UNITED STATES

SECURlTIES 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, 2004**
( )  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 

     EXCHANGE ACT OF 1934 (No Fee Required)

                        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 ororganization)

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

         (Address of Principal ExecutiveOffices)               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 (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes (x) No ( )

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

 

State issuer's revenues for its most recent fiscal year: $1,720,049. 

The aggregate market value of the voting stock held by non-affiliates, computed byreference to the average of the bid and asked prices for such stock as of March 31, 2005,was $12,357,275.

As of March 31, 2005 there were issued and outstanding 191,182,367 shares of theRegistrant's Common Stock.

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ITRONICS INC. AND SUBSIDIARIES

2004 FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS
PART I 
PAGEItem 1. Description of Business 
4Item 2. Description of Property 
25Item 3. Legal Proceedings
26Item 4. Submission of Matters to a    Vote of Security Holders 
27PART IIItem 5.Market for Common Equity    and Related Stockholder Matters
27Item 6.Management's Discussion and    Analysis or Plan of Operation
29Item 7. Financial Statements
34Item 8. Changes in and    Disagreements with Accountants on 
Accounting and Financial Disclosure
34Item 8AControls and procedures
34PART IIIItem 9.Directors and Executive    Officers of the Registrant
35Item 10. Executive Compensation
37Item 11. Security Ownership of    Certain Beneficial Owners and 
Management and Related Stockholder Matters
40Item 12. Certain Relationships and    Related Transactions
42Item 13. Financial Statements,    Exhibits and Reports on Form 8K
43Item 14.Principal Accountant Fees    and Services
75
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ITEM 1.DESCRIPTION OF BUSINESS.
 

Itronics Inc. (OTCBB: ITRO; Frankfurt and Berlin Bremen Stock Exchanges: ITG), is theinventor and developer of the "Beneficial Use Photochemical, Silver, and WaterRecycling" technology that produces environmentally beneficial GOLD'n GROfertilizers, and 5 troy ounce, 0.999 pure, Silver Nevada Miner numismatic bars. 

Headquartered in Reno, Nevada, Itronics Inc. is one of Nevada's leading processtechnology companies and a world leader in photochemical recycling. The Company alsoprovides project planning and technical services to the mining industry. Itronics, throughits subsidiary, Itronics Metallurgical, Inc., is the only company in the world with theintegrated technology to extract more than 99 percent of the silver and virtually all theother toxic heavy metals from used photoliquids and to use this "Beneficial UsePhotochemical, Silver, and Water Recycling" technology to produce environmentallybeneficial, chelated, multinutrient liquid fertilizer products sold under the trademarkGOLD'n GRO, animal repellent/fertilizer products to be sold under the trademark GOLD'n GROGuardian, and 5 troy ounce 0.999, pure, Silver Nevada Miner numismatic bars. 

Itronics was one of five finalists for the 2001 Kirkpatrick Chemical Engineering Award,the most prestigious worldwide award in chemical engineering technologies. Dr. JohnWhitney, Itronics' President, was selected as Nevada's Inventor of the Year for 2000 andis now a member of the Inventor's Hall of Fame at the University of Nevada, Reno.

The Company currently operates the following two business segments under separatewholly owned subsidiaries:

 

1. Photochemical Fertilizer: * This segment, known as Itronics Metallurgical,Inc., operates a photochemical recycling plant and is developing new silver-gold refiningtechnology. Revenues are generated by photochemical management services, sales ofphotochemical concentrators, sale of silver, and sale of GOLD’n GRO liquid fertilizerproducts. Construction of a commercial scale photochemical processing and fertilizermanufacturing plant was completed in February 2000. Production in the plant started in2001 and meaningful commercial sales of GOLD'n GRO fertilizers began in 2002. 

*In 1995 Itronics initiated a legal review of various segments of RCRA (ResourceRecovery and Conservation Act)law that might pertain to Itronics and its customers.Itronics reached the conclusion that certain of its large scale customers are exempt fromRCRA since the value of the customer's portion of the recovered silver exceeds theprocessing costs charged. Itronics also concluded that once the various photo solutionsare 100% utilized in fertilizer or other products, then all Itronics customers will beexempt from RCRA requirements. Itronics believes it is the only organization in the U.S.with the ability to achieve this distinction. Consequently, when referring to theoperations of other organizations, or to the general market, the term photowaste is used,and when referring to Itronics' operations the term photochemical is used.
2. Mining Technical Services: This segment, known as Whitney & Whitney,Inc., provides mineral project planning and technical services to the mining industry. Ithas specialized knowledge in all aspects of mineral project development and has beendeeply involved in gold mine development for more than 20 years. It employs technicalspecialists with expertise in the

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areas of mining, geology, mining engineering, mineral economics, material processing,and technology development. Technical services have been provided to many of the leadingU.S. and foreign mining companies, several public utilities with mineral interests, tovarious state agencies, the U.S. and foreign governments, and the United Nations and theWorld Bank.

The Company has three wholly owned subsidiaries, Whitney & Whitney, Inc.("WWI"), Itronics Metallurgical, Inc. ("IMI"), and ItronicsCalifornia, Inc. (ICI), a 92.5% owned partnership, Nevada Hydrometallurgical Project("NHP"), and an 82.53% owned joint venture, American Hydromet. A briefdescription of each organization follows:

1. Itronics Metallurgical, Inc.:

IMI is a wholly owned subsidiary of the Company. IMI was established in 1981 to managethe metallurgical and materials processing operations being developed under WWI andAmerican Hydromet research and development programs. IMI has been the main provider ofmanagement services to American Hydromet since 1986. IMI is now managing thephotochemical/GOLD'n GRO fertilizer segment as discussed below. IMI is responsible forprecious metal and other material product sales, and markets a five ounce silver barbearing a unique hallmark, "Silver Nevada Miner".

2. Nevada Hydrometallurgical Project:

Nevada Hydrometallurgical Project ("NHP") is a research and developmentpartnership formed in 1981 to fund research into potential commercial applications forcertain hydrometallurgical process techniques developed by the U.S. Bureau of MinesResearch Center in Reno, Nevada between 1970 and 1979. A number of potential commercialapplications were defined by NHP, one of which is the American Hydromet silver/goldrefining technique. In late 1985, NHP assigned its interest in the silver/gold refiningtechnique to American Hydromet. NHP retained its proprietary interest in the otherpotential commercial applications for future developments. NHP continues as a financingand technology owning partnership. The Company owns 92.5% of NHP.

3. American Hydromet:

American Hydromet is a Nevada joint venture that was formed in 1985 to develop certainsilver and gold refining/recovery technology and to create business based upon suchtechnology. The photochemical fertilizer segment now being managed by IMI is owned byAmerican Hydromet. The ownership interests in American Hydromet are: NHP for 76.5%, IMIfor 1%, and American Gold & Silver Limited Partnership ("AG&S") for22.5%. AG&S is a Nevada limited partnership, for which WWI serves as the generalpartner and owns a general and limited partnership interest totaling 11%. The Company ownsa 37% limited partnership interest in AG&S. In total, the Company owns approximately83% of American Hydromet.

4. 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 recyclingtechnology. ICI had no business operations in 1999, but plans are to utilize thephosphoric acid technology and may eventually operate IMI's photochemical services andGOLD'n GRO fertilizer business in California.

