidated financial position, results of operations or cash
flows.

Results of Operations

The primary factors affecting our revenue fluctuation between periods
in fertilizer sales are seasonality and weather conditions. Sales are greater during the
growing season, and are negatively affected by cold winter weather and rainy weather. In
most of our markets there are two primary fertilization seasons, spring and fall, with
spring being the stronger of the two. The spring season generally starts in March and goes
through June and the fall season generally starts in September and runs into December.
Adverse weather conditions delay the start of, or can significantly shorten, a growing
season. Farmers do not fertilize their crops in rainy or cold weather; therefore they do
not buy fertilizer; consequently, our distributor does not buy fertilizer from us.
Additionally, we have experienced varying lengths of time for acceptance in the market of
our new fertilizer products; farmers are inherently very slow to accept new products so
market penetration time can be lengthy. Our short history in the fertilizer market
demonstrates that new products, if successful, obtain meaningful sales typically between
two and four years after product launch.

The primary factors affecting the revenue fluctuation between periods
in photochemical recycling revenue are our need to acquire this material for use in
fertilizer production and our ability to store this material until it is needed. We have
an unusual business model in that we need to sell our photowaste management services in
order to acquire a raw material necessary for the production of our fertilizer products,
as opposed to purchasing it from suppliers as most businesses do. Our management goal is
to combine the incoming volume of photowastes with existing stored photowastes to meet the
peaks in demand for fertilizer products. In the liquid fertilizer industry, the practice
of both our distributor and the

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ultimate consumer, the farmer, is to purchase fertilizer on a just in
time basis, to minimize their storage requirements and related costs. For this same
reason, we process our photowastes as needed for fertilizer production. Because of this,
the need to seek new customers to expand the service side of our business is driven by
fertilizer sales. There is also a seasonal factor in the consumer photography portion of
our photowaste management services business, with the Christmas holiday season being the
busiest, followed by the early summer, school graduation period. At present volumes of
photowaste, this is not a significant factor, but it could become one as we grow.

The primary factor affecting the revenue fluctuation between periods in
sales of silver bullion is our dependence on the timing of processing used photochemical
wastes, which is primarily dependent on fertilizer manufacturing and related sales. Our
silver in solution is separated from the photowaste materials during processing of the
photowastes for use in fertilizer manufacturing. As described above, the timing of
processing of photowastes is dependent on fertilizer sales, therefore sales of silver
bullion is also dependent on the level of fertilizer sales. Market price changes will also
contribute to silver revenue fluctuations by increasing or decreasing revenues depending
on whether the silver price increases or decreases.

Comparison of the Year Ended December 31, 2006 with the Year Ended
December 31, 2005.

We reported consolidated revenues of $1,884,412 for the year ended
December 31, 2006, compared to $1,360,987 for the prior year, an increase of 38%. Revenues
for the GOLDn GRO Fertilizer segment increased by $550,900, or 42%. Revenues from
the Mining Technical Services segment declined $27,500, or 49%. We reported a gross profit
of $87,700 for the year ended December 31, 2006 compared to a gross loss of $130,000 for
the year ended December 31, 2005, an improvement of $217,700. The consolidated net loss
for 2006 was $3,809,900 or $0.016 per share compared to a 2005 consolidated net loss of
$4,906,600 or $0.026 per share, an improvement of $1,096,700, or 22%.

To provide a more complete understanding of the factors contributing to
the changes in revenues, operating expenses and the resultant operating loss and net loss,
the discussion presented below is separated into our two operating segments.

PHOTOCHEMICAL FERTILIZER

Year Ended December 31,2006
    2005RevenueFertilizer
    $
    1,309,776
    $
    1,034,515Photochemical
    recycling
    $ 128,033
    $ 123,657Silver
    $ 418,265
    $ 146,972Total Segment
    Revenue
    $
    1,856,074
    $
    1,305,144Gross profit
    (loss)
    $ 95,956
    $
    (116,682)Operating
    income (loss)
    $(1,669,970)
    $(2,107,863)Net income
    (loss) before taxes
    $(3,370,803)
    $(4,389,168)


Revenues for the Photochemical Fertilizer segment totaled $1,856,100 in
2006, compared to $1,305,100 in 2005, an increase of $550,900, or 42%.

Fertilizer sales were $1,309,800 (1,746 tons) and $1,034,500 (1,749
tons) for 2006 and 2005,

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respectively. This represents an increase of 27% in dollars and a
nominal decline in tonnage. Our fertilizer product sales are presently grouped into three
primary categories, Chelated Liquid Micro-nutrients, Chelated Liquid Multi-nutrients, and
Chelated Secondary Nutrients. The Micro-nutrient category includes five products, which
includes the two zinc products, GOLDn GRO 9-0-1+7% Zn and GOLDn GRO 9-0-2+3%
Zn. These zinc products were introduced in 2001 and 2004, respectively. The Multi-nutrient
category has a total of six products, which includes the GOLDn GRO 4-0-9+6.6% S Base
Liquid, which was introduced in 2003. The Secondary Nutrient category includes GOLDn
GRO 11-0-0+5% Ca which was introduced in 2006 and GOLDn GRO 8-0-0+3% Mg which is
being registered and introduced in 2007. Sales of bulk Micro-nutrients were $1,076,000
(1,259 tons) and $863,400 (1,245 tons) for 2006 and 2005, respectively, an increase of 25%
in dollars and 1% in tonnage. Sales of bulk Multi-nutrients were $170,600 (479 tons) and
$156,800 (504 tons) for 2006 and 2005, respectively, an increase of 9% in dollars and a
decrease of 5% in tonnage. The dollar increase in bulk Multi-nutrients are primarily
attributable to increased bulk sales of the GOLDn GRO 4-0-9+6.6% Sulphur. Sales of
bulk Secondary Nutrients were $10,800 (9 tons) for 2006. The increase in total sales
dollars, despite nearly identical volume, was achieved by sales price increases during
2006.

Photochemical recycling revenue was $128,000 and $123,700 in 2006 and
2005, respectively, an increase of 4%. Excluding the prior year sale of a Photochemical
Silver Concentrator for $42,000, photochemical recycling revenue increased 57% on
increased volume of 53%. In October and November 2006 we obtained two new large scale
customers. The addition of these two customers is expected to increase photochemical raw
material (on an unconcentrated basis) to a level about 50% greater than the volume at the
end of 2004 when our contract with Shutterfly was ended (Shutterfly supplied 65% of our
2004 photochemical raw materials).

We previously developed statistical information that more than 100
million gallons of used liquid silver-bearing photochemicals are generated in the United
States annually. Using conversion ratios developed for the GOLD'n GRO fertilizers, this is
enough volume to support manufacture and sale of more than 200 million gallons of liquid
fertilizer products, or about 1 million tons, so we believe the raw material is available
in the market to meet future manufacturing needs. Based on 2006 production usage, we
estimate that current supplies of photochemical raw material in storage at our
manufacturing plant, combined with ongoing receipts of material from other existing
customers, is sufficient to meet fertilizer production needs through 2007, depending on
fertilizer sales volumes. We anticipate that with continuing sales growth, we will need to
obtain new large scale photochemical recycling customers to meet the demand.

We are in contact with both small and large photochemical generators,
and are actively marketing Photochemical Silver Concentrators. The concentrators allow us
to receive the raw materials needed to manufacture our fertilizer in much smaller volume,
resulting in a higher content of chemicals desirable for fertilizer manufacturing,
reducing the storage problems we were facing. The Photochemical Silver Concentrators are
manufactured under contract by a third party to meet the specifications of each customer.
Concentrators typically sell for $20,000 to $200,000. By using a third party manufacturer
to produce the Concentrators, we are outsourcing the fixed and variable costs that are
associated with assembling them. Primarily, these are the facilities space needed to
assemble the various parts and the specialized equipment and labor required for the
assembly. Generally, we have self financed the production of Concentrators

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sold in the past. In the future, we anticipate that non-governmental
customers will advance the funds necessary to acquire the parts and labor needed to
produce the Concentrators. For our most recent governmental customer, we borrowed the
funds needed to fulfill the contract from an unrelated individual. We anticipate using
similar arrangements for future Concentrators sold to governmental customers.

Silver revenue was $418,300 and $147,000 for 2006 and 2005,
respectively, an increase of $271,300, or 185%. Sales of all silver or silver bearing
products were $399,200 (33,690 ounces) for 2006, compared to $141,700 (18,149 ounces) for
2005. This is an increase of 182% in dollars and 86% in ounces. The increase is primarily
from increased sales of processed silver bullion due to progress in making adjustments to
our refining process needed to accommodate changing conditions in the recycling process

Combined cost of sales and operating expenses for the segment amounted
to $3,526,000 in 2006, compared to $3,413,000 in 2005, an increase of 3%. Cost of sales
increased approximately $338,300, primarily due to an increase of raw material costs of
$193,700 from increased sales, $104,200 for silver inventory reserves, and $27,100 in
increased payroll and related costs. The changes in revenues and cost of sales resulted in
a 2006 gross profit of $96,000 compared to a gross loss of $116,700 in 2005, an
improvement of $212,600. Operating costs decreased $225,300 due primarily to decreases of
$211,000 in sales and marketing and $36,700 in general and administrative costs. Sales and
marketing expenses decreased primarily due to reduced corporate marketing. General and
administrative expenses decreased primarily due to a $35,800 reduction in stock option
compensation.

A significant portion of our silver inventory is contained in
byproducts from our refining process. We have developed new procedures to more cost
effectively obtain this silver and initial plans were to install the necessary equipment
in 2006 and recover the majority of it during 2006. The project was delayed by the
necessity of installing air purification equipment in the refinery. The air purification
system was substantially completed in March 2007 and plans are now underway to determine
the specifications of the equipment needed to process the byproducts and obtain the
silver. We estimate there will be a two stage process of equipment installation, with the
first stage to be completed in the third quarter of 2007 and the second stage to be
completed in the fourth quarter of 2007. In order to determine the amount of the silver
contained in these materials, we developed an estimate of recoverable silver ounces.
Accordingly, we recorded a recoverability reserve of $70,200 based on our estimate of
recoverable silver at December 31, 2006. The portion of silver that we estimate will be
recovered in 2008 was deemed to be slow moving inventory, and accordingly, we recorded a
reserve of $34,000.

These changes in revenues and operating expenses resulted in a segment
operating loss of $1,670,000 in 2006, compared to $2,107,900 in 2005, a decreased loss of
$437,900 or 21%.

Other income (expense) decreased to a net expense of $1,700,800 for
2006, compared to a net expense of $2,281,300 in 2005, a decreased net expense of
$580,500. The primary reason for the decreased expense is a reduction of the loss on
derivatives of $908,500, which is related to the callable secured convertible debt
financing obtained in July 2005 and subsequent dates. This decrease was partially offset
by an increase in interest expense of $332,100 related to the convertible debt financing.

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The changes in operating loss and other expenses resulted in a segment
net loss before taxes of $3,370,800 for 2006 compared to $4,389,200 for 2005, a decreased
loss of $1,018,400 or 23%.



MINING TECHNICAL SERVICES

Year Ended
    December 31,2006
    2005Revenue
    $ 28,338
    $ 55,843Gross profit (loss)
    $ (8,269)
    $ (13,324)Operating income (Loss)
    $(542,042)
    $(507,831)Net income (loss) before
    taxes
    $(439,082)
    $(517,444)




Mining technical services revenue totaled $28,300 for 2006 compared to
$55,800 for 2005, a decrease of 49%. Included in these revenue figures are pass-through
expenses of $2,500 and $4,900 for 2006 and 2005, respectively. Excluding these amounts,
revenues amounted to $25,800 and $50,900 for 2006 and 2005, respectively, a decrease of
49%. The number of clients we serve and the amount of work needed by those clients varies
from period to period.

On March 1, 2005 the technical services contract with Golden Phoenix
Minerals, Inc.(GPXM) expired and was not renewed. Revenue from this client was $15,000 for
the two months ended February 2005.

Combined cost of sales and operating expenses totaled $570,400 for 2006
compared to $563,700 for 2005, a nominal increase. Research and development expense
increased $20,700. This expense is related to the development of the insidemetals.com
website. The majority of this expense is an allocation of personnel costs.

In early May 2005 the technical services satellite office was closed
due to the winding down of most of the technical service contracts and completion of the
majority of the data gathering for the insidemetals.com project, but certain key staff
members have been retained. Programming is continuing for insidemetals.com and launch of
the website Information Portal occurred in August 2005. Revenues from the website have
been nominal to date.

The redirection of Whitney & Whitney, Inc. to reduce emphasis on
technical consulting services and to 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 Presidents increased responsibilities for
managing the expanding photochemical recycling 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 possible future technical service
contracts as well as perform administrative duties for the photochemical recycling
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 years ended December 31, 2006 and 2005 we allocated
costs of approximately $206,900 and $186,100, respectively, to the development of the web
site. The site was launched in mid-August 2005 and we are now fine-tuning the general
presentation and functionality of the site, as well as improving the profiled mining
company information. We expect this level of spending to continue at least through the
second quarter

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of 2007. As improvements to the site
are completed and information maintenance becomes routine, we will adjust or redirect
staff resources as needed. A program to solicit advertising customers is being developed
and is being offered to gold exploration companies in the first quarter of 2007. We hired
a manager of marketing and sales in October 2006. He is responsible for marketing efforts
for both the insidemetals.com website and for technical consulting services to the mining
industry.

The above changes in revenues and operating expenses resulted in a
segment operating loss of $542,000 for 2006, compared to $507,800 for 2005, an increased
operating loss of $34,200 or 7%.

Other income (expense) is a net gain of $103,000 for 2006, compared to
a net expense of $9,600 in 2005, an improvement of $112,600. The improvement is due to an
increased gain on sale of GPXM shares.

The changes in operating loss and other income resulted in a segment
net loss before taxes of $439,100 for 2006, compared to $517,400 for 2005, a reduced loss
of $78,400, or 15%.

Changes in Financial Condition; Capitalization

We had a cash overdraft of $13,800 as of December 31, 2006 compared to
a cash balance of $24,300 as of December 31, 2005. Net cash used by operations was
$1,698,200 in 2006 compared to $2,148,500 in 2005. Operating resources utilized to finance
the 2006 loss of $3,809,900 include approximately $185,300 in expenses paid with our
common stock, $147,700 in increased accounts payable, and $200,000 in deferred management
salaries. Cash amounting to approximately $29,800 was invested in property and equipment
in 2006, primarily for equipment in the manufacturing plant. Sales of Golden Phoenix
Minerals, Inc. stock provided $229,400 in cash from investing activities. The primary
financing source of cash in 2006 was $1,941,200 in proceeds from convertible debt, less
$247,600 in debt issuance costs.

Total assets increased from $4,229,600 at December 31, 2005 to
$4,265,500 at December 31, 2006. Current assets increased $78,000. The primary changes in
current assets were increases in accounts receivable of $15,300 and $222,400 in prepaid
expenses due to a $250,000 2007 corporate marketing program paid in common stock at the
end of 2006. These increases were partially offset by decreases in cash of $24,300,
marketable securities of $91,800 due to sale of the remaining GPXM stock during 2006, and
$43,700 in inventory.

Property and equipment decreased by $66,400 due to investment in
equipment totaling $161,600, which was offset by an increase in accumulated depreciation
and amortization of $228,000. Other assets increased $24,300 due to an increase in
deferred loan fees related to the callable secured convertible debt financing.

Total liabilities increased from $9,703,200 at December 31, 2005 to
$11,695,000 at December 31, 2006, an increase of $1,991,800. Of this amount, current
liabilities increased $1,876,100 and long term liabilities increased $115,700. Due to
certain terms of the Notes, the loans must be accounted for as derivative liabilities and
recorded at estimated fair value at each reporting date, which was $4,876,200 at December
31, 2006 and $3,621,200 at December 31, 2005. The increase in the fair value of
convertible debt derivatives of $1,255,000 in 2006 was primarily due to the addition of $2
million in Notes, offset by the conversion of $1,266,400 in notes and

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certain changes in the assumptions used in our Black-Scholes valuation
model. In addition, all outstanding non-employee warrants and options are required to be
recorded as derivative liabilities at estimated fair value, which was $380,100 at December
31, 2006 and $134,200 at December 31, 2005. Current liabilities increased due to increases
in accounts payable of $84,100, accrued management salaries of $200,000, interest payable
to management of $73,900, current maturities of convertible notes and accrued interest of
$385,500, and the Notes and outstanding warrants discussed above of $1,500,800. These
increases in current liabilities were partially offset by decreases in accrued expenses of
$32,300 and current maturities of capital lease obligations of $341,400.

In connection with the callable secured convertible debt discussed
above, we registered 50 million shares in February 2006 and increased the authorized
shares in March 2006 to 1 billion shares. We also completed a registration of 75 million
shares in October 2006 and currently have a registration pending for 75 million shares.

Working Capital/Liquidity

During the year ended December 31, 2006, the working capital deficit
was increased by $1,798,100 to a deficit balance of $10,139,600. The primary changes in
working capital are the increase in callable secured convertible debt financing as
discussed above. The Company has had limited cash liquidity since the third quarter of
2000. The Company has sought and obtained the funding described above, which has not been
sufficient to maintain all obligations on a current basis. The cash shortage is primarily
because fertilizer sales in 2006 and prior years did not expand to the extent anticipated,
so operating losses were not reduced as expected. Second, the $15 million equity line of
credit agreement with Swartz Private Equities, LLC (Swartz) was not able to function to
meet the Companys ongoing working capital needs and was allowed to expire on
February 27, 2004. As a result, various private placements of stock with attached three
year warrants were undertaken beginning in the fourth quarter of 2002. $-0- and $570,000
was raised from private placements during 2006 and 2005, respectively. In addition, the
Company sold GPXM and other shares for net proceeds of $229,400 and $10,200 during the
years ended December 31, 2006 and 2005, respectively, advances from an officer/stockholder
were $-0- and $95,000 in 2006 and 2005, respectively. We obtained callable secured
convertible debt financing and received proceeds of $1,807,300 net of debt issuance costs
of $217,700 in 2005 and proceeds of $1,693,600 net of debt issuance costs of $247,600 in
2006. Subsequent to December 31, 2006, we received net proceeds of $990,000 in additional
callable secured convertible debt financing. We anticipate these proceeds will provide for
the Companys working capital needs to May or June 2007.

We are actively working to establish a longer term financing plan that
will identify capital sources for the Companys 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 extended annually.

ITEM 7. FINANCIAL STATEMENTS

The response to this Item is submitted under Item 13.

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ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

To our knowledge, there is no accounting or financial disclosure
dispute involving any present or former accountant.



ITEM 8A CONTROLS AND PROCEDURES

> 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 chief executive
>     officer and chief financial 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
>     chief executive officer and chief financial officer concluded that our disclosure controls
>     and procedures are effective to ensure that information required to be disclosed by us in
>     the reports that we file or submit under the Exchange Act is recorded, processed,
>     summarized and reported, within the time periods specified in the Commission's rules and
>     forms.
>     Changes in internal controls.
>     There was no change in our internal controls or in other factors that
>     could affect these controls during our last fiscal quarter or subsequent to our last
>     evaluation that has materially affected, or is reasonably likely to materially affect, our
>     internal control over financial reporting.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE

A. I. Directors and Executive Officers - Summary Information.

The following are the directors and executive officers of the Company:

Age as ofName
    12/31/06
    Position
    Position Held SinceDr. John W. Whitney
    60
    President/Treasurer
    May 1988DirectorHowland S. Green
    53
    Northeast Manager
    April 2005of GOLDn GRO salesDirectorGregory S. Skinner
    52
    Secretary
    December 1990Duane H. Rasmussen
    76
    Vice President;
    November 1997Vice President and
    May 1994General Manager-IMI


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1) For directors, the term of office is until the next annual meeting
of shareholders. For officers, the term of office is until the next annual meeting of the
Board of Directors, presently scheduled to be held immediately following the annual
meeting of the shareholders.

II. Narrative Information Concerning the Directors and Executive

Officers of the Company.

John W. Whitney:

In addition to being the President and a Director of the Company, 1988
to present, Dr. Whitney is the President and a Director of each of the operating
subsidiaries, Itronics Metallurgical, Inc. and Whitney & Whitney, Inc. Dr. Whitney
also serves as the General Manager of American Hydromet, a joint venture.

He received his Ph.D. in Mineral Economics from Pennsylvania State
University in 1976, his M.S. in Mineralogy from the University of Nebraska in 1971, and
his B.S. in Geology from the University of Nebraska in 1970. Dr. Whitney has served as
President of Whitney & Whitney, Inc. since its formation in 1977.

Prior to his serving as W&W full-time president, Dr. Whitney worked
as a consultant for the Office of Technology Assessment, U.S. Congress, doing analysis of
various Alaskan mineral issues (1977-1978), a consultant for various government agencies,
including the office of Mineral Policy Analysis in the U.S. Department of Interior, and
the Washington office of the U.S. Bureau of Mines, consulting firms, law firms and mining
companies on a variety of mineral planning issues (1976-1977), as a consultant for BKW
Associates, Inc. evaluating mining investment opportunities in Mexico and the Philippines
(1973-1975), and as a geologist-mineralogist for Humble Oil & Refining Company and
GeoTerrex Ltd. (1971-1972).

Dr. Whitney is an internationally recognized consultant in the field of
Metal and Material Resource Economics. Dr. Whitney has presented seminars for various
clients on Mining Economics, and has taught a three-credit graduate course on
International Metal Economics for the University of Arizona's College of Mines. Dr.
Whitney is an Honorary Faculty Member of the Academy for Metals and Materials under the
seal of the American Society for Metals. Dr. Whitney has made numerous presentations and
written a number of publications on various technical subjects within his broad area of
expertise. Dr. Whitney is coinventor of the American Hydromet process technology and holds
four patents. Dr Whitney was selected as Nevadas Inventor of the Year for 2000 and
became a member of the Inventors Hall of Fame at the University of Nevada, Reno.

Howland S. Green

Mr. Green was appointed as our director and as the Northeast Manager of
GOLDn GRO Sales in April 2005. He received a B.Sc. degree in plant science and
landscape architecture from the University of Rhode Island in 1981. He founded the Holly
Ridge Nursery in Kingston, Rhode Island in 1989 and was its owner and President until the
business was sold in September 2005. He is the concept creator and a founder of the North
American Deer Management Network. Mr. Green researched and developed the Mirrepel and
subsequently co-developed the GOLDn GRO Guardian systemic deer and rabbit
repellents. Through his ownership of the Holly Ridge Nursery he has gained extensive
knowledge of the landscape construction and maintenance and wholesale

34

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and retail nursery markets. He has also served as consultant to
"Ask This Old House".



Gregory S. Skinner, Esq.

Mr. Skinner has served as secretary and general counsel of the Company
and its subsidiaries since December 1990. He obtained his B.A. degree in Economics from
the University of California at Berkeley in 1976. He obtained his J.D. degree from
Hastings College of the Law, University of California at San Francisco in 1979. He is
licensed to practice law in the states of California and Nevada. He retired from the
practice of law on January 1, 2003 and is "of counsel" to the law office of
Watson & Rounds, a Professional Corporation (WR). Prior to December 31, 2002 he was a
shareholder in Skinner, Watson & Rounds, which had offices located in Reno, Las Vegas,
and Incline Village, Nevada. Prior to becoming Secretary of Itronics Inc., Mr. Skinner has
provided legal services and advice to Whitney & Whitney, Inc. since 1980.



Duane H. Rasmussen:

Mr. Rasmussen has served as Vice President and General Manager of IMI
since May 1994. He became Vice President of the Company in November 1997. He initially
joined the Company in 1991 as Assistant Manager and Business Consultant for W&W. He
received his B.S. degree in Chemical Engineering from the University of Wisconsin in 1953
and his M.B.A. in Industrial Management in 1955 from the same University. He served as
President of Screen Printing Systems, Inc. from 1987 to 1990 and from 1995 to October
1998. Other business experience includes approximately 20 years with Jacobs Engineering
Group, Inc. in varying capacities, including Project Manager, Regional Sales Manager,
Regional Vice President, and Group Vice President.



B. AUDIT COMMITTEE

At present the Company does not have an audit committee and
consequently the entire Board serves as the audit committee. The Board presently consists
of two members, none of whom are independent. The Company has interviewed several
qualified individuals for the position of Audit Committee Financial Expert on the Board of
Directors. All have declined to serve, with the primary reason being personal liability
issues, especially the perceived view that being the "financial expert"
increases the individuals personal exposure over that of being a regular Board
member.



C. CODE OF ETHICS

The Board of Directors has adopted a Code of Business Conduct and
Ethics (Code) that is applicable to the Companys directors, principal executive and
financial officer, principal accounting officer or controller, and persons performing
similar functions. A copy of the Code is included in this report as Exhibit 14. A copy of
the Code may be obtained by anyone, without charge, by requesting a copy either by
telephoning (775) 689-7696 and asking for investor relations or by e-mailing the Company
at www.itronics.com. If requesting by e-mail, please indicate a preference of a reply by
e-mail or by physical mail.

35

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ITEM 10. EXECUTIVE COMPENSATION.