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5. Whitney & Whitney, Inc.:

WWI was incorporated in 1977 and is a wholly owned subsidiary of the Company. WWI isprimarily a mineral consulting firm that provides planning and technical services to themining industry. The broad range of services provided by WWI includes mineral economics,geological studies, mining and cost engineering, and project management services. WWI hasextensive experience with base metals, precious metals, such as gold and silver, specialtyminerals, such as molybdenum and tungsten, coal, and industrial minerals. WWI performssubstantial services for small, medium, and large mining projects. WWI has historicallyperformed services for many leading U.S. and foreign mining companies, various stateagencies, for the United States and several foreign governments and the United Nations.WWI was under contract with the Country of Bolivia from 1986 through early 1992 to assistit in developing its mining industry. 

 

SUMMARY HISTORY OF OPERATIONS

Whitney & Whitney, Inc. was incorporated in Nevada in 1977 to provide a wide rangeof technical services to the mining industry. During the 1980's, WWI completed severalmulti-client fertilizer marketing studies. Also during this time period, WWI was contactedby 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.

In 1988 the Company acquired WWI and its subsidiaries and partnerships. The internalownership was restructured so that WWI and the other subsidiaries and partnerships are nowdirectly owned by the Company. 

Over the years, the mining technical services business was highly cyclical, closelyfollowing 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 theCompany's business into new industries. When considering the fertilizer marketing studiespreviously performed, along with the growing national issue of sewer system contaminationwith toxic photowastes and silver toxicity to fish, it seemed to be a natural extension ofWWI's existing expertise to expand into the photowaste recycling business. In 1987 thedecision was made to move forward with research and development of a process to extractsilver from photographic liquid wastes and the necessary permits to establish an R&Dfacility under RCRA were obtained. In 1988 a patent and literature research projectregarding the use of photowastes in fertilizer was begun. In 1989 experimentation withprocessed run of plant liquids as fertilizer was begun. It took until 1997 to develop anddemonstrate a satisfactory product and to complete university testing to demonstrate itsagronomic viability. A licensing and sales agreement was signed with a major fertilizercompany in 1998, and another two years were needed to obtain financing, completepermitting, install an operational plant and to demonstrate that the new technology wouldwork on a commercial scale. By the first quarter of 2001 the Company was positioned todevelop sales for more than a dozen liquid fertilizer products. 

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In 2001, at the request of its distributor, the Company developed a chelated zincproduct with the objective of selling the product in truckload quantities. This productdevelopment was successful and provided the basis for the first tank truck load sales inthe fourth quarter of 2001. During 2002 this new bulk product was successfully introducedinto the distributor network. During 2002 work on a bulk GOLD'n GRO product that could beused as a "base liquid" in the distributor's proprietary field blends wascommenced. In 2003 development work on a second chelated zinc product for bulk sale wasinitiated. Field testing of both new bulk products was conducted during 2003 and in late2003 they were approved for introduction into the distributor sales network for 2004. 

During the same 2001 to 2003 period, more than two dozen formulations were evaluatedfor suitability and market potential. By the end of 2003, product line development hadbeen completed, and 13 fertilizers covering three categories have been established:multi-nutrient liquid fertilizers, chelated micro-nutrient liquid fertilizers, andGOLD’n GRO base liquid. The fertilizers are sold both to the general public andthrough licensed and non-licensed distributors, and the base liquid is sold only throughlicensed distributors. Product improvement and new product development will continue, butthe Company's focus in 2005 and future years will be primarily on GOLD'n GRO LiquidFertilizer Sales expansion and on expansion of the services business as needed to supportincreasing GOLD'n GRO fertilizer sales. The Company believes that the market for theproducts in the western U.S. are large enough to produce sales levels needed for theCompany to become profitable within 2005 or 2006.

In 2003 the Company participated in the development of an animal repellent/fertilizerthat will be sold under the trade mark GOLD'n GRO Guardian. Using one of the GOLD'n GROmulti-nutrient liquid fertilizers as a base liquid, which has the property of being takeninto the plant as a fertilizer and imparting odor and taste characteristics that areoffensive to deer and other animals, such as rabbits, that eat plants. The GOLD'n GROGuardian product was field tested during 2003 and was approved for use by the NorthAmerican Deer Management Network in the fourth quarter of 2003. GOLD'n GRO Guardian is arepellent fertilizer product and must be registered under both the pesticide regulationsand the fertilizer regulations for each state in which it will be sold. The product mustalso be registered with the Federal EPA as an insecticide. Introduction of this productfor commercial sales will be delayed until the registrations are completed. Subsequent toDecember 31, 2004, the Company acquired the interest in the GOLD’n GRO Guardiantrademark, product rights, and the repelling product formula owned by Mr. Howland Green.The Company now owns 100% of all rights related to GOLD’n GRO Guardian. Mr. Green hasbecome a director of the Company and is Northeast Manager for GOLD’n GRO SalesDevelopment. Substantial funding over twelve to twenty-four months will be required tocomplete the EPA registration process.

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

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

During the period 1999 through 2003 the Company developed a "low temperaturevacuum distillation" machine that operates at room temperature and is able to removeup to 80% of the water from chemical solutions without damaging the chemicals, producing ahigh silver content concentrate that can be shipped as a commercial product in inter-statecommerce. The distilled water is clean enough for re-use on site and the reduction involume of material needing to be shipped produces 80 percent reduction in transportationcost making shipment possible anywhere in the United States. These machines have beenreleased for commercial sale under the trademark "Itronics MetallurgicalPhotochemical Silver Concentrators". Sales of the concentrators are projected toincrease as the Company expands its need for photochemical raw materials to supportincreasing GOLD'n GRO and GOLD'n GRO Guardian sales. 

The Company had slowed development and expansion of its silver refining technology andits silver refinery until the GOLD'n GRO liquid fertilizer development was essentiallycompleted. In early 2003 the company re-activated its development efforts at a low leveland also began a low level of product development for glass and tile formulations andproducts. During 2003 the first pieces of glass/ceramic tile were produced. In 2005 andfuture years the silver refining technology development and the glass/ceramic tileproducts development efforts will be expanded in parallel with expansion of GOLD'n GROfertilizer sales. 

With the successful development of a glass/ceramic tile product, the Company achievesthe ability to recycle 100 percent of the materials received from customers, includingwaste that is generated internally during processing. 

The Company's development of leaching chemicals for the silver/gold mining industry hasalso been on hold pending completion of the GOLD'n GRO liquid fertilizer development. In2003 a small amount of laboratory testing was performed with the objective of developingtechnical knowledge of how to use the liquid photo-chemistry as a leaching agent for metalextraction. In 2004 this work was expanded and a small pilot circuit will be establishedto chemically process certain categories of silver-bearing solid wastes in 2005. 
**A more detailed discussion of the business of the Company contained in Item 1 ofthis report, based on the Company's two business segments described above, follows.Operating results of the two segments are discussed in Note 12 to the ConsolidatedFinancial Statements.

PHOTOCHEMICAL FERTILIZER

1. Operations

The Company operates a commercial scale plant to receive used photochemical liquids,recover the silver and other metals, and convert the demetallized solutions to liquidGOLD'n GRO fertilizer products. Revenues are generated by photochemical managementservices, sale of

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photochemical concentrators, sale of silver, and sale of GOLD’n GRO liquidfertilizer products. A critical component of this integrated manufacturing system is tomatch, within a reasonable range, the incoming volume of photochemical liquids with theutilization of those liquids in fertilizer or other manufactured products. At the outset,regulatory constraints were imposed to limit the amount of photochemical materials thatthe Company could handle until a commercial fertilizer was perfected, or some othercommercial use for the material was developed. Development of the GOLD’n GROfertilizer is now complete and the Company is expanding the business. 