Summary of Cash and Certain Other Compensation

The following table sets forth information as to the compensation of
the Chief Executive Officer and the four most highly compensated officers whose
compensation for the year ended December 31, 2006 exceeded $100,000:

Summary
    Compensation Table:NonqualifiedName and
    
    
    DeferredPrincipal
    Calendar
    
    Compensation
    All OtherPosition
    Year
    Salary
    Earnings
    Compensation
    TotalDr. John W.
    Whitney:
    2006
    $126,788
    $28,310
    $ 3,138
    $158,236President,
    Treasurer
    2005
    $125,700
    $24,716
    $ 3,138
    $153,554and Director
    (1) (2)Duane H.
    Rasmussen
    2006
    $132,000
    $21,731
    -
    $153,731Vice President,
    VP
    2005
    $132,000
    $18,376
    -
    $150,376and General
    ManagerIMI (3)


(1) The 2006 and 2005 salary amounts include $74,600 and $91,400,
respectively, that were not paid currently.

Dr Whitney has $611,000 in unpaid salary as of December 31, 2006, of
which $260,000 is committed to be converted into 3,250,000 common shares. The shares will
be issued when sufficient cash is available to pay required payroll tax withholdings. This
unpaid salary has accumulated since July 2001 and interest at 12% per annum accrues on the
unpaid balance. The interest rate is based on the rate accruing to investors on
convertible debt private placements in effect in 2001. Interest earned was $68,080 and
$59,436 for 2006 and 2005, respectively. Of the 2006 amount, $29,464 remained unpaid at
December 31, 2006. The Nonqualified Deferred Compensation Earnings amounts in the above
table represent accrued interest in excess of a defined interest rate using 120% of the
July 2001 federal long term applicable rate.

(2) The salary amounts listed above include $1,788 and $700 for 2006
and 2005, respectively, that represent compensation paid in common stock for service as a
director of the Company.

(3) The 2006 and 2005 salary amounts include $72,500 and $90,000 that
were not paid currently.

Mr. Rasmussen has $484,000 in unpaid salary as of December 31, 2006, of
which $168,000 is committed to be converted into 2,100,000 common shares. The shares will
be issued when sufficient cash is available to pay required payroll tax withholdings. This
unpaid salary has accumulated since July 2001 and interest at 12% per annum accrues on the
unpaid balance. The interest rate is based on the rate accruing to investors on
convertible debt private placements in effect in 2001. Interest earned was $52,260 and
$44,190 for 2006 and 2005, respectively. Of the 2006 amount, $31,385 remained unpaid at
December 31, 2006. An additional total of $37,430 in interest earned from July 2004 to
June 2005 remains unpaid and will be paid by issuing 500,703 restricted common shares. The
Nonqualified Deferred Compensation Earnings amounts in the above table represent accrued
interest in excess of a defined interest rate using 120% of the July 2001 federal long
term applicable rate.

36

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Outstanding Equity Awards at Fiscal Year-End:

Number of
    Securities
    Underlying UnexercisedOptions
    at
    Option
    Option12/31/06
    Exercise
    ExpirationName
    Exercisable
    Price
    DateDr. John W. Whitney
    1,000,000
    $0.25
    One year after employment
    ends3,000,000
    $0.30
    One year
    after employment ends250,000
    $0.20
    October 2007550,000
    $0.15
    One year
    after employment endsTotal
    4,800,000Duane H. Rasmussen
    425,000
    $0.15
    One year
    after employment ends




Director Compensation:StockName
    Awards
    TotalDr. John W. Whitney
    $ 1,788
    $ 1,788Paul H. Durckel (1)
    $ 4,788
    $ 4,788Howland S. Green
    $ 1,788
    $ 1,788


(1) Mr. Durckel retired from the Board in November 2006 and was granted
a $3,000 stock bonus at that time.

The compensation plan for all directors was $1,500 in common stock
beginning with the fourth quarter of 2006 and 2,500 common shares per quarter for the
quarter ending September 30, 2006 and prior quarters.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

a) Equity Compensation Plan Information

|                                                               | Number
    of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average
    exercise price of outstanding options, warrants and rights | Number of
    securities remaining available for future issuance under equity compensation plans
    (excluding securities reflected in column (a)
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------
|Plan
    Category                                              | (a)                                                                                             | (b)                                                                             | (c)                                                                                                                                               
|Equity compensation plans
    approved by security holders     | -0-                                                                                             | $-0-                                                                            | -0-                                                                                                                                               
|Equity compensation plans
    not approved by security holders | 6,322,000                                                                                       | $0.241                                                                          | 2,864,917                                                                                                                                         
|                                                               |                                                                                                 |                                                                                 |                                                                                                                                                   
|Total                                                          | 6,322,000                                                                                       | $0.241                                                                          | 2,864,917                                                                                                                                         

37

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b) Security Ownership of Certain Beneficial Owners.

The following table sets forth certain data with respect to those
persons known to the Company, as of March 31, 2007, to be the beneficial owners of more
than 5% of the outstanding shares of common stock of the Company:

Amount and Nature of Beneficial OwnershipCommon
    SharesName and
    
    Which May
    Be
    
    PercentAddress of
    Common
    Shares
    Acquired
    Within
    
    ofBeneficial Owner
    Presently
    Held
    60
    days
    Total
    ClassJohn W. WhitneyP.O. Box 10725Reno, NV 89510(1)(2)(3)(4)
    27,596,830
    8,241,250
    35,838,080
    9.5


(1) Director

(2) Officer

(3) Includes 72,768 shares owned by Maureen E. Whitney, Dr. Whitney's
wife.

(4) Dr. Whitneys options include compensatory options of
1,000,000 common shares at $0.25 per share, 3,000,000 common shares at $0.30 per share,
250,000 common shares at $0.20 per share, and 550,000 common shares at $0.15 per share.
The option for 250,000 common shares is exercisable at any time until October 2007 and the
other options are exercisable at any time until one year after Dr. Whitney leaves the
employment of the Company. The Common Shares Which May Be Acquired Within 60 Days also
includes 3,250,000 shares that are to be issued to Dr. Whitney when sufficient cash is
available to pay payroll tax withholdings and 191,250 common shares to be issued in
connection with his service on the Board of Directors.

c) Security Ownership of Management.

The following table sets forth as of March 31, 2007, certain
information, with respect to director and executive officer ownership of common stock in
the Company:

38

---

|                         | Amount and Nature of Beneficial Ownership |                    
|------------------------ | ----------------------------------------- | -------------------
|                         |                                           | Common
    Shares  
|Name and                 |                                           | Which May
    Be   
|Address of               | Common
    Shares                         | Acquired
    Within
|Beneficial
    Owner     | Presently Held                            | 60 days(1)         
|                         |                                           |                    
|Dr. John W. Whitney      |                                           |                    
|P.O. Box 10725           |                                           |                    
|Reno, NV 89510 (3)(4)(5) | 27,596,830                                | 8,241,250          
|                         |                                           |                    
|Howland S. Green         |                                           |                    
|895 Liberty Lane         |                                           |                    
|West Kingston, RI 02892  | 1,415,000                                 | 191,250            
|                         |                                           |                    
|Duane H. Rasmussen       |                                           |                    
|P.O. Box 10725           |                                           |                    
|Reno, NV 89510 (4)       | 2,065,473                                 | 2,988,203          
|                         |                                           |                    
|All directors and        |                                           |                    
|executive officers as    |                                           |                    
|a group (4 persons)      | 31,729,622                                | 11,420,703         

(1) Dr. Whitneys options include compensatory options of
1,000,000 common shares at $0.25 per share, 3,000,000 common shares at $0.30 per share,
250,000 common shares at $0.20 per share, and 550,000 common shares at $0.15 per share.
The option for 250,000 common shares is exercisable at any time until October 2007 and the
other options are exercisable at any time until one year after Dr. Whitney leaves the
employment of the Company. The Common Shares Which May Be Acquired Within 60 Days also
includes 3,250,000 shares that are to be issued to Dr. Whitney when sufficient cash is
available to pay payroll tax withholdings and 191,250 common shares to be issued in
connection with his service on the Board of Directors.

In April 2005 Mr. Green was granted a compensatory option to acquire
1,000,000 of the Companys restricted common shares at $0.10 per share. The first
500,000 shares subject to the option will become exercisable when the Federal EPA accepts
the registration application for the GOLDn GRO Guardian and the second 500,000
shares subject to the option will become exercisable when the Federal EPA issues the
registration for the GOLDn GRO Guardian. The entire option is exercisable for two
years after the EPA registration is received. This option is not included in the above
table as it is not exercisable within 60 days. The Common Shares Which May Be Acquired
Within 60 Days includes 191,250 common shares to be issued in connection with his service
on the Board of Directors.

Mr. Rasmussen was granted a compensatory option to acquire 425,000
restricted common shares at $0.15 per share. This option is exercisable at any time until
one year after Mr. Rasmussen leaves the employment of the Company. The Common Shares Which
May Be Acquired Within 60 Days also includes 2,563,203 shares that are to be issued to Mr.
Rasmussen when sufficient cash is available to pay payroll tax withholdings.

(2) The percent of class is based on the sum of 368,705,921 shares
outstanding as of March 31, 2007 plus, for each individual, the number of common shares as
to which the named individual has the right to acquire beneficial ownership within 60 days
of March 31, 2007.

(3) Director

39

---

(4) Officer

(5) Includes 72,768 shares owned by Maureen E. Whitney, Dr. Whitney's
wife.



c) Changes in Control

The Company is not aware of any arrangement which at some later date
results in changes in control of the Company.



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.

Advances from an officer/stockholder
totaled $161,525 at December 31, 2006 and 2005.

$796,200 and $594,900 of the accrued management salaries as of December
31, 2006 and 2005, respectively, is for salary in arrears due to several
officer/stockholders and employee/stockholders. In addition, salary in arrears of $514,800
and $534,800 for 2006 and 2005, respectively, are included in stock to be issued at the
respective year ends. These amounts represent the portion of salaries earned but unpaid
that the officers/employees/stockholders have agreed to accept in the Companys
common stock. The number of shares to be issued is 6,348,958 and 6,620,900 for 2006 and
2005, respectively. Issuance of the stock is pending sufficient cash available to pay the
related federal withholding taxes. Interest expense at 12% per annum on salaries due
officer and employee/stockholders amounted to $143,478 and $123,345, respectively, in 2006
and 2005. Of these amounts, $-0- and $58,272 for 2006 and 2005, respectively, were paid
(or will be paid) by issuance of -0- and 765,857 shares of restricted common stock.

Interest expense on related party loans amounted to $19,383 and $23,948
for the years ended December 31, 2006 and 2005, respectively. Accrued interest on related
party loans and accrued salaries totaled $87,211 and $13,276 at December 31, 2006 and
2005, respectively.

In March 1999 Dr. Whitney personally agreed to acquire up to 10,000,000
common shares of GPXM at $0.10 per share, making him beneficial owner of more than ten
percent of GPXM at that time. In March 1999, the Companys Board of Directors
approved a consulting project for WWI to provide technical services to GPXM; payment was
to be made in common stock, and cash. WWI completed the project in early 2005. The Company
owned 556,107 shares with a market value of $91,758 at December 31, 2005. Total revenue
from GPXM for 2005 was $15,000. The Company sold the remaining GPXM shares in 2006 and had
no other transactions with GPXM during 2006.

During 2003, WWIs lease of a vehicle utilized by Dr. Whitney was completed. Dr.
Whitney purchased the vehicle by financing it through a commercial lender. The purchase
price was $21,741 and the monthly payment for four years is $531. WWI is leasing the
vehicle from Dr. Whitney by making the monthly payments to the commercial lender and will
acquire ownership of the vehicle when the loan is paid in full.

40

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Director Independence

The Company had three directors who served on the Board during 2006.
Dr. John W. Whitney is the President and Treasurer, and as such he is not independent.
Howland S. Green serves as the Northeast Manager of GOLDn GRO sales, and as such he
is not independent. Paul H. Durckel served on the Board until November 14, 2006 when he
retired. Mr. Durckel had no other affiliation with the Company other than as director and
consequently, he was independent.





ITEM 13. FINANCIAL STATEMENTS AND EXHIBITS

I. Index of Financial Statements and Exhibits

1. Index of Financial
    Statements:
    Page
    No.REPORT OF INDEPENDENT
    REGISTERED PUBLIC ACCOUNTING FIRM
    42Consolidated Balance Sheets
    as of December 31, 2006 and 2005
    43Consolidated Statements of
    Operations for the Years endedDecember 31, 2006 and 2005
    45Consolidated Statements of
    Stockholders' Equity (Deficit)for the Years ended
    December 31, 2006 and 2005
    46Consolidated Statements of
    Cash Flows for the Years endedDecember 31, 2006 and 2005
    47Notes to Consolidated
    Financial Statements
    492. Index of Exhibits:14 Code of Business Conduct
    and Ethics
    7821 List of significant
    subsidiaries
    7931 Rule 15d-14(a)
    Certification
    8032 Section 1350
    Certification
    84






STATEMENTS AND SCHEDULES

Schedules not included are omitted for the reason that they are not

applicable or not required.

41

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Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders

Itronics, Inc.