Photochemical services operates as a regional business in northern Nevada, serving morethan 200 customers in the northern Nevada market, with the dominant position in thismarket. A satellite service operation has been established in the San Francisco Bay Areawhich is a large market with at least three strong competitors. The Company is able tocompete effectively based upon pricing and service quality. 

Growth of silver output is driven by photochemical processing to support GOLD'n GROfertilizer sales. There are some opportunities to expand silver output separate fromphotochemical recycling, but profit margins for the refining services are very small whencompared to the inventory requirements and the security risk. Because of these factors,gold and silver refining services are limited to categories of materials where theCompany's proprietary technology can be used and that offer better profit margins thanconventional precious metal refining. The Company will be actively looking atopportunities to expand this segment in 2005 and future years.

In early 2003 the Company initiated a program to market the Itronics MetallurgicalPhotochemical Silver Concentrators to large consumer photography and medical x-rayfacilities throughout the United States. This is a cost effective method for the Companyto expand its photochemical supply for use in GOLD'n GRO fertilizer manufacturing. In2004, Photochemical Silver Concentrators were added to the Company’s"e-store" catalog and the Company has received an order for two Concentratorsand several leads and viable requests for proposal from several other potential customers.The Company presently has proposals out to potential customers that could lead to morethan $500,000 in sales of the Photochemical Silver Concentrators. This marks the beginningof a shift in market focus from obtaining the majority of photochemical raw materials bypicking up the materials by truck directly from the customer’s location to obtainingthe majority of its photochemical raw materials by receiving concentrated material throughthe interstate commercial trucking system. Photochemical silver concentrators are expectedbe a source of revenue growth in 2005 and future years as the Company continues to expandnationally. Itronics' photochemical blending technology is designed to utilize theconcentrate in fertilizer, after it is demetallized.

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 in which small batches of photochemicals were processed andsmall batches of fertilizer were manufactured. By late 2000 the new facility haddemonstrated the ability to "demetallize" the received photo liquids to requiredEPA levels, thereby proving the technical viability of the new technology on a commercialscale. 

Spent photochemical liquid received from customers are logged and recorded, then testedfor silver content and contaminants. The Company achieves high contaminant controlstandards by

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working proactively with its regular customers. Once testing is completed, thephotographic solutions are processed.

Photochemicals presently being handled by the Company are:

   Ammonium thiosulfate concentrate

   Aqueous Ammonia 

   Developer

   E1ectro-flake

   Film

   Fixer

   Sodium meta-bisulfite concentrate

   Stabilizer

   Steel wool/metallic ion exchange cartridges

   Scrap paper that accompanies film

The Company is evaluating the potential for use of acetic acid in fertilizer, and ifthis proves to be technically feasible, will begin to accept used acetic acid solutions aswell.

2. Growth Plans and Implementation 

In March 2003 IMI renewed a definitive licensing, manufacturing, and distributionagreement with Western Farm Service (WFS), one of the largest liquid fertilizer bulkretailers in the western United States. The five year agreement, with optional five yearrenewal periods, grants WFS an exclusive license and right to manufacture and market IMI'sGOLD'n GRO line of bulk liquid fertilizer products for the Turf & Ornamental andSpecialty Agricultural markets in the states of Arizona, California, Hawaii, Idaho,Oregon, and Washington. 

In 2004 one of the Company’s GOLD’n GRO sales representatives was transferredto Washington state to develop GOLD’n GRO fertilizer sales in Washington, Oregon, andIdaho. The registration process for selected GOLD’n GRO fertilizer products wascompleted in those states in March 2005.

Implementation of the Company’s "Beneficial Use Photochemical and WaterRecycling" technology is continuing with expansion of the number of branches withinthe licensed distributor network selling GOLD’n GRO fertilizer. The Company’slicensed distributor network is also continuing to generate orders for original chelatedmicronutrient and chelated multinutrient products.

The Company has been working with its licensed distributor network to identify marketsegments into which the GOLD'n GRO fertilizer products can be successfully sold. Thisprocess has identified three fundamental uses, or functions, of the GOLD’n GROproducts, which are (1) replace existing products that do not fully satisfy existingneeds, (2) develop new products which will satisfy presently unfulfilled needs, and (3)develop products that can be blended with existing proprietary products to improve theireffectiveness. Replacement products are expected to have higher sales growth rates thanproducts developed to fulfill the other two functions, defined as development products.The GOLD’n GRO Guardian product being developed as an animal repellant/fertilizerfits into the second category, and the GOLD’n GRO Base Liquid fits into the thirdcategory. 

GOLD'n GRO 9-0-1+7% Zinc, a chelated micronutrient, was developed to replace existingproducts as a direct result of this process, successfully introduced into the Californiamarket to

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replace a product that was not fully satisfying customer needs. This product has beenprimarily responsible for the Company’s sales growth over the last several years.This same process has led to the development of a second replacement product, GOLD’nGRO 9-0-2+3% Zinc a chelated micronutrient which is being sold by the distributor networkand is expected to have a growth rate similar to that of the GOLD’n GRO 9-0-1+7%Zinc.

During 2002 and 2003 the Company worked with its licensed distributor network todevelop a GOLD'n GRO Base Liquid that could be used as a supplement in thedistributor’s proprietary liquid fertilizer field blend programs, with the purpose ofimproving the effectiveness of those blends. This product was approved for sale by thedistributor network during the second quarter of 2003 and is being carefully introducedinto the market. The base liquid is being sold in truckload quantities and future usage isexpected to be several times greater than the usage of the GOLD'n GRO Zinc products. TheGOLD'n GRO Base Liquid is expected to eventually be used at the rate of 5 to 15 percent inmany of the distributor's field blend mixes sold to their grower customers. This presentsan opportunity for the Company to participate in the distributor's proprietary bulk liquidblend sales programs in a meaningful way. In the near term, the Company believes that theCalifornia market for this product alone is large enough to produce sales levels needed tobecome profitable within the next 12 to 24 months. 

In June 2003 the Company began a cooperative effortwith North American Deer Management Network, LLC to develop a single applicationfertilizer to be sold under the trademark GOLD’n GRO Guardian that also serves torepel animals such as deer and rabbits. Preliminary testing has been completed showing theproducts to be compatible, producing a positive growth response while at the same timerepelling, but not harming, the unwanted animals. Holly Ridge Nursery & LandscapeCompany managed the project and funded a detailed effectiveness study conducted by theUniversity of Rhode Island that covered one full growing season. Results of the study willbe utilized to support product registration applications and to complete patentapplications. Holly Ridge also funded commercial trials in various locations. The Companysold the first bulk quantity of its GOLD’n GRO 8-8-8+4% Sulfur to Holly Ridge in July2003 and a second bulk load was sold in 2004. This cooperative effort provides the Companywith an introduction of its GOLD’n GRO line of fertilizer products into thenortheastern U.S. and allows development of the GOLD’n GRO Guardian animalrepellant/fertilizer market nationwide. In September 2003 The North American DeerManagement Network, LLC completed field testing and approved GOLD’n GRO Guardian foruse by its members. Subsequent to December 31, 2004, the Company acquired the interest inthe GOLD’n GRO Guardian trademark, product rights, and the repelling product formulaowned by Mr. Howland Green. Mr. Green has become a director of the Company and isNortheast Manager for GOLD’n GRO Sales Development. As part of the research anddevelopment of this product, it was determined that the GOLD’n GRO Guardian will needto be registered with the EPA prior to commencement of commercial sales. It is estimatedit will require substantial funding and twelve to twenty-four months to complete the EPAregistration process.
The above describes a flexible approach to developing markets for the GOLD’n GROfertilizers which will continue and may require plant modifications to accommodate the newproducts as their development is completed and they are cleared for sale. Using thisflexible approach, the Company believes that it has now identified and established GOLD'nGRO bulk products that have large enough markets to provide the sales volumes needed toachieve profitability within the next 12 to 24 months. 

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The GOLD'n GRO fertilizer product line provides several products for the turf andornamental markets, 3 products for the nursery and specialty agriculture markets, and 5high quality chelated micronutrient products which can be used in all of the markets. TheGOLD'n GRO chelated micronutrient and chelated multinutrient products are considered to be"Specialty Liquid Fertilizer" and fit into the Specialty Fertilizers segment ofthe national and international fertilizer markets, generally sold in smaller quantitiesand at higher prices than NPK fertilizers (Nitrogen (N), Phosphate(P), and Potassium(K)),which are sold as single nutrient products in large tonnages at relatively low bulkcommodity prices. The Company presently sells its commercial GOLD’n GRO products in2.5 gallon, 55 gallon, and 250 gallon containers and partial or full truck load quantitiesof up to 4,800 gallons.

The Company is becoming a significant supplier of chelated micronutrient and chelatedmultinutrient specialty products for several reasons, one of which is that improvednutrient uptake is being demonstrated in large scale field applications of the GOLD'n GROproducts when compared to applications that use established chelated micronutrientproducts. Improved crop nutrient uptake reduces nutrient costs and increases crop yields,generating a significant economic benefit for the grower customers. A second reason isthat the photographic byproduct materials used as base components provide the chelates ata much lower cost compared to purchasing new "unused" chelates. A third reasonis that the GOLD'n GRO liquid products are specifically designed for fertigationapplication in micro-sprinkler and drip irrigation, which is a growing application methodand requires liquid fertilizer products with superior stability in irrigation water underwidely varying conditions. These demonstrated advantages of the GOLD'N GRO liquid productline are provided by the Company's proprietary "Beneficial Use Photochemical, Silverand Water Recycling" technology.

Most of the GOLD’n GRO products are currently registered for sale in Arizona,California, Colorado, Hawaii, and Nevada, and GOLD’n GRO 9-0-1+7% Zinc andGOLD’n GRO 9-0-2+3% Zinc are registered in Idaho, Oregon, and Washington. GOLD’nGRO 8-8-8+4% Sulphur is also registered in Rhode Island, Massachusetts, Connecticut,Delaware, New Jersey, Pennsylvania, and New York. GOLD'n GRO bulk product sales are nowestablished in Arizona and California, with the majority of the sales being made inCalifornia. In April 2003 the first truckload sale of chelated micro-nutrient products wasmade to a peach grower in western Colorado. This grower is continuing to use the products.Registration of selected GOLD’n GRO fertilizer products in Washington, Oregon, andIdaho was completed in March 2005. Implementation is underway to begin sales in thosestates. The Company is developing bulk customers in northern Nevada and has starteddiscussions with potential distributors in selected states not covered by its licenseddistributor network, including the northeastern states, Florida, and Texas. 

The Company has expanded the number of GOLD'n GRO liquid fertilizer formulas beingoffered through its "e-store" catalog. Some formulas are now being offered in2.5 gallon containers. This expanded product offering makes GOLD'n GRO available to twoimportant Professional Market segments: the Landscape Maintenance Market and the Nurseryand Greenhouse Market. In addition, a number of homeowners with large lawn and gardenareas have requested the 2.5 gallon container, which is similar in weight and formulaanalysis to many of the dry fertilizer products being offered in wholesale and largeretail outlets. Internet sales are still relatively small as a percentage of total sales,but have grown in each of the past two years.

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The Company believes that this expanded product offering will significantly increaseinternet sales.

In March 2005 the Company completed a marketing agreement with Chemilizer Products,Inc. of Florida to market two of its fertilizer injectors to the landscape maintenance andwholesale and retail nursery markets. The injectors have been added to the Company’s"e-store" and will also be marketed through its fertilizer distribution network.

The project to develop and sell a line of animal repellant/fertilizer products underthe trademark GOLD’n GRO Guardian provides direct GOLD’n GRO product marketingand distribution for the northeastern states into the Landscape Construction andMaintenance, and the wholesale and retail Nursery and Greenhouse markets. The newGOLD’n GRO Guardian product line presents the opportunity to develop products for theanimal repellant market, an emerging national market in which product offerings arecurrently limited. Deer and other plant eating animals are becoming a major urban problemand are now doing tens of millions of dollars in damage to urban landscaping each year. 

The Company is continuing to develop new sources of used photochemical liquids,although it presently has more than adequate volume of in-coming photoliquids to supportcurrent and near term GOLD'n GRO fertilizer sales growth. The Company has been developingItronics Metallurgical Photochemical Silver Concentrator technology to reduce the cost oftransporting the used photochemical liquids to the Reno manufacturing plant. The Companyhas also been identifying and qualifying non-photochemical sources of used chelates andhas been identifying and qualifying non-photochemical waste streams that might be useableas substitute materials for virgin additive raw materials that the Company presentlypurchases. 

GOLD'n GRO fertilizer products are formulated to match potential new sources ofsecondary chelates so that as GOLD'n GRO fertilizer sales continue to expand the Companycan begin to use "non-photo" chelates. The Company has identified and qualifiedindustrial waste streams that will allow it to replace certain virgin additive materialsthat it now purchases to make GOLD'n GRO fertilizers. Replacing the virgin additivematerials with materials from secondary sources provides the Company with equivalentmaterials at lower cost. Some manufacturing process changes will be required toaccommodate these adjustments in raw material sourcing, but this will be beneficial due toreductions in raw material costs and the improved cost stability that will be achieved. 

Demand for the Company's photochemical services business continues to increase due togrowth in the use of conventional and digital photography in the markets being serviced.The Company believes the supply of these used photochemical liquids is more than adequateto support continuing growth in fertilizer demand. Customer services are provided underrenewable annual service agreements which must be negotiated in advance, and onceestablished cannot readily be interrupted or cancelled, since the customers generate theliquids on an on-going basis, typically have limited on site storage, and must be providedcontinuous reliable service by the Company. Due to this characteristic, the Company mustprovide sufficient raw material storage capacity at its manufacturing facility toaccommodate seasonal fluctuations in both raw material supply and in fertilizer sales, andthe Company must establish and maintain a balance between used photochemical liquid supplyand fertilizer sales. 

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A phenomenon that emerged during 2003 is the rapid growth in digital print photofinishing. The Company’s volume of used silver-bearing photoliquids increased 45%during the third quarter of 2003 and 66% in the fourth quarter of 2003 compared to theprior year third and fourth quarters. Much of this growth is attributable to increasedconsumer demand for long-life, high quality color photo prints from digital images. Toaccommodate this growing demand, internet digital processing companies, regional photolabs, and mini labs are installing equipment which prints digital images onto state of theart silver-halide photo paper, creating used silver-bearing photoliquids just likeconventional photography.