We have audited the accompanying consolidated balance sheets of
Itronics, Inc. and subsidiaries (the "Company") as of December 31, 2006 and
2005, and the related consolidated statements of operations, stockholders' deficit and
cash flows for each of the years in the two year period ended December 31, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based
on our audits.

We conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that it is not
required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes, on a test basis, examination of evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2006 and 2005, and the results of its consolidated operations
and cash flows for each of the years in the two year period ended December 31, 2005, in
conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As of December 31, 2006, the
Company has an accumulated deficit of $31,661,456, a negative working capital of
$10,139,616, and a stockholders deficit balance of $7,429,505, and is in default on
various leases and loans. The Companys ability to continue as a going concern is
contingent upon (a) future profitable operations and (b) the ability to generate
sufficient cash to meet obligations as they become due. These conditions raise substantial
doubt about the Companys ability to continue as a going concern. Management's plans
regarding this matter are described in Note 14. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.



/s/CACCIAMATTA ACCOUNTANCY CORPORATION

Irvine, California

April 11, 2007

42

---



ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2006 AND 2005



ASSETS

2006
    2005CURRENT ASSETSCash
    $ -
    $ 24,260Accounts receivable, less
    allowance fordoubtful accounts, 2006,
    $4,600; 2005, $7,600
    36,493
    21,164Marketable securities,
    available for sale
    -
    91,758Inventories
    548,399
    592,098Prepaid expenses
    316,872
    94,447Total Current Assets
    901,764
    823,727PROPERTY AND EQUIPMENTLand
    215,000
    215,000Building and improvements
    1,167,315
    1,167,315Design and construction in
    progress,manufacturing facility
    234,347
    153,896Equipment and furniture
    2,543,682
    2,302,984Vehicles
    200,557
    200,557Equipment under capital
    lease-equipment and furniture
    692,438
    851,952Equipment under capital
    lease-vehicles
    21,741
    21,7415,075,080
    4,913,445Less: Accumulated
    depreciation and amortization
    2,131,542
    1,903,525Total Property and
    Equipment
    2,943,538
    3,009,920OTHER ASSETSIntangibles
    76,500
    76,500Deferred loan fees, less
    accumulated amortization 2006,$328,120; 2005, $210,357
    335,629
    311,362Deposits
    8,108
    8,108Total Other Assets
    420,237
    395,970$4,265,539
    $4,229,617




43

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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

2006
    2005CURRENT LIABILITIESBank overdraft
    $ 13,834
    $ -Accounts payable
    521,188
    437,113Accrued management salaries
    799,948
    599,900Accrued expenses
    206,830
    239,130Insurance contracts payable
    12,597
    13,738Interest payable to
    officer/stockholders
    87,211
    13,276Interest payable, long-term
    debt and lease obligations
    202,366
    197,708Current maturities of
    long-term debt
    45,065
    57,414Current maturities of
    capital lease obligations
    389,032
    730,403Advances from stockholder
    161,525
    161,525Current maturities of
    capital lease due stockholder
    3,333
    5,858Current maturities of
    convertible notes and accrued interest
    3,304,027
    2,918,559Convertible debt
    derivatives
    4,876,175
    3,621,220Warrant and option
    liability
    380,083
    134,212Other
    38,166
    35,234Total Current Liabilities
    11,041,380
    9,165,290LONG-TERM LIABILITIESLong-term debt, less
    current maturities
    504,131
    534,607Capital lease obligations,
    less current maturities
    149,533
    -Capital lease due
    stockholder, less current maturities
    -
    3,319Total Long-Term Liabilities
    653,664
    537,926Commitments and
    Contingencies
    -
    -Total Liabilities
    11,695,044
    9,703,216STOCKHOLDERS' EQUITY
    (DEFICIT)Preferred stock, par value
    $0.001 per share;authorized 999,500 shares;
    issued and outstanding2006, 0 shares; 2005, 0
    shares
    -
    -Common stock, par value
    $0.001 per share;authorized 1,000,000,000
    shares; issued andoutstanding 2006,
    337,581,957; 2005, 197,148,179
    337,582
    197,148Additional paid-in capital
    23,305,788
    21,646,307Accumulated deficit
    (31,661,456)
    (27,851,571)Common stock to be issued
    583,868
    573,993Accumulated other
    comprehensive income
    -
    (39,889)Common stock options
    outstanding, net
    4,713
    413Total Stockholders
    Equity (Deficit)
    (7,429,505)
    (5,473,599)$ 4,265,539
    $ 4,229,617




The accompanying notes are an integral part of these financial
statements.

44

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ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

2006
    2005REVENUESPhotochemical fertilizer
    $1,856,074
    $1,305,144Mining technical services
    28,338
    55,843Total Revenues
    1,884,412
    1,360,987COST OF REVENUES (exclusive
    of depreciation andamortization shown
    separately below)Photochemical fertilizer
    1,760,118
    1,421,826Mining technical services
    36,607
    69,167Total Cost of Revenues
    1,796,725
    1,490,993Gross Profit (Loss)
    (exclusive ofdepreciation and
    amortization shownseparately below)
    87,687
    (130,006)OPERATING EXPENSESDepreciation and
    amortization
    228,017
    249,125Research and development
    293,934
    258,711Sales and marketing
    725,165
    939,720Delivery and warehousing
    108,116
    85,963General and administrative
    944,467
    952,169Total Operating Expenses
    2,299,699
    2,485,688Operating Loss
    (2,212,012)
    (2,615,694)OTHER INCOME (EXPENSE)Interest
    (1,189,101)
    (857,035)Loss on derivative
    instruments
    (541,474)
    (1,450,011)Gain (loss) on sale of
    investments
    97,728
    (10,116)Other
    34,974
    26,244Total Other Income
    (Expense)
    (1,597,873)
    (2,290,918)(Loss) before provision for
    income tax
    (3,809,885)
    (4,906,612)Provision for income tax
    -
    -Net Loss
    (3,809,885)
    (4,906,612)Other comprehensive incomeUnrealized gains (losses)
    on securities
    39,889
    (30,321)Comprehensive Loss
    $(3,769,996)
    $(4,936,933)Weighted average number of
    shares outstanding,basic and diluted
    235,294,220
    190,031,634Loss per share, basic and
    diluted
    $(0.016)
    $(0.026)


The accompanying notes are an integral part of these financial
statements

45

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ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

|                        | COMMON STOCK  |          |             |               | ACCUMULATED   | COMMON        |         
|----------------------- | ------------- | -------- | ----------- | ------------- | ------------- | ------------- | --------
|                        | NUMBER
    OF |          | ADDITIONAL  |               | COMMON        | OTHER         | STOCK   
|                        | SHARES        |          | PAID-IN     | ACCUMULATED   | STOCK TO      | COMPREHENSIVE | OPTIONS,
|                        | (1,000s)     | AMOUNT   | CAPITAL     | DEFICIT       | BE
    ISSUED | INCOME        | NET     
|Balance, Dec. 31, 2004  | 164,864       | $164,864 | $19,438,213 | $(22,944,959) | $786,426      | $ (9,568)     | $754    
|Issue of common stock:  |               |          |             |               |               |               |         
|For cash                | 12,050        | 12,050   | 590,450     |               | (32,500)      | -             | -       
|For services            | 6,003         | 6,003    | 406,323     |               | (9,933)       | -             | -       
|For debt conversion     | 12,893        | 12,893   | 1,114,209   |               | (170,000)     | -             | -       
|For asset acquisition   | 1,338         | 1,338    | 97,112      |               | -             | -             | -       
|Net (loss) for the year |               |          |             |               |               |               |         
|ended Dec. 31, 2005     | -             | -        | -           | (4,906,612)   | -             | -             | -       
|Other comprehensive     |               |          |             |               |               |               |         
|income for the year     |               |          |             |               |               |               |         
|ended Dec. 31, 2005     | -             | -        | -           | -             | -             | (30,321)      | -       
|Common stock options    |               |          |             |               |               |               |         
|outstanding             | -             | -        | -           | -             | -             | -             | (341)   
|                        |               |          |             |               |               |               |         
|Balance, Dec. 31, 2005  | 197,148       | $197,148 | $21,646,307 | $(27,851,571) | $573,993      | $(39,889)     | $ 413   
|Issue of common stock   |               |          |             |               |               |               |         
|For cash                | 100           | 100      | 7,400       | -             | -             | -             | -       
|For services            | 24,350        | 24,350   | 412,703     | -             | (3,725)       | -             | -       
|For debt conversion     | 108,723       | 108,723  | 1,114,839   | -             | 13,600        | -             | -       
|For asset acquisition   | 7,261         | 7,261    | 124,539     | -             | -             | -             | -       
|Net (loss) for the year |               |          |             |               |               |               |         
|ended Dec. 31, 2006     | -             | -        | -           | (3,809,885)   | -             | -             | -       
|Other comprehensive     |               |          |             |               |               |               |         
|income for the year     |               |          |             |               |               |               |         
|ended Dec. 31, 2006     | -             | -        | -           | -             | -             | 39,889        | -       
|Common stock options    |               |          |             |               |               |               |         
|outstanding             | -             | -        | -           | -             | -             | -             | 4,300   
|                        |               |          |             |               |               |               |         
|Balance, Dec. 31, 2006  | 337,582       | $337,582 | $23,305,788 | $(31,661,456) | $583,868      | $ -           | $ 4,713 

The accompanying notes are an integral part of these financial
statements

46

---

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

|                                                                            | 2006         | 2005        
|--------------------------------------------------------------------------- | ------------ | ------------
|Cash flows from
    operating activities                                    |              |             
|Net loss                                                                    | $(3,809,885) | $(4,906,612)
|Adjustments to
    reconcile net loss to cash used by operating activities: |              |             
|Depreciation and amortization                                               | 498,947      | 306,148     
|Interest on convertible notes                                               | 581,889      | 410,593     
|Loss on change in derivative instruments                                    | 541,474      | 1,450,011   
|Inventory reserve                                                           | 104,161      | -           
|Marketable securities received for services                                 | -            | (116,193)   
|(Gain) loss on sale of marketable securities                                | (97,728)     | 10,116      
|Addition of silver in solution inventory by                                 |              |             
|offsetting photochemical processing fees                                    | (198,841)    | (25,005)    
|Gain on debt forgiveness                                                    | (34,833)     | (24,832)    
|Other                                                                       | 52           | 4,713       
|Stock option compensation                                                   | 4,300        | 43,379      
|Expenses paid
    with issuance of common stock:                            |              |             
|Interest
    expense                                                        | 7,483        | 58,272      
|Consulting expenses                                                         | 27,840       | 282,145     
|Director
    fees                                                           | 3,976        | 1,850       
|Salaries                                                                    | 145,992      | 143,673     
|Expenses
    paid with issuance of debt                                     | -            | 30,063      
|(Increase)
    decrease in:                                                 |              |             
|Trade
    accounts receivable                                               | (15,381)     | 161,528     
|Inventories                                                                 | 138,379      | 4,611       
|Prepaid
    expenses, deposits and other                                    | 8,112        | 2,061       
|Increase
    (decrease) in:                                                 |              |             
|Accounts
    payable                                                        | 147,740      | (109,608)   
|Accrued
    management salaries                                             | 200,048      | 210,773     
|Accrued
    expenses and contracts payable                                  | 48,084       | (86,144)    
|Net cash used
    by operating activities                                   | (1,698,191)  | (2,148,458) 
|                                                                            |              |             
|Cash flows from
    investing activities:                                   |              |             
|Acquisition of property and equipment                                       | (29,835)     | (97,962)    
|Sale of
    investments                                                     | 229,374      | 10,177      
|Sale of
    equipment                                                       | -            | 1,400       
|Net cash
    provided (used) by investing activities                        | 199,539      | (86,385)    
|                                                                            |              |             
|Cash flows from
    financing activities:                                   |              |             
|Proceeds
    from sale of stock                                             | 7,500        | 570,000     
|Proceeds
    from officer/stockholder advances                              | 10,212       | 95,000      
|Proceeds
    from debt                                                      | 1,941,167    | 2,024,950   
|Debt
    issuance costs                                                     | (247,602)    | (217,690)   
|Account
    receivable factoring, net                                       | -            | (51,229)    
|Payments
    on debt                                                        | (250,719)    | (167,108)   
|Net cash provided by financing activities                                   | 1,460,558    | 2,253,923   
|                                                                            |              |             
|Net increase
    (decrease) in cash                                         | (38,094)     | 19,080      
|Cash, beginning
    of year                                                 | 24,260       | 5,180       
|Cash
    (overdraft), end of year                                           | $ (13,834)   | $ 24,260    

The accompanying notes are an integral part of these financial
statements.