During the second half of 2004 the Company reached the limits of its on site storagecapacity and in late November 2004 a major supply contract was terminated by mutualagreement. The Company has adequate liquid inventories and incoming supplies to meet itsanticipated fertilizer manufacturing needs through 2005. The Company is now activelymarketing its Photochemical Silver Concentrators and believes that it will be able tomaintain photochemical raw material supplies to meet on-going fertilizer sales growth infuture years. 

Between 2001 and the present the Company developed an advanced design for aPhotochemical Silver Concentrator that produces water pure enough to be used to make upnew photo fixer chemicals, presenting the photoprocessor with the opportunity to reuse thewater and thereby achieve 100 percent recycle of the used photochemical waste stream. ThePhotochemical Silver Concentrator also produces concentrates, which, afterdemetallization, are suitable for use in GOLD'n GRO fertilizer manufacturing. 

In 2002 the Company delivered five of these Photochemical Silver Concentrators to theDepartment of Defense. Installation and testing at certain military bases is continuingunder separate contract. Two additional Photochemical Silver Concentrators were deliveredin the third quarter of 2003. This program is regarded as a pilot project, which may leadto providing "Beneficial Use Photochemical, Silver, and Water Recycling"services to all branches of the U.S. military and is being developed by the Department ofDefense in consultation with the Federal EPA.

During the first quarter of 2003 a services agreement was signed with the NASA JohnsonSpace Center in Texas which already has an installed photochemical silver concentratingsystem. The Company is actively marketing its "Beneficial Use Photochemical, Silver,and Water Recycling" service to other U.S. government agencies and private sectorcompanies which already have installed photochemical silver concentrating systems, so thatas new raw materials are needed, customers can be added quickly.

The Company's sales of 5 ounce "Silver Nevada Miner" bars through theItronics "e-store" are continuing, although those sales are still relativelysmall. The sales of finished silver bullion from internally recovered silver will expand,but will continue to fluctuate until GOLD'n GRO sales reach larger volumes.

During 2003, the Company completed a key phase of the research project to produceformulated glass products from the glass slags produced by silver refining at the Stead,Nevada recycling facility. The research has identified three product categories: (1) aglass ceramic mixture that can be used to produce tile and other shapes suitable forglazing and commercial use; (2) glass formulations that can be used as "leadfree" low and intermediate temperature glazes for decorative tile and the craftpottery trade; and (3) specialty boro-silicate glass

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formulations. The next phase of the research will focus on production of smallquantities of products for evaluation and market studies and is expected to be completedover the next two to three years. 

The Company's current fertilizer emphasis is on developing bulk liquid product sales.The "Beneficial Use Photochemical, Silver, and Water Recycling" technology isfully integrated, and is being implemented with a cost structure that anticipates largevolume material throughput. This is based on previously developed information that morethan 100 million gallons of used liquid silver-bearing photochemicals are generated in theUnited States annually. Using conversion ratios developed for the GOLD'n GRO products,this is enough volume to support the manufacture and sale of more than 200 million gallonsof liquid fertilizer products, or 1 million tons. Over 20 million tons of fertilizerproducts are sold annually in North America. The Company's current sales level is lessthan 0.005 percent of the indicated market.

The Company's manufacturing plant is presently configured for an initial manufacturingcapacity of 7.2 million gallons per year or 36,000 tons of GOLD'n GRO products. Plannedstorage and truck loading capacity expansions and automation of some manufacturingfunctions, must be completed before this capacity can be achieved. Some of theserequirements are discussed more fully below. Unexpected new market opportunities havealready required modification of certain expansion plans. As the Company continues toidentify and develop its GOLD'n GRO liquid fertilizer product markets, additionalunforeseen changes could require additional plan modifications.

In 2002 the Company completed the construction of a bulk liquid fertilizer tank truckload out facility which was expected to handle anticipated growth in demand for thechelated micronutrient zinc product during the next two years. With the introduction ofadditional bulk products, additional load out facilities are needed, at a capital costestimate of $400,000. This project is scheduled for completion in the first half of 2006.

In 2004 the Company completed installation of a heat exchange system for an installedcost of $196,000. This system has provided more than a five times increase inmanufacturing capacity for certain GOLD’n GRO fertilizers. 

 

3. Markets and Competition

I. Photochemical Recycling and Silver Refining Estimates are that there are more than1,500 generators of photographic hazardous waste in the State of Nevada and more than500,000 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).The Company estimates the total annual market for recycling this category of waste to bein the range of $400 to $500 million.

Nationally, more than 80 million ounces of silver are consumed in photomaterialsannually. Approximately 30% of this is lost through disposal. The Silver Instituteindicates that silver usage in photography is stable, but may decline modestly over thenext several years.

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The photowaste management industry is not systematically organized, but is fragmentedwith many small operators and some large waste haulers. The small operators typicallyspecialize in one or more types of photowaste, but usually prefer film. The large wastehaulers pick up all categories of waste, and may also handle film and paper. Photowastemanagement as a singular business is not yet organized by any large company in the UnitedStates. This is a niche that the Company seeks to fill.

Silver recovery from black and white and x-ray chemistry is an established industry.Silver recovery is typically accomplished at a user's site by specialized recoveryequipment, normally installed and maintained by way of a service agreement with the vendoror vendor representative. The service of silver recovery is particularly entrenched in themedical field where the service business supplies a silver recovery unit and also picks upfilm waste for sale to a waste film processor. Black and white and x-ray chemistry istypically monometallic with silver being the main EP-Toxic metal. The recovery units areat best 95% efficient in routine operation, so significant amounts of silver aredischarged into the environment. This compares to the Company's technology which routinelyrecovers 99.975% of the silver content.

Metal recovery from color and paper processor chemistry is not as well established,although the silver recovery units used in the medical sector are also used by colorprocessors. A characteristic of color chemistry and paper processing chemistry is that itis polymetallic, and contains from four to seven of the metals listed as EP-Toxic. Thereare stringent EPA discharge limits for these metals. This sector has the normalcompetitive factors found in the medical sector, except that most of the companies in thebusiness are only focusing their recovery efforts on silver, while ignoring the otherthree to six toxic metals commonly known to occur in this chemistry.

Waste film processing is an established competitive industry, highly segmented andcharacterized by many small processors, most of which are located in the eastern part ofthe United States. The number of processors in the West Coast is limited, believed to beone in California, one in Washington State and one in Utah. Some waste film is exported toKorea, Japan and China. Eastman Kodak is now the largest and dominant waste film processorin the eastern U.S. and may be the largest silver recycler in the United States. Kodakpurchases scrap film from its large film processing customers.

The Company is aware of digital imaging and its impact on usage of conventionalphotography. The impact is different for each of the major segments; medical, colorphotography, and printing/microfiche. Digital imaging has made significant inroads intoprinting/microfiche processing with an almost 85% reduction in volume of photographicliquids over the past ten years. Several years of experience with digital imaging hasdemonstrated that there is significant degradation of the quality of digital images, oftenin three or four years, requiring copying onto new disks, which is time consuming andcostly. Consequently, microfiche is making a comeback. The new digital cameras are gettingwider usage. In 2001 it became clear that contrary to popular belief, digital photographyis creating a new source of photowastes from internet companies that combine digitalimaging services with the ability to print high quality photographs for their customers.The Company has had one such customer since 2001, where photochemical volume has beenincreasing dramatically on a monthly basis. This rapid growth continued in 2004. Digitalmethods are being adopted in the medical industry, and although the medical sector isrelatively high growth with the aging U.S. population, digital

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imaging has had the effect of slowing the growth of waste photo liquids being generatedand may lead to a decline in future years. 

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

The photochemical concentrators now being sold by the Company will further reduce waterusage in the photographic industry. When the photochemical concentrator is used all therecovered water can be re-used. The concentrated liquid chemical product is purchased bythe Company so photographic waste generation at the user site is completely eliminated.This technology represents an end point for the elimination of water waste in thephotographic industry, and is expected to gain wider acceptance as the industry recognizesthe benefits inherent in the technology when combined with the Company's servicecapabilities. Continuing tightening of environmental discharge rules is expected to expanddemand for this service in future years. 

The Company believes that it has the following competitive advantages:

* Leading position in developing "total" photochemical recycling technologyand waste      management procedures. 

* Proprietary solution conditioning process and equipment. 

* Proprietary low cost silver refining process using wet chemistry (hydrometallurgy) toquantitatively separate silver from photochemical materials.

* Proprietary "heavy-metal-free" liquid products that eliminate the need todispose of treated photographic liquid waste in sewage treatment systems, or solid wastesites (dumps).

* Systematic pick up services for photochemical generators.

* Quantitative material control procedures meeting all EPA reporting guidelines.

* Regulated as a precious metals recycler and a hazardous waste transporter, therefore,low cost and proven track record and commitment.

* Skilled in converting technical concepts to commercial products and production.

* Line of proprietary environmentally friendly high quality chelated liquid fertilizerproducts that are formulated using the "heavy-metal-free" photoliquids. 

Environmental restrictions on disposal of chemicals are continuing to tightenthroughout the United States with the result that now the rate of growth for thephotochemical recycling business is dependent upon the rate and vigor of fertilizer salesgrowth.

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II. Photochemical Fertilizer

The urbanization of the United States has led to the development of an "UrbanFertilizer Market". The total fertilizer market consists of the "AgriculturalMarket" and the "Urban Market". The Urban Market accounts for at least $9billion in annual sales in the United States. The "Specialty Ag" segment of theAgricultural Market is a $4 billion segment making the total a $14 billion market.

The Urban market is divided into the "Home Lawn and Garden" segment, the"Landscape Maintenance" segment, and the "Nursery and Greenhouse"segment. These markets are not statistically well defined, since they are relatively newas large commercial markets, and are highly fragmented with many small regional suppliersand are growing rapidly. One well known operator in the Home Lawn and Garden and theLandscape Maintenance segments is Scotts/Stern's Miracle-Gro. Several other largecompanies are also active in this market.

The Company's photochemical fertilizer GOLD'n GRO 20-1-7 was developed for the Urbanmarket as a "turf" product. Its principal customers are home owners,professional lawn service companies, golf courses, turf farms, and large municipal andcommercial facilities. Since early 1997, IMI has completed development of numerousadditional fertilizer products covering most of the applications being targeted in each ofthe referenced markets. 

The Company estimates that more than 100 million gallons of photowaste liquids aregenerated annually in the United States. The ratio for converting one gallon ofphotochemical to GOLD'n GRO 20-1-7 fertilizer is approximately 1 gallon of photochemicalto 4 gallons of fertilizer. This means that there is enough supply of photochemical tosupport the manufacture of 400 million gallons of GOLD'n GRO 20-1-7 fertilizer annually,equivalent to approximately two million tons. 

The conversion rate of the chelated micronutrient products and the GOLD'n GRO baseliquid is lower. An estimate of the market for the GOLD'n GRO base liquid indicated amarket potential for 200 million gallons in the United States and would equate to about 1million tons of fertilizer.

The Company estimates that on a commercial scale, the combined revenue of photochemicalservices, silver and fertilizer will approach $10.00 per un-concentrated gallon ofphotochemicals received. Consequently, the potential market for these products andservices is in the $1 billion range.

The Company is working with its distributors on an on-going basis to identify andimplement sales development programs that will increase the rate of market penetrationwith the GOLD’n GRO products. A much greater understanding of the details of themarket has been obtained directly from this process. This improved understanding isstrengthening the working relationship that has been developed with our distributors andis producing continuing increases in sales in a relatively mature market. 

The Company is developing branded products that have the GOLD'n GRO trademark. TheCompany is implementing and expanding a plan for Home Lawn and Garden sales through itsweb page. Significant capital, in the form of advertising budgets and the ability to carrylarge inventories of finished goods, is required to achieve meaningful sales in the UrbanMarket segments. The Company plans to expand its internet sales program over the nextseveral years. The methods and costs of retail distribution are changing making theinternet sales platform more economically feasible as a method of large scale retailselling. 

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4. Seasonality and Working Capital

In analyzing the market and industry competitors, it is apparent that two factorssignificantly impact the Company's ability to penetrate these markets in a meaningful way.First, the seasonal aspect of photochemical and fertilizer sales, which directly resultsin the second factor, the need for a much higher level of working capital when compared toother industries. Based on experience, the Company's photochemical hauling volume startseach year at comparatively low levels in the first quarter, steadily increases during thesecond quarter peaking in June or July, declining during the third quarter, and reachinglevels similar to that of the first quarter by year end. Consequently, revenues from bothphotochemical liquid services and silver sales are significantly reduced during six monthsof each year.

To mitigate the seasonal effect on this segment of operations, the Company isinvestigating opportunities for processing gold mine slags and other gold/silver bearingresidues that are generated by gold and silver mines in Nevada. The Company’smanufacturing plant is permitted to handle large volumes of precious metal bearing waste,and the facility contains installed environmental control equipment needed for thisexpanded activity. The Company’s employees have much of the needed expertise to dothis. The Company believes that expanding silver/gold recycling services has the potentialto moderate the seasonal fluctuations that will continue in the photochemical fertilizersegment. 

The Company expects fertilizer sales to continue to have a strong seasonal component,with the primary sales season running from April through November each year, with anin-season low in July and August. In addition to the general seasonal nature of salescaused by normal weather patterns, unusual weather can further affect fertilizer sales,especially in winter and spring. For example, unusually cold or wet spring seasons maydelay the growth cycle of various crops for which the Company's fertilizer products areutilized. To overcome weather related effects on fertilizer sales, the Company isevaluating markets in the southern areas of the United States where growing seasons arelonger and, in some cases, year round.

Due to the seasonal nature of both photochemical services and GOLD'n GRO fertilizersales, the Company must increase its net working capital to a level higher than that ofnon-seasonal industries. For example, some of the Company's competitors have workingcapital equal to their annual sales. Consequently, ongoing debt and equity funding will berequired for the Company to grow, even after a profitable level of operations is achieved.