47

---

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(continued)



|                                                       | 2006      | 2005     
|------------------------------------------------------ | --------- | ---------
|Supplemental Disclosures of
    Cash Flow              |           |          
|Information:                                           |           |          
|Cash paid during the period
    for interest           | $232,706  | $ 254,635
|Schedule of non-cash
    financing transactions:       |           |          
|Settlement of debt/accruals
    by                     |           |          
|issuance of common
    stock:                          |           |          
|Accounts
    payable                                   | -         | 11,845   
|Convertible notes and accrued interest                 | 1,237,162 | 867,101  
|Short-term debt and accrued interest due an            |           |          
|officer/stockholder                                    | -         | 90,000   
|Acquisition of
    assets by issuance of common stock: |           |          
|Equipment                                              | 131,800   | 26,950   
|GOLDn GRO Guardian product rights                     | -         | 71,500   
|Warrants issued for
    debt issuance costs            | 17,595    | 12,042   
|Amounts withheld
    from proceeds of debt, unrelated: |           |          
|Prepaid
    interest                                   | -         | 90,000   
|Deferred loan
    costs                                | 30,000    | 90,000   
|Key man life
    insurance                             | -         | 20,000   
|Short term
    debt and accrued interest               | -         | 143,800  
|Accounts
    payable                                   | 28,833    | -        





The accompanying notes are an integral part of these financial
statements.

48

---

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



NOTE 1 - Summary of Significant Accounting Policies:

Company's Activities:

Itronics Inc., through its subsidiaries, (the Company) is involved in
photochemical recycling and related silver recovery, liquid fertilizer manufacturing, and
mining technical services.

Financial Statement Estimates and Assumptions:

The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates. For example, the Company estimates the fair value of its derivative
instruments using the Black-Scholes option pricing model. As the Companys stock
price is highly volatile, and the underlying debt amounts are relatively large, the
valuation of the derivatives is subject to material swings from period to period. The
Company measures the silver received in photochemical liquids and estimates the amount,
recoverability, and ultimate realizable value of the silver in ending inventory.

Principles of Consolidation:

The consolidated financial statements include the accounts of

Itronics Inc. and its subsidiaries:

|                                                      | 2006       | 2005      
|----------------------------------------------------- | ---------- | ----------
|                                                      | PERCENTAGE | PERCENTAGE
|Whitney & Whitney, Inc.                               | 100.00     | 100.00    
|Itronics Metallurgical,
    Inc.                      | 100.00     | 100.00    
|Itronics California, Inc.                             | 100.00     | 100.00    
|Nevada Hydrometallurgical
    Project (A Partnership) | 92.50      | 92.50     
|American Hydromet (A Joint
    Venture)               | 82.53      | 82.53     
|American Gold & Silver
    (A Limited Partnership)    | 47.77      | 47.77     

Whitney & Whitney, Inc. is the general partner for American Gold
& Silver. As such, the Company has control over American Gold & Silver and has
included it in its consolidation.

American Gold & Silver and Nevada Hydrometallurgical Project
possess no material tangible assets or liabilities.

No amount for minority interests is reflected in the consolidated
balance sheets as the equity of minority interests in the net losses exceed the carrying
value of the minority interests.

49

---

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



No amount for minority interests is reflected in the consolidated
statement of operations since losses applicable to the minority interest in each
subsidiary exceed the minority interest in the equity capital of each subsidiary. As a
result, losses applicable to the minority interest are charged against the majority
interest. When future earnings materialize, the majority interest will be credited to the
extent of such losses previously absorbed.

All significant intercompany accounts and transactions have been
eliminated in the consolidation.



Revenue recognition:

The Company manufactures fertilizer from used photochemical liquids.
Revenues are generated in three distinct areas: (1) fees associated with removing used
photochemical liquids from customer sites and sales of photochemical concentrators, (2)
sales of fertilizer and (3) sales of silver. Fertilizer and silver sales are recognized
when goods are shipped to our customers. Returns and allowances have been nominal. Service
fees from photochemical recycling are recorded after the photochemical liquids have been
picked up and transported from our customers to our manufacturing facility.

The Company provides consulting services to various entities in the
mining industry. Revenue is recognized as services are delivered. When the mining
technical services segment of the Company is responsible for the procurement of materials
and equipment, property, or subcontracts in its consulting business, it includes such
amounts in both revenues and cost of sales. The amount of such pass-through costs included
in both mining consulting revenues and cost of revenues for the years ended December 31,
2006 and 2005 were $2,547 and $4,946, respectively. In addition, the Company periodically
receives property or other payments on behalf of its clients and disburses the funds to a
designated third party. When the Company has little or no risk of loss in the process,
such payments are netted and not included in gross revenues or cost of revenues. Such
payments amounted to $-0- and $94,592 for the years ended December 31, 2006 and 2005,
respectively.

The Company bills its customers for its approximate costs for
delivering merchandise sold to the customer. Such amounts are included in revenues. The
related shipping costs are included in Delivery and Warehousing expenses in the Operating
Expense section of the Consolidated Statements of Operations. Such costs were $108,116 and
$85,963 for the years ended December 31, 2006 and 2005, respectively.

Cash and Cash Equivalents:

At present, cash includes only deposits in checking and money market
accounts and does not include any cash equivalents.



Accounts Receivable Allowance Account:

50

---

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



The Company uses the allowance method to account for uncollectible
accounts receivable.



Marketable Securities:

The Company maintained as of December 31, 2005 investments in
marketable securities, received as payment from one technical services customer. All of
these equity securities were available for sale and were recorded at fair value. The
change in fair value is recorded as an unrealized gain or loss in other comprehensive
income. Upon sale of the security, the company recognizes a realized gain or loss, based
on specific identification of security sold. Unrealized losses are charged against net
earnings when a decline in fair value is determined to be other than temporary. All of
such securities were sold during 2006.

Inventories:

Inventory is carried on the balance sheet at the lower of cost or
market value using the average cost valuation method and consists primarily of silver
bearing materials, raw materials and fertilizer. Because a large part of our inventory is
silver and the market price of silver changes daily on the commodities market, we
regularly monitor the carrying value of our silver inventory to ensure it is carried at
the lower of cost or its current market value. If silver on the open market were less than
our carrying value, we would write down the carrying value of our inventory by reducing
recorded inventory and increasing cost of sales. If the amount of the write down were
material, we would separately include the item in our statement of operations. The raw
material and work in progress balances below include $405,631 and $374,042 in silver
bearing unprocessed photochemicals or partially processed materials as of December 31,
2006 and 2005, respectively. The Company also evaluates the recoverability of silver
contained in the various raw materials and refining byproducts and estimates how long it
will take to recover the estimated silver ounces contained in the materials. In 2006, the
Company recorded a recoverability reserve of $70,199 and a slow moving reserve of $33,962.
The $104,161 reserve expense is included in Cost of Revenues in the Consolidated Statement
of Operations.

Following is a summary of finished goods, work in progress, and raw
materials inventories as of December 31, 2006 and 2005:

2006
    2005Finished goods
    $ 19,275
    $ 53,274Work in progress
    340,594
    282,373Raw materials
    292,691
    256,451652,560
    592,098Less: Silver recoverabilityand slow moving reserves
    104,161
    -Net Inventory
    $548,399
    $592,098


51

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



Accounts Receivable and Inventory Factoring:

The Company factors some of its receivables and inventory with
unrelated third parties. A liability is recorded when cash is received; interest is
recorded over the period the liability is outstanding. The liability and accrued interest
is repaid within a day or two of when the Company is paid by the customer. Interest rates
range from 2 to 3% per month, or 24 to 36% annually. Additionally, while the Company does
not have any formal limits on the amounts it can factor, typically no more than $120,000
in assets is factored at any given time. As of December 31, 2006 and 2005 all factoring
arrangements were paid in full.

Property and Equipment:

Property and equipment are stated at cost. Costs associated with
creating website content and graphics are capitalized under EITF 00-2, "Accounting
for Web Site Development Costs." Depreciation is computed by accelerated and
straight-line methods. Depreciation expense was $182,001 and $187,658 for the years ended
December 31, 2006 and 2005, respectively. Capital lease equipment is amortized using
accelerated and straight-line methods. Amortization expense on capital lease equipment was
$46,016 and $61,283 for the years ended December 31, 2006 and 2005, respectively.
Accumulated amortization on capital lease equipment is $439,103 and $439,977 at December
31, 2006 and 2005, respectively. Property and equipment is depreciated or amortized over
the following periods. Capitalized interest on major capital projects was $28,656 and $-0-
in 2006 and 2005, respectively.



Building and improvements
    20 - 40
    yearsEquipment and furniture
    3 - 20
    yearsVehicles
    5 yearsEquipment under capital
    lease-equipment and furniture
    5 - 20
    yearsEquipment under capital
    lease-vehicles
    5 years


Repairs and maintenance, including website maintenance and
administration, are charged to operations as incurred.

Intangible Assets:

Intangible assets are amortized as follows:

METHOD
    YEARSPatents
    Straight
    Line
    17Deferred loan fees
    Effective
    Interest
    3-15


Estimated aggregate amortization expense for the succeeding five years is:

2007
    $144,4012008
    132,3182009
    38,0292010
    3,2552011
    3,255


52

---

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



Convertible Debt Derivatives:

The Company has obtained callable
secured convertible debt financing (Notes) in 2006 and 2005. The Notes are potentially
convertible into an unlimited number of common shares. Accordingly, the Company has
accounted for the Notes in accordance with SFAS 133, Accounting for Derivative
Instruments, EITF 00-19, Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Companys Own Stock, and DIGs B38 and
B39, Embedded Derivatives: Evaluation of Net Settlement with Respect to the Settlement
of a Debt Instrument through Exercise of an Embedded Put Option or Call Option and Embedded
Derivatives: Application of Paragraph 13(b) to Call Options That Are Exercisable Only by
the Debtor, respectively, which require the beneficial conversion features and the
prepayment penalties to be treated as embedded derivatives and recorded as a liability
based on their relative estimated fair values. In addition, all non-employee warrants and
options that are exercisable during the period that the Notes are outstanding are required
to be recorded as liabilities at their fair value. The fair value of the conversion
feature and the prepayment penalty are estimated using the Black-Scholes option pricing
model and taking a weighted average value based on various probabilities that the debt
would be paid off prior to maturity at specified dates and therefore incurring the
prepayment penalty. In accordance with SFAS No. 133, Accounting for Derivative
Instruments, the Company is required to adjust the carrying value of the derivative
instruments to its fair value at each balance sheet date and recognize any change since
the prior balance sheet date as a component of Other Income (Expense). These derivatives
are more fully discussed in Note 4 below.



Research and Development:

Wages, benefits, rent, and other costs, including costs to plan and
populate databases and content on our web site development costs are expensed as incurred
as research and development in accordance with SFAS 2 Accounting for Research and
Development Costs, and EITF 00-2 Accounting for Web Site Development Costs.



Advertising:

The Company advertises its products in various trade publications and
general newspaper supplements. It also promotes the Company in various business
publications, television, and internet media. Such advertising costs include the creative
process, costs of production, and placement costs of the ads themselves. All advertising
costs are expensed as incurred. Total advertising expense was $143,760 and $118,217 for
the years ended December 31, 2006 and 2005, respectively.

Income Taxes:

The Company has accounted for income taxes to conform to the
requirements of Statements of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes. Under the provisions of SFAS 109, an entity recognizes deferred

53

---

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



tax assets and liabilities for future tax consequences of events that
have already been recognized in the Company's financial statements or tax returns. The
measurement of deferred tax assets and liabilities is based on provisions of the enacted
tax law. The effects of future changes in tax laws or rates are not anticipated. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount
expected to be realized.

Loss per Common Share:

Loss per common share is calculated based on the consolidated net loss
for the period divided by the weighted average number of common shares outstanding during
2006 and 2005. Common stock equivalents are not included,

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 earnings (loss) per share (EPS) for
the years ended December 31, 2006 and 2005.

|                                                  | 2006         | 2005        
|------------------------------------------------- | ------------ | ------------
|Net Loss                                          | $(3,809,885) | $(4,906,612)
|Less: Preferred stock
    dividends               | -            | -           
|Basic EPS loss available to                       |              |             
|common stockholders                               | $(3,809,885) | $(4,906,612)
|                                                  |              |             
|Weighted average number of
    shares outstanding | 235,294,220  | 190,031,634 
|Common equivalent shares                          | -            | -           
|                                                  | 235,294,220  | 190,031,634 
|Per share amount                                  | $(0.016)     | $(0.026)    

Warrants, options, and shares to be issued, totaling 661,931,877 and
175,399,421 shares as of December 31, 2006 and 2005, respectively, would dilute

EPS, and accordingly are not included in the computation of EPS.

Common Stock:

The Companys common shares have, subject to the provisions of any
series of Preferred Stock, certain rights including one vote per share on a non-cumulative
basis and a ratable portion of any dividends that may be declared by the Board of
Directors. The Company may from time to time issue common shares that are restricted under
Rule 144 of the Securities and Exchange Commission. Such restrictions require the
shareholder to hold the shares for a minimum of one year before sale. In addition,
officers, directors and more than 10% shareholders are further restricted in their ability
to sell such shares.