5. Research, Development, and Technology

The photochemical fertilizer (the American Hydromet Project) segment is now operatingcommercially, but prior to 2002 was primarily involved in research and development, withthe objective of developing integrated technology that can be used to recyclephotochemical materials, that recovers all of the silver and all other toxic metals fromthose materials, and which utilizes "heavy-metal-free" liquid photochemicals ina chelated liquid multi-nutrient fertilizer product line for turf, ornamentals, andspecialty agricultural applications. The status of development of the three integratedcomponents is more fully described below:

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The technology was developed in a semi-works plant in Reno. Development of theintegrated technology is a technical innovation with global potential. There are threeseparate but integrated functions for handling the spent photoliquids. The first is thephotoliquid demetallization and conditioning process. This process is used to demetallizeand recondition the metal-bearing photofixers and photodevelopers that are picked up fromphotousing businesses. This portion of the process is very efficient, recovering over99.998% of all the contained toxic metals, and a very large percentage of contained iron.There are three products from this part of the operation: (1) a metal-bearing sludge, (2)distilled water, and (3) a concentrated base liquid for fertilizer manufacturing. 

The metal-bearing sludge is dried and passed to the refining operation for separationof the contained silver. More than 98.5% of the silver contained in the sludge isrecovered for sale. The refining was developed specifically to handle the sludges from theliquid demetallization and conditioning process. As such, the other heavy metals and ironcontained in the sludge end up in a glass byproduct and are rendered completely inert. TheCompany has formulated the glass so that with minor additions of other compounds, it canbe converted into usable products, such as wall and floor tile. The Company is nowdeveloping a tile product.

The reconditioned photoliquids are used as a component of fertilizers which arechelated liquid multi-nutrient NPK (Nitrogen–Phosphorous-Potassium) productscontaining micronutrients that produce excellent results in application. Development ofthe fertilizer took more than 12 years and involved a number of stages of development.Important steps were: (1) patent and applications literature research to determine ifsimilar materials were being used in fertilizer products, (2) initial plot testing, andchemical analysis of "run of plant liquid" to determine the response of turf anddifferent plants to the non-supplemented liquid, (3) an extended period of mix testing andthen large-scale field testing of the mixes to determine suitability for use on turf, (4)development of manufacturing procedures for the chosen mix, and (5) large scale fieldtesting by different types of users to determine acceptability and to identify problemsprior to implementing a commercial manufacturing and marketing program. An importantfactor inherent in fertilizer product development is the seasonal nature of the business.Each series of plot tests requires essentially one year because of the seasonal nature ofplant growth. This lengthy product development cycle will continue to apply to newfertilizer products and means that one to three years are required to create and introducea new fertilizer product. An additional two to three years are required to commercializeeach new crop application for a new product.

Itronics believes it is the only company in the world that has successfullydemonstrated the ability to manufacture an environmentally compatible fertilizer productline from liquid photochemicals. As such, Itronics now has unique proprietary technologyfor completely recovering the silver and for converting the waste liquids into usable"heavy-metal-free" products, thereby achieving "Beneficial UseRecycling" of the waste stream.

In 1995 the Company participated in a fertilizer product application comparison programsponsored by the University of California at Riverside. For the second consecutive year,in 1996, GOLD'n GRO 20-1-7 was rated Number 1 in the program, which compared "top ofthe line" multinutrient nitrogen fertilizers produced by leading U.S. fertilizermanufacturers. 

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The Company conducts field trials to gather agronomic data and to develop knowledge ofhow the GOLD'n GRO products work on different crops. This field testing will continue asit is the most effective method for developing the field data needed to support claims ofproduct effectiveness for specific crops. On-going field trials of GOLD’n GROfertilizer products continue to show significant improvements in crop production andquality. The trials are providing agronomic data that is being used to develop GOLD’nGRO nutrition programs for the crops being tested. 

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

Field test results using GOLD’n GRO products have been published for Alfalfa,Fresh Plums, Oranges, Sweet Corn, and Watermelons. The field test results and crop valuestatistics are summarized in the following table. On a national basis, the GOLD’n GROproducts appear to have the potential to add tens of millions of dollars in increasedvalue and output for the indicated crops:
**Crop**Crop    Increase**Return    on GOLD’n GRO**Fertilizer Cost to Grower****Gross    Value of the Crop Per Acre**Total    USA Crop AcresAlfalfa+33%
3 times
$      351
23,000,000Fresh PlumsLarger, Earlier
15 times
$2,500 
140,000Sweet Corn +11.5%
30 times
$1,788
222,800Oranges+40% 
3 times
$2,300
842,000Watermelon+10.4%
160 times
$1,670
184,600
A 3 year field trial on Valencia orange trees being carried out with oversight from amajor university in southern California is continuing and it appears that the 35 year oldtrees are responding positively to the fertilization. Two year cumulative results havebeen analyzed and positive significant results are being obtained. Both output per treeand quality have been increased. This trial was continued through 2003 and was completedin 2004. 

During 2003 the Company continued to be offered the opportunity to explore thefeasibility of recycling other non-photographic materials into fertilizer. Four wastestreams are currently being considered for future recycling. One of these is a high silvercontent waste stream. 

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The Company has concluded that certain acid waste streams generated by aerospace andelectronics manufacturers may be able to be converted to a form that will fit"Beneficial Use" recycling into fertilizer in association with the processedphotochemical materials. 

6. Environment and Regulation

I. Liability

All chemistry has a "cradle to grave" regulatory life span. This term meansunder Federal law, the prime generator has the ultimate liability for all generated wasteas 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 forthe cost of cleanup if the landfill has to be reclaimed or the contamination ofgroundwater develops.

However, once the spent chemistry reaches the Company's facility and has beenprocessed, the generator's hazardous waste liability has been removed. Using the Company'sprocess, virtually all metals, including most of the iron, are removed. The end resultleaves the Company with a non-hazardous "toxic-metal-free" liquid which is legalfor use in high quality GOLD’n GRO liquid fertilizers. The demetallized liquids beingused in the GOLD’n GRO fertilizers are entirely safe for the environment.

II. Increased Regulation

While in general the Company's business has benefited substantially from increasedgovernmental regulation of hazardous disposal by private industry, the waste managementand recycling industry itself has become subject to extensive, costly and evolvingregulation by federal, state and local authorities. The Company makes a continuing effortto anticipate regulatory, political and legal developments that might affect itsoperations, but may not always be able to do so. The Company cannot predict the extent towhich any legislation or regulation may affect future operations.

In particular, the regulatory process requires firms in the Company's industry toobtain and retain numerous governmental permits to conduct various aspects of theiroperations, any of which permits may be subject to revocation, modification or denial. TheCompany is not in a position at the present time to assess the extent of the impact ofsuch potential changes in governmental policies and attitudes on the permitting process.

 

III. Permits and Inspections

To the best of the Company's knowledge, it has obtained permits from all governmentalagencies having jurisdiction over it, such as the EPA, Nevada Department of EnvironmentalProtection, Washoe County Health Department and the City of Reno, Nevada. The Company isnot required to obtain federal permits, but is required to have, and has obtained, localpermits for its photochemical recycling facility under the provisions of the Federal EPA.Similar permits will be required of all facilities that the Company may construct. TheCompany's recycling facility is subject to frequent inspections and to regulations(including certain requirements pursuant to federal statutes) which may govern operatingprocedures for land, water and air pollution, among other matters. In particular, theCompany's operations are subject to the Safe Drinking Water Act, TSCA (Toxic SubstancesControl Act-pursuant to which the EPA has promulgated

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regulations concerning the disposal of PCBs), the Clean Water Act (which regulates thedischarge of pollutants into surface waters and sewers by municipal, industrial and othersources) and the Clean Air Act (which regulates emissions into the air of certainpotentially harmful substances). Employee safety and health standards under theOccupational Safety and Health Act are also applicable to employees of the Company.