Stock Based Compensation:

54

---

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



The Company adopted the provisions of SFAS 123(R), 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 award). We have no awards
with market or performance conditions. Effective January 1, 2006 and for all periods
subsequent to that date, SFAS 123(R) 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 123(R). The Company has applied
the provisions of SAB 107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective
transition method, which provides for certain changes to the method for valuing
share-based compensation. The valuation provisions of SFAS 123(R) apply to new awards and
to awards that are outstanding at the effective date and subsequently modified or
cancelled. Estimated compensation expense for awards outstanding at the effective date
will be recognized over the remaining service period using the compensation cost
calculated for pro forma disclosure purposes under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Our
consolidated financial statements for the year ended December 31, 2006 reflect the impact
of SFAS 123(R). In accordance with the modified prospective transition method, our
consolidated financial statements for prior periods were not restated to reflect, and do
not include, the impact of SFAS 123(R).

Share-based compensation expense recognized during the period is based
on the value of the portion of share-based payment awards that is ultimately expected to
vest during the period. Share-based compensation expense recognized in our consolidated
statement of operations for the year ended December 31, 2006 included compensation expense
for share-based payment awards granted prior to, but not yet vested as of, December 31,
2005 based on the grant date fair value estimated in accordance with the pro forma
provisions of SFAS 123. For share awards granted prior to 2006, expenses are amortized
under the straight-line method prescribed by SFAS 123. As share-based compensation expense
recognized in the consolidated statements of operations for the year ended December 31,
2006 is based on awards ultimately expected to vest, it has been reduced for estimated
forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates. Based on our evaluation of our present employees with unvested options, we
estimated no forfeitures.

Total estimated share-based compensation expense recognized under SFAS
123R for the year ended December 31, 2006 was $4,300 and is included in general and
administrative expenses.

Through 2005, we accounted for share-based awards to employees using
the intrinsic value method in accordance with APB 25 and related interpretations and
provided the required pro forma disclosures of SFAS 123. Pro forma adjustments to our
consolidated net loss and loss per share for the year ended December 31, 2005 were as
follows

55

---

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



2005Net Loss:As reported
    $(4,906,612)Option compensation expenseAs reported
    43,379At fair value
    (49,212)Pro forma Net Loss
    $(4,912,445)Loss per share, basic and
    dilutedAs reported
    $(0.026)Pro forma Loss per share,
    basic and diluted
    $(0.026)


The pro forma amounts were estimated for each quarter using the
Black-Scholes option pricing model with the following assumptions for 2006 and 2005:



2006
    2005Dividend yield
    0%
    0%Risk-free interest rate
    4.50% to
    4.875%
    3.75% to
    4.375%Expected life
    3-10
    years
    3-10
    yearsExpected volatility
    82.09% to
    102.27%
    39.0% to
    83.07%Weighted average exerciseprice granted during year
    $0.185
    $0.103


Additional information about
compensatory as well as non-compensatory options and warrants is presented in Note 7
below.

Asset Impairment:

The Company monitors conditions that may affect the carrying value of
its long-lived and intangible assets when events and circumstances indicate that the
carrying value of the assets may be impaired. The Company determines impairment based
on the assets ability to generate cash flow greater than the carrying value of the
asset. If projected undiscounted cash flows are less than the carrying value of the
asset, the asset is adjusted to its fair value.

Non-monetary Transactions:

The Company periodically enters into non-monetary
transactions.  These transactions are recorded based on the fair value of the asset,
goods or services received or surrendered, whichever is more clearly evident and at such
time as the earnings process is complete.  When material non-monetary transactions
occur, the Company discloses the transaction and basis for valuing the transaction in the
period the transaction occurs. Additionally, pursuant to SFAS No. 95, "Statement
of Cash Flows," the Company discloses non-cash investing and financing
activities.

56

---



ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



Contingencies:

From time to time, the Company may become party to claims against it.
Management evaluates these claims as they arise as probable, reasonably possible and
remote. A liability is recorded when management estimates a loss is probable. Potential
costs that arise are disclosed when management believes a loss is reasonably possible and
that amount can be estimated.

Recent Accounting Pronouncements

In June 2005 the Derivative Implementation Group issued
DIGs B38 and B39 to specify the accounting treatment of put or call options embedded
in hybrid debt instruments. Both DIGs became effective for the first fiscal quarter
beginning after December 15, 2005. These new standards require us to treat the prepayment
option included in the terms of our callable secured convertible debt financing (Notes) as
an embedded derivative. Under the guidance of FAS 133 and EITF 00-19, if there is more
than one embedded derivative in a hybrid debt instrument, the embedded derivatives must be
valued as a whole. We adopted this new standard effective for the first fiscal quarter of
2006. The estimated fair value of the conversion feature and the prepayment penalty were
estimated using the Black-Scholes option pricing model and taking a weighted average value
based on certain probabilities that the debt would be converted and paid off prior to
maturity at specified dates.

In December 2006 the FASB staff issued FSP EITF 00-19-2 "Accounting
for Registration Payment Arrangements" to specify the accounting treatment of
contingent obligations to make future payments or otherwise transfer consideration under a
registration payment arrangement. Our callable secured convertible debt includes an
obligation for us to file registration statements with the Securities and Exchange
Commission (SEC) to register sufficient common shares for the note holders to convert the
debt into common stock frames and also obligates us to have the registration statements
declared effective by the SEC. This new standard requires us to evaluate the contingent
future payments under the criteria of a probable loss under FAS 5. The Company will adopt
this new standard effective for the first fiscal quarter of 2007 and it has not yet
determined what impact this standard will have on its financial position or results of
operations.

In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 ("SFAS 157"), "Fair Value Measurements,"
which defines fair value, establishes guidelines for measuring fair value and expands
disclosures regarding fair value measurements. SFAS 157 does not require any new fair
value measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007 with earlier adoption permitted. The Company is currently evaluating the
impact of SFAS 157, but does not expect the adoption of SFAS 157 to have a material impact
on our consolidated financial position, results of operations or cash flows.

In July 2006, the FASB issued Financial Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48"), which is a change in accounting for income

57

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



taxes. FIN 48 specifies how tax benefits for uncertain tax positions
are to be recognized, measured, and derecognized in financial statements; requires
certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax
positions should be classified on the balance sheet; and provides transition and interim
period guidance, among other provisions. FIN 48 is effective for fiscal years beginning
after December 15, 2006. We do not expect the adoption of FIN 48 to have a material impact
on our consolidated financial position, results of operations or cash flows.

In February 2006, the FASB issued Statement of Financial Accounting
Standards No. 155 ("SFAS 155"), "Accounting for Certain Hybrid
Financial Instruments". SFAS 155 simplifies the accounting for certain
derivatives embedded in other financial instruments by allowing them to be accounted for
as a whole if the holder elects to account for the whole instrument on a fair value basis.
SFAS 155 is effective for all financial instruments acquired, issued or subject to a
re-measurement event occurring in fiscal years beginning after September 15, 2006. Earlier
adoption is permitted, provided the Company has not yet issued financial statements,
including for interim periods, for that fiscal year. The Company will adopt SFAS 155 in
the first quarter of 2007. We do not expect the adoption of SFAS 155 to have a
material impact on our consolidated financial position, results of operations or cash
flows.

NOTE 2 - Reclassification:

The prior year's financial statements have been reclassified, where
necessary, to conform with the current year presentation.

NOTE 3 - Long-Term Debt:

Long-term debt at December 31, 2006 and 2005 is comprised of the
following (all debt payments are applied to outstanding interest owed at date of payment
prior to being applied to the principal balance). The carrying amount approximates fair
value. The fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities.

58

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005





DECEMBER 31,2006
    2005Notes due to unrelated
    parties:Notes payable secured by
    vehicles due at varying datesthrough 2006. The monthly
    payments total $1,345,including interest at 10.5%
    to 11.0% per annum.
    $ -
    $ 5,599Note payable secured by
    real property due May 2016.Monthly payment is $6,601,
    including interestat 12% per annum.
    445,653
    469,789Financing contract secured
    by equipment due May 2006.Monthly payment is $806,
    including interest at 17.99%
    14,589
    14,589City of Reno Special
    Assessment District for roadand access improvements.
    Payable in 40 equal semi-annual payments plus
    interest at 6% percent per annum.
    88,954
    92,044Unsecured note payable due
    in 2006. Monthly payment is$3,000, including interest
    at 12% per annum.
    -
    10,000Less current portion due
    within one year
    (45,065)
    (57,414)Total long-term liabilities
    due to unrelated parties
    $ 504,131
    $ 534,607




DECEMBER 31,2006
    2005Convertible
    Promissory Notes:Three year
    convertible promissory notes due atvarying
    dates through February 2006, includinginterest
    at 9% to 12% per annum. The notes andaccrued
    interest are convertible into theCompanys restricted common stock at pricesranging
    from $0.10 to $1.18 per share at theelection
    of the note holders.
    $
    1,637,000
    $
    1,617,000Accrued
    interest on convertible promissory notes
    1,667,027
    1,301,559Less current
    portion due within one year
    (3,304,027)
    (2,918,559)Total Long Term
    Convertible Promissory Notesand Accrued
    Interest
    $ -
    $ -




59

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

Callable Secured
    Convertible Promissory Notes:
    DECEMBER 31,2006
    2005Callable secured
    convertible promissory notes(more fully
    described in Note 4)
    $2,983,616
    $2,250,000Less portion included in
    convertibledebt derivatives
    (2,983,616)
    (2,250,000)Long term portion of
    callable securedconvertible promissory
    notes
    $ -
    $ -




DECEMBER 31,2006
    2005Loans from
    Stockholders/Related Transactions:Advances from
    officer/stockholder. Due on demand,with interest accruing at
    12% per annum.
    $161,525
    $161,525




Long-term debt
    matures as follows:
    
    CALLABLESECUREDUNRELATED
    CONVERTIBLE
    CONVERTIBLEYEAR
    PARTIES
    NOTES
    NOTES
    STOCKHOLDERS2007
    $ 45,065
    $3,304,027
    $ -
    $ 161,5252008
    34,125
    -
    983,616
    -2009
    38,223
    -
    2,000,000
    -2010
    42,828
    -
    -
    -2011
    48,001
    -
    -
    -2012-2023
    340,954
    -
    -
    -$549,196
    $3,304,027
    $2,983,616
    $161,525


A financing contract on equipment, with a balance of $14,589, is in
default and is included in current liabilities. The lender has referred the loan to an
attorney, but no further action has been taken.

All of the convertible notes and accrued interest, totaling $3,304,027,
are in default. The Company is formulating a plan to seek extensions of these notes. No
collection action has been taken by the note holders.

NOTE 4  Callable Secured Convertible Debt

In July and August 2005, the Company
arranged callable secured convertible debt (Notes) totaling $2,250,000, bearing interest
at 8%, with 3,000,000 five year $0.15 warrants. The Notes were accompanied by a
Registration Rights Agreement. During 2005, the Company received $1,807,260, net of debt
issuance costs of $217,690, and issued 2,076,923 warrants. In January and February 2006
the Company issued $1,000,000 in callable secured convertible debt ($982,500 net of
financing costs) and issued 1,423,078 five year warrants exercisable at $0.15 per share.

60

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



In July and November 2006 the Company arranged additional financings in
the amount of $500,000 each from the same investor group. The Company received $958,667
($1,000,000 net of financing costs) and issued 20,000,000 seven year warrants at an
exercise price of $0.05 per share and 20,000,000 seven year warrants at an exercise price
of $0.04 per share.

The Notes are convertible into common shares at the lesser of $0.10 or
55% of the market price of the Companys common stock, as defined. Additionally, the
Notes are secured by substantially all of the Companys 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 DIGs 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 December 31, 2006 and 2005 the Notes were convertible into 586,181,548
and 112,593,828 common shares, respectively, and the conversion and prepayment features
had estimated fair values of $4,876,175 and $3,621,220, respectively. The fair value of
the conversion feature and the prepayment penalty were estimated using the Black-Scholes
option pricing model and taking a weighted average value based on certain probabilities
that the debt would be converted and paid off prior to maturity at specified dates. The
estimated fair value of the conversion features and prepayment penalties exceeded the
carrying value of the Notes; therefore, the excess was recorded as a loss on derivative
instruments in the Consolidated Statements of Operations.

In addition, all non-employee warrants and options that are exercisable
during the period that the Notes are outstanding are required to be recorded as
liabilities at their fair value. At December 31, 2006 and 2005 non-employee warrants and
options to acquire a total of 58,599,501 and 49,542,810 common shares, respectively, were
outstanding and had estimated fair values of $380,083 and $134,212, respectively.

Assumptions used to value these instruments included assuming the Notes
would be converted to common stock in equal amounts on a monthly basis, beginning May
2007, until the estimated full conversion of each Note, assuming all warrants and options
would be exercised on their respective expiration dates, using volatility rates ranging
from 87% to 109% for December 31, 2006 and 78% to 100% for December 31, 2005, and using
risk free interest rates ranging from 4.625% 4.75% for December 31, 2006 and 4.25% to
4.375% for December 31, 2005.

The fair value of the beneficial conversion option, prepayment
penalties, warrants and options will be estimated each reporting period with the change in
fair value recorded as gain or loss on derivative instruments. As the Companys
common stock is highly volatile, material gains or losses for the change in estimated fair
value are likely to occur in future periods.

61

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



In 2005, the Company entered into a Registration Rights Agreement with
the Noteholders that required the Company to use its best efforts to file a registration
statement within 120 days of funding. The Agreement required the Company to increase the
authorized shares by October 31, 2005 or use its best efforts to 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 penalties which would have totaled $90,000 and
$135,000 through December 31, 2005. The Company entered into similar Registration Rights
Agreements in connection with the two 2006 financings. The Company completed a
registration of 75 million shares in October 2006 and currently has a registration pending
for 75 million shares. The Company believes it is in compliance with the terms of the
various Registration Rights Agreements as of December 31, 2006.

During the period of February 15, 2006 to December 31, 2006, the
Investors converted a total of $1,266,384 of the Notes into 111,222,642 common shares.
Subsequent to December 31, 2006, the Investors converted a total of $108,807 into
19,103,320 common shares.



NOTE 5 - Major Customers:

Fertilizer sales for the years ended December 31, 2006 and 2005 include
$1,239,354 and $997,611, respectively, to one major customer, which represents 95% and
96%, respectively, of fertilizer sales for the years ended December 31, 2006 and 2005.
These sales represented 67% and 76% of total GOLDn GRO Fertilizer segment sales for
the years ended December 31, 2006 and 2005, respectively. Receivables from this major
customer as of December 31, 2006 and 2005 amounted to $19,442 and $-0-, which represented
52% of GOLDn GRO fertilizer accounts receivable at December 31, 2006.

Silver sales for 2006 include $258,089, or 62% of silver sales and 14%
of the GOLDn GRO Fertilizer segment sales, to one major customer in the precious
metals refining industry. Receivables from this major customer as of December 31, 2006
amounted to $11,387, which represented 32% of GOLDn GRO fertilizer accounts
receivable at December 31, 2006.

Technical services revenues for the years ended December 31, 2006 and
2005 were spread among several customers with relatively small amounts. Revenue from the
largest single customer was $19,082 and $15,000 for 2006 and 2005, respectively. The
Company's major technical services customers operate within the mining industry, both
nationally and internationally. Due to the nature of the Company's operations, the major
sources of revenues may change from year to year.

62

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



NOTE 6 - Income Taxes:

The following is a reconciliation of the federal statutory tax and tax
rate to the Company's provision for taxes and its effective tax rate.

2006
    2005PERCENT
    
    PERCENTOF
    PRE-TAX
    
    OF
    PRE-TAXAMOUNT
    INCOME
    AMOUNT
    INCOMEFederal tax at statutory
    rate
    $-
    - %
    $-
    - %Temporary differences,primarily bad debt andcompensation related
    expenses
    -
    - %
    -
    - %Non-deductible expenses
    -
    - %
    -
    - %Utilization of NOL
    -
    - %
    -
    - %Total Income Tax Expense
    $-
    0.0%
    $-
    0.0%






The Company's consolidated net operating loss available for
carry-forward to offset future taxable income and tax liabilities for income tax reporting
purposes expire as follows:



Net
    OperatingYear
    Ending December 31:
    Loss2007
    188,1462008
    113,2532012
    322,5252018
    377,9442019
    1,605,9542020
    3,254,3752021
    2,947,3512022
    2,496,7442023
    2,286,4362024
    2,337,8322025
    2,841,9142026
    2,536,124$21,308,598


The Company's total deferred tax assets and related valuation
allowances at December 31, 2006 and 2005 are as follows:

63

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



2006
    2005Total deferred tax assets
    $7,650,008
    $
    6,865,693Less valuation allowance
    (7,650,008)
    (6,865,693)Net deferred tax asset
    $     -
    $     -


The estimated deferred tax assets and the related 100% valuation allowance increased
$784,315 between 2005 and 2006.

NOTE 7 - Stock Option and Purchase Plans:

The following table summarizes warrant and option activity for the
period January 1, 2005 through December 31, 2006:

|                                |              | Convertible   | Employee  |              
|------------------------------- | ------------ | ------------- | --------- | -------------
|                                | Warrants     | Debt Options  | Options   | Total        
|Under option, December 31, 2004 | 20,596,809   | 25,301,659    | 5,995,000 | 51,893,468   
|Granted                         | 10,943,077   | 118,189,457   | 165,000   | 129,297,534  
|Exercised                       | (1,200,000)  | (8,667,737)   | -         | (9,867,737)  
|Expired                         | (3,026,626)  | -             | (52,000)  | (3,078,626)  
|Under option, December 31, 2005 | 27,313,260   | 134,823,379   | 6,108,000 | 168,244,639  
|Granted                         | 41,496,924   | 584,810,362   | 226,000   | 626,533,286  
|Exercised                       | (100,000)    | (111,222,642) | -         | (111,322,642)
|Expired                         | (10,110,683) | (22,229,551)  | (12,000)  | (32,352,234) 
|Under option, December 31, 2006 | 58,599,501   | 586,181,548   | 6,322,000 | 651,103,049  



The average price for all warrants and options granted and exercised
was $0.0146 for the year ended December 31, 2006 and $0.0334 for the year ended December
31, 2005.

The following table summarizes warrants and options outstanding as of
December 31, 2006:

64

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



WeightedAverageNo. of
    Exercise
    ExerciseExpiration Dates
    Shares
    Price
    PriceWarrants:November 2013
    20,000,000
    $0.040July 2013
    20,000,000
    0.050March 2007 to May 2009
    3,000,000
    0.100January to June 2008
    5,725,000
    0.150July 2010 to February 2011
    3,740,001
    0.150December 2007
    1,850,000
    0.225February 2007
    360,000
    0.238January to February 2007
    1,437,500
    0.240January to February 2007
    935,000
    0.300February to May 2007
    1,552,000
    0.375Total Warrants
    58,599,501
    
    $ 0.089




WeightedAverageNo. of
    Exercise
    ExerciseConvertible Debt Options:
    Shares
    Price
    PriceAugust 2008 to
    November 2009
    586,181,548
    $0.0054
    $0.0054Employee
    Options:August 2007 to February 2016
    380,000
    $0.0150One year after employment ends
    1,600,000
    0.150October 2007
    250,000
    0.200January 2015 to August 2016
    75,000
    0.200One year after employment ends
    1,000,000
    0.250One year after employment ends
    3,000,000
    0.300October 2012 to October 2013
    17,000
    0.500Total Employee Options
    6,322,000
    
    $0.241Total Warrants and Options
    651,103,049
    
    $ 0.015


The 586,181,548 convertible debt options listed above are related to
the Notes discussed in Note 4. This debt is convertible into common stock at 55% of a
calculated market price. Consequently, the number of shares and the conversion price can
vary up or down materially, depending on the market price of the Companys stock.

The 22,229,551 in expired convertible debt options listed above is
related to the 2000 Series Convertible Promissory Notes discussed in Note 3 above. 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.

65

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



NOTE 8  Common Stock to be Issued:

The following summarizes stock transactions commencing prior to
December 31, with stock issued or to be issued subsequent to that date:

2006
    2005Amount
    Shares
    Amount
    SharesPayment of salaries (see
    Note 11)
    $529,725
    7,620,625
    $536,188
    6,646,579Payment of director fees
    3,113
    207,500
    375
    7,500Payment of interest,
    employees
    37,430
    500,703
    37,430
    500,703Payment of debt conversion
    13,600
    2,500,000
    -
    -$583,868
    10,828,828
    $573,993
    7,154,782




NOTE 9 - Accrued Expenses:

The following is the composition of accrued expenses as of December 31:

2006
    2005Accrued vacation
    $91,615
    $89,025Federal and state payroll
    taxes
    19,699
    25,030Sales tax
    516
    5,075Audit and annual meeting
    costs
    95,000
    120,000$206,830
    $239,130


NOTE 10  Other Comprehensive Income

The Company held marketable securities that were available for sale,
which consisted solely of equity securities. The carrying amount on the balance sheets of
these securities is adjusted to fair value at each balance sheet date. The adjustment to
fair 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 an Accumulated Unrealized Holding Loss of
$-0- and $39,889 at December 31, 2006 and 2005, respectively. The Company realized no
gross losses and gross gains of $97,728 on gross proceeds of $229,374 during the twelve
months ended December 31, 2006, and no gains were reclassified out of accumulated other
comprehensive income into earnings. The Company realized no gross gains and gross losses
of $10,116 on gross proceeds of $10,177 during the twelve months ended December 31, 2005,
and no gains were reclassified out of accumulated other comprehensive income into
earnings. The table below illustrates the amount of unrealized holding gains and losses
included in other comprehensive income, net of tax effects of $0. The reclassification
adjustment represents unrealized holding gains and losses transferred into earnings as
securities are sold. The Company held no marketable securities as of December 31, 2006.

66

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



Following are the components of Other Comprehensive Income:

Year Ended December 31,2006
    2005Unrealized holding gains
    (losses)arising during the period
    $ -
    $(38,290)Reclassification adjustment
    39,889
    7,969Other Comprehensive Income
    $39,889
    $(30,321)




NOTE 11 - Related Party Transactions:

Promissory notes are held by an officer/stockholder at December 31,
2006 and 2005 (see Note 3 for terms).

$796,200 and $594,900 of the accrued management salaries as of December
31, 2006 and 2005, respectively, is for salary in arrears due to several
officer/stockholders and employee/stockholders. In addition, salary in arrears of $514,800
and $534,800 for 2006 and 2005, respectively, are included in stock to be issued at the
respective year ends. These amounts represent the portion of salaries earned but unpaid
that the officers/employees/stockholders have agreed to accept in the Companys
common stock. The number of shares to be issued is 6,348,958 and 6,620,900 for 2006 and
2005, respectively. Issuance of the stock is pending sufficient cash available to pay the
related federal withholding taxes. Interest expense at 12% per annum on salaries due
officer and employee/stockholders amounted to $143,478 and $123,345, respectively, in 2006
and 2005. Of these amounts, $-0- and $58,272 for 2006 and 2005, respectively, were paid
(or will be paid) by issuance of -0- and 765,857 shares of restricted common stock.

Interest expense on related party loans amounted to $19,383 and $23,948
for the years ended December 31, 2006 and 2005, respectively. Accrued interest on related
party loans and accrued salaries totaled $87,211 and $13,276 at December 31, 2006 and
2005, respectively.

In March 1999 Dr. Whitney personally agreed to acquire up to 10,000,000
common shares of GPXM at $0.10 per share, making him beneficial owner of more than ten
percent of GPXM at that time. In March 1999, the Companys Board of Directors
approved a consulting project for WWI to provide technical services to GPXM; payment was
to be made in common stock, and cash. WWI completed the project in early 2005. The Company
owned 556,107 shares with a market value of $91,758 at December 31, 2005. Total revenue
from GPXM for 2005 was $15,000. The Company sold the remaining GPXM shares in 2006 and had
no other transactions with GPXM during 2006.

During 2003, WWIs lease of a vehicle utilized by Dr. Whitney was
completed. Dr. Whitney purchased the vehicle by financing it through a commercial lender.
The purchase price was $21,741 and the monthly payment for four years is $531. WWI is
leasing the vehicle from Dr. Whitney by making the

67

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005





monthly payments to the commercial lender and will acquire ownership of
the vehicle when the loan is paid in full.

For related party transactions subsequent to December 31, 2006, see Note 17.



NOTE 12 - Lease Commitments and Rent Expense:

0perating Leases:

The Company leases its corporate office facility under a non-cancelable
agreement which expires June 30, 2007. Monthly payments are $5,222.

A wholly owned subsidiary of the Company, IMI, leases storage
facilities on a month-to-month basis and, therefore, no long-term binding contractual
obligation exists with regards to minimum lease payments. The monthly rent payment is
$1,050.

Future minimum rental commitments at December 31, 2006, under these
operating lease agreements are due as follows:

2007
    $31,3322008
    -$31,332


Total rent expense included in the statements of operations for the
years ended December 31, 2006 and 2005 is $74,370 and $89,220, respectively.



Capital Leases:

Prior to 2004 the Company had entered into numerous equipment leases,
primarily for equipment at the manufacturing facility. The leases were generally for five
years, had initial interest rates ranging from 6.7% to 26.3%, with the majority being in
the 18% to 21% range, and generally had $1 buyout options at the end of the lease terms.
Substantially all of these leases have been renegotiated or been subject to litigation, as
discussed in Note 16, such that the original payments terms are no longer applicable. The
renegotiated leases now carry interest rates ranging from 6% to 9.25%.

All of the above described leases are secured by the equipment acquired
or financed under the lease.

Future minimum lease commitments at December 31, 2006 are due as follows:

68

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

Unrelated
    RelatedParties
    Party2007
    $ 538,386
    $3,4512008
    54,000
    -2009
    54,000
    -2010
    32,625
    -2011
    27,000
    -2012
    9,000
    -715,011
    3,451Less: amounts
    representing interest
    (176,446)
    (118)$ 538,565
    $3,333




NOTE 13 - Business Segments:

The Company and its subsidiaries operate two business segments as
identified in Note 1. The following defines business segment

activities:



GOLDn GRO Fertilizer:
                         Photochemical
recycling,

Silver
recovery, GOLDn GRO

Fertilizer
production and

Sales

Mining Technical Services:
                     Mining
industry services

The GOLDn GRO fertilizer segment operates principally in Northern
Nevada and California. The primary source of revenue for this segment is from the pick-up
and processing of photochemicals, recovery of silver therefrom, and sales of GOLDn
GRO fertilizer products. The customer base is diverse and includes organizations in the
photo-processing, printing, x-ray and medical fields. Fertilizer sales are concentrated in
the same geographic markets and the customer base is principally in commercial markets,
including specialty agriculture which includes vegetables, fruit and nut trees, and wine
and table grapes, golf courses, and turf farms.

The mining technical services segment performs its services primarily
out of the Company's Reno, Nevada offices, but its source of clients is not limited to
organizations based locally; it has served both national and international clients in the
past.

The Company measures segment performance based on net income or loss.
At present there are no intercompany revenues. Costs benefiting both segments are incurred
by both the Company and by Whitney & Whitney, Inc. Such costs are allocated to each
segment based on the estimated benefits to the segment. General and administrative costs
incurred by the Company that have no other rational basis for allocation are divided
evenly between the segments. Cost

69

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



allocation percentages are reviewed annually and are adjusted based on
expected business conditions for the year.

Reconciliation of segment revenues, cost of sales, gross profit (loss),
operating income (loss), other income (loss) and net income (loss) to the respective
consolidated amounts follows:

2006
    2005RevenuesGOLDn GRO Fertilizer
    $1,856,074
    $1,305,144Mining Technical Services
    28,338
    55,843Consolidated Revenues
    $1,884,412
    $1,360,987Cost of RevenuesGOLDn GRO Fertilizer
    $1,760,118
    $1,421,826Mining Technical Services
    36,607
    69,167Consolidated Cost of
    Revenues
    $1,796,725
    $1,490,993Gross Profit (Loss)GOLDn GRO Fertilizer
    $95,956
    $(116,682)Mining Technical Services
    (8,269)
    (13,324)Consolidated Gross Profit
    (Loss)
    $87,687
    $(130,006)Operating Income (Loss)GOLDn GRO Fertilizer
    $(1,669,970)
    $(2,107,863)Mining Technical Services
    (542,042)
    (507,831)Consolidated Operating
    Income (Loss)
    $(2,212,012)
    $(2,615,694)




Other Income (Expense)GOLDn GRO Fertilizer
    $(1,700,833)
    $(2,281,305)Mining Technical Services
    102,960
    (9,613)Consolidated Other Income
    (Expense)
    $(1,597,873)
    $(2,290,918)Net Income (Loss)GOLDn GRO Fertilizer
    $(3,370,803)
    $(4,389,168)Mining Technical Services
    (439,082)
    (517,444)Consolidated Net Income
    (Loss) before taxes
    $(3,809,885)
    $(4,906,612)


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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



|Other segment information:                                     | 2006     | 2005    
|-------------------------------------------------------------- | -------- | --------
|Capital expenditures by
    business segment:                  |          |         
|GOLDn GRO Fertilizer                                          | $159,383 | $185,212
|Mining Technical Services                                      | 2,252    | 11,200  
|Consolidated Capital
    Expenditures                          | $161,635 | $196,412
|                                                               |          |         
|Depreciation and
    amortization expense by business segment: |          |         
|GOLDn GRO Fertilizer                                          |          |         
|Depreciation                                                   | $177,754 | $178,403
|Amortization                                                   | 41,370   | 54,884  
|                                                               | 219,124  | 233,287 
|Mining Technical Services                                      |          |         
|Depreciation                                                   | 4,247    | 9,255   
|Amortization                                                   | 4,646    | 6,583   
|                                                               | 8,893    | 15,838  
|Consolidated Depreciation
    and Amortization                 | $228,017 | $249,125



General and administrative expenses of $293,191 and $190,906 incurred
by Itronics Inc. were equally divided between the two segments for 2006 and 2005,
respectively.

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

Identifiable assets by business segment (net of accumulated
depreciation, accumulated amortization, and allowance for doubtful accounts):

|                                                           | 2006       | 2005     
|---------------------------------------------------------- | ---------- | ---------
|                                                           | PHOTO-     | MINING   
|                                                           | CHEMICAL   | TECHNICAL
|                                                           | FERTILIZER | SERVICES 
|ASSET DESCRIPTION                                          |            |          
|Current Assets                                             |            |          
|Cash                                                       | $ -        | $ -      
|Accounts receivable,
    net                               | 35,102     | 1,391    
|Marketable
    securities                                  | -          | -        
|Inventories                                                | 548,399    | -        
|Prepaid expenses                                           | 55,061     | 2,913    
|                                                           | 638,562    | 4,304    
|Property and Equipment, net                                |            |          
|Land                                                       | 215,000    | -        
|Building and
    improvements                              | 961,473    | -        
|Construction in
    progress,                              |            |          
|manufacturing
    facility                                 | 234,347    | -        
|Equipment and
    furniture                                | 1,232,796  | 14,455   
|Vehicles                                                   | 10,391     | -        
|Equipment under
    capital lease- equipment and furniture | 203,044    | 65,509   
|Equipment under
    capital lease- Vehicles                | -          | 6,523    
|                                                           | 2,857,051  | 86,487   
|                                                           |            |          
|Other Assets, net                                          |            |          
|Intangibles                                                | 76,500     |          
|Inter-company
    investments/loans                        | -          | -        
|Deposits                                                   | 4,427      | 3,483    
|Deferred loan fees                                         | 30,646     | -        
|                                                           | 111,573    | 3,483    
|                                                           | $3,607,186 | $94,274  



Reconciliation of segment assets to consolidated assets:

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



|                                    | 2006         | 2005        
|----------------------------------- | ------------ | ------------
|                                    |              |             
|Total Assets:                       |              |             
|GOLDn GRO Fertilizer               | $3,607,186   | $3,682,035  
|Mining Technical Services           | 94,274       | 563,853     
|Total Segment Assets                | 3,701,460    | 4,245,888   
|Itronics Inc. assets                | 27,028,313   | 25,175,867  
|Less: inter-company
    elimination | (26,464,234) | (25,192,138)
|Consolidated Assets                 | $4,265,539   | $4,229,617  

NOTE 14 - Going Concern:

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 a net loss of
$3,809,885 during the year ended December 31, 2006, a negative working capital of
$10,139,616, and a stockholders deficit balance of $7,429,505 as of December 31,
2006. 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.

In order to solve the Company's liquidity problems, management has
implemented a plan of financing its operations through the private pl1,423,078 five year
warrants exercisable at $0.15 per share.acements of common shares, convertible debt,
conversion of debt to common shares, and payment of consulting and other labor services
with common shares. The Company obtained financing of $2 million and $2.25 million in 2006
and 2005, respectively, through the issuance of callable secured convertible debt. During
the first quarter of 2007, the Company obtained $1 million from the issuance of callable
secured convertible debt. For the immediate future, the Company plans to obtain additional
debt financing from this investor group.

We are actively working to establish a longer term financing plan that will identify
capital sources for the Companys 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
extended 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 the Companys subsidiary, Itronics Metallurgical, Inc., signed a
definitive manufacturing and distribution agreement with Western

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



Farm Services, Inc. (WFS). The agreement gives WFS the exclusive
license and right to manufacture and market the GOLDn 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 2003, the companies
entered the second five year term of the agreement.

NOTE 15 - Off-Balance Sheet Risks and Concentration of Credit Risk:

The Company occasionally maintains bank deposits in excess of federally
insured limits. The Companys risk is managed by maintaining its accounts in one of
the top five largest banks in the country.

As described in Note 5, substantially all the Companys fertilizer
sales are concentrated with one major fertilizer distribution customer. In addition,
substantially all of those sales are in California, primarily in the Central Valley.
Having the majority of such sales concentrated in one region makes the Companys
sales more vulnerable to variability caused by weather patterns or economic downturns than
if sales were geographically diversified. The Companys plan is to expand
geographically to mitigate such effects in the future. At any point in time, a significant
portion of the Company's accounts receivable is concentrated with this fertilizer
distribution company. This concentration of credit risk is somewhat mitigated due to the
fact that the distribution company is one of the largest fertilizer distribution companies
in the country.

Increase or decrease in photochemical recycling service and silver
extraction revenues has a direct relationship with federal, state, and local regulations
and enforcement of said regulations. Fertilizer revenues are impacted by crop cycles,
seasonal variations, and weather patterns.

The ability to recognize a net profit from silver recovery sales is
based on the fair market value of silver (London five day average) at the time the
photochemicals are obtained versus the fair market value of silver when recovered silver
is sold. Most customers are given an 80% silver credit against recycling services based on
the content of silver in the photochemicals. If the fair market value of silver declines,
our ability to recover our costs could be impacted.



NOTE 16  Legal Proceedings and Contingencies

As of December 31, 2006 we have accrued for liabilities, including
interest, of $589,508 which relate to various lawsuits and claims for the collection of
the funds due. These include 15 leases totaling $432,616 (reflected in Capital Lease
Obligations) plus $47,235 in additional interest (reflected in Accrued Interest) and two
trade payables totaling $87,206 (reflected in Accounts Payable) plus $22,451 in additional
interest (reflected in Accrued Interest). The leases are individually secured by specified
equipment.

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



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. The
Company will continue to accrue interest until these cases are settled or paid in
full.

The Company has a total of ten cases, that originally sought $471,655,
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 December 31, 2006, the recorded liability for these cases was $230,835. We are
current in our payments under the respective settlement agreements. Subsequent to December
31, 2006, all but two of these cases were paid off.

In addition to the above leases that are subject to litigation, there
are four leases, with a recorded liability of $200,420, 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.

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 adverse result may arise that may adversely affect our business. Certain
lawsuits have been filed against us for collection of funds due that are delinquent, as
described above. Other than as described above, we are currently not aware of any
litigation pending or threatened for any reason other than collection of funds due and
already recorded nor are we aware of any additional legal proceeding or claims that the
Company believes will have, individually or in the aggregate, a material adverse affect on
our business, financial condition or operating results.



NOTE 17 - Subsequent Events:

In January and March 2007 the Company arranged additional callable secured convertible
debt financing in the amount of $500,000 each from the same investor group as discussed in
Note 4 above. The notes have a three year term and have interest rates of 6% per annum.
The Company received net proceeds of $990,000 from the two financings and issued a total
of 40,000,000 seven year warrants at an exercise price of $0.01 per share.

The Company issued 32,165,137 shares of its common stock from January 1, 2007 to April
11, 2007 in exchange for the conversion of debt, services received, and asset acquisition
totaling $287,178.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Following is a summary of the aggregate fees billed for professional
service by the Companys principal accountant.

2006
    2005Audit fees
    $134,608
    $95,009Audit related fees
    -
    -Tax fees
    -
    -All other fees
    -
    -Total
    $134,608
    $95,009


The Company does not have an audit committee and consequently the
entire Board of Directors serves in that capacity. The Boards pre-approval policy
regarding professional services provided by the Companys principal accountant is to
pre-approve the engagement of the principal accountant for the performance of all
professional services. The policy does provide a waiver of pre-approval in the event that
such services, in the aggregate, will be less than 5% of the audit fee, such services are
not recognized as non-audit fees at the time of the engagement, and pre-approval is
obtained from a designated member of the Board prior to the engagement. Until such time as
an audit committee is appointed, the designated individual is the Principal Executive
Officer, currently the President of the Company.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: April 16, 2007
                        By:
/S/ JOHN W. WHITNEY

John
W. Whitney

President,
Treasurer and Director

(Principal
Executive Officer)



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

Date: April 16, 2007
                        By:/S/ JOHN W. WHITNEY

John
W. Whitney

President,
Treasurer and Director

(Principal
Executive and Financial

Officer)



Date: April 16, 2007
                        By:/S/ MICHAEL C. HORSLEY

Michael
C. Horsley

Controller

(Principal
Accounting Officer)



Date: April 16, 2007
                        By:/S/ HOWLAND S. GREEN

Howland
S. Green

Director

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