 

IV. Regulatory Direction

For several years the Company has been studying the various regulatory requirementsunder RCRA and has been working with state and local environmental officials regarding theextent to which hazardous waste regulations apply to the Company's operations. Throughthis process, the Company reached the conclusion that due to use of photochemicals as abeneficial ingredient in its fertilizer products, the photochemicals are not"hazardous waste" as defined in the regulations, and therefore, beneficialmaterials that are otherwise regulated as hazardous waste, are exempt from most of suchregulations. In early 1996 the Company received concurrence from State of Nevadaenvironmental officials that the Company's photochemical fertilizer process meets theexisting RCRA requirements for exemption from all environmental regulation with theexception that certain presently conducted lab analyses of the photochemicals willcontinue to be required. Certain of the Company's large scale customers presently meet theexemption requirements. Present levels of fertilizer sales utilize all the photochemicalsreceived. Once sales of all the photochemical materials are well established in thefertilizer or other commercial products, all the Company's Nevada customers will be exemptfrom the regulations, including hazardous material transport/manifest rules. The Companybelieves that this exemption applies nationwide. Therefore, the Company intends to pursuesimilar concurrence from environmental officials in all applicable states, so that all itscustomers will be recognized as exempt from the RCRA regulations.

Environmental regulation of photowaste generators has strengthened over the lastseveral years, and that trend is expected to continue. In the past year, heavy metalcontamination of fertilizers has become a significant issue in California and other partsof the country. Public concern over this issue is expected to intensify. Managementbelieves that the GOLD’n GRO line of fertilizer products is uniquely suited toalleviating this environmental concern and that the Company is well positioned to meetfuture environmental needs.

 

MINING TECHNICAL SERVICES

1. Services offered

The Mining Technical Services segment of the Company offers a wide range of technicalservices to the mining industry. These include the following:

Management Support:

- Assistance in assembling mineral project development agreements and ongoing technicalsupport during project development and after operations begin.

- Advice on mineral development strategy, economic aspects of tax policy, long terminvestment strategy and infrastructure development related to large and small scalemineral development.

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- Complete project development plans.

- Expert assistance in contract disputes pertaining to various technical aspects ofmineral projects and the development of the technical aspects for contracts.

- Ore reserve audits, metallurgical audits and material balance reviews, and operationsreviews on producing mines for senior management, outside investors, or underlying landowners.

- Mineral property appraisals for sale, acquisition, merger or financing.

Other Specialized Technical Services:

  - Mineral economics and cost studies.

  - Metallurgical process development.

  - Open pit and underground mine planning. 

  - Ore reserve development.

2. Operations

The Mining Technical Services segment accounted for 17% of the Company's 2004consolidated revenue. One major client produced 75% of this revenue. The client is ajunior mining company with three mineral properties in Nevada. WWI provided technicalassistance in moving these properties into the development and operating stages. WWI alsoprovided administrative support. The contract with this client expired on March 1, 2005. 

The primary source of new business for the Mining Technical Services segment is thereputation of WWI and its key employees. In addition, WWI expands its network of contactsby attending various mining association conventions.

In the past WWI has published specialized mineral economics and materials financialreports. WWI is evaluating re-entry into this market, with a goal of producing miningpublications targeted for general investors interested in mining.

 

Expansion Plans

Prior to 1991, the Company had plans to directly invest or joint venture in miningprojects and had formed a subsidiary to enter that market. Those plans were put on holduntil completion of the photochemical fertilizer R&D program. Now that the R&Dprogram is being converted to commercial operations, the Company has recently taken stepsto expand the mining technical services presence in the mining industry, both from aservices perspective and from a mining operations perspective.

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In January 1999 WWI initiated a long term R&D project to replace the use of cyanidein the extraction of metals from silver/gold and gold/copper ores. The new thiosulfateleaching technology being developed under this program utilizes the same technology as theCompany’s proprietary photochemical recycling process. The project, called ItronicsThiomet, is seeking to establish operating joint ventures at specific mine sites to applythe thiosulfate leaching technology. This project is on hold pending further commercialdevelopment of fertilizer sales. 

In 2004 a project to establish a subscription based gold industry and gold companyinternet publication was begun. The web publication, called "insidemetals.com",will provide the customer with gold industry and gold company financial, production, andore profiles on key gold producing companies. Initially, the companies to be profiled arein the Gold Company sector, which includes gold, silver, platinum, and palladiumproducers. The profiled companies are publicly traded on the New York and American StockExchanges and on NASDAQ. The publication is expected to launch in June 2005 and the targetmarket includes gold company employees, governmental agencies, both domestic and foreign,and individual investors interested in the gold markets. In addition to providingsubscription revenue, it is anticipated that the publication will enhance theCompany’s opportunity to obtain new sources for technical consulting work. Thissubscription based Internet Information Portal provides an opportunity for relativelyunrestricted growth by being available to a diverse global base of potential customers whocan subscribe over the internet using a secure credit card transaction. 

ITEM 2.DESCRIPTION OF PROPERTY.
I. FACILITIES.
Itronics leases approximately 3,000 square feet of office space at 6490 South McCarranBlvd., Building C-23, Reno, Nevada. IMI leases approximately 2,000 square feet ofwarehouse 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. Thebuilding contains all the equipment used for treating the used photochemicals, preparingthe recovered silver for sale, and manufacturing the GOLD’n GRO fertilizer products. 

W&W leases approximately 2,500 square feet of office space in Reno, Nevada. Thisoffice was closed in May 2005 and the lease will be discontinued.

 

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

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

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The new facility is sized to process up to 100,000 un-concentrated gallons of usedphotochemicals per month and to manufacture up to 200,000 gallons per month of liquidfertilizer. Refinery capacity will be expanded as needed to produce up to 50,000 ounces ofsilver per month. 

 

ITEM 3.LEGAL PROCEEDINGS.
In August 2002 a supplier of equipment for the Stead manufacturing plant filed suitagainst the Company and its subsidiary, Itronics Metallurgical, Inc. (IMI) in JohnsonCounty, Indiana for the unpaid amount of $64,234 plus attorney’s fees and courtcosts. On October 1, 2002 the plaintiff received a default judgment awarding the $64,234plus $1,500 attorney’s fees plus 8% interest. On November 5, 2002 the plaintiff fileda "Notice of Filing of Foreign Judgment" in Washoe County, Nevada and hasreceived the judgment. In December 2003 a settlement agreement was accepted that requireda $10,000 payment in December 2003 plus monthly payment of $5,161 over twelve months in2004. Payments are delinquent as of December 31, 2004. In February 2005 the plaintiffreceived approximately $6,700 by levying three of the Company’s bank accounts. Nofurther collection action has been taken.

As of December 31, 2004 a total of nine lawsuits filed in 2003 and prior years remainoutstanding against the Company’s subsidiaries by various equipment lessors. Five ofthe suits were filed in Washoe County, Nevada, two in Cook County, Illinois, one in LosAngeles County, California, and one in Oakland County, Michigan. Three additional suitscovering six leases were filed in Washoe County, Nevada in 2004. The suits seek a total of$839,934 plus attorneys fees and other costs. Six of these suits, seeking a total of$306,990 plus costs, were settled by restructuring the leases, signing stipulatedjudgments and agreeing to pay total payments of $258,390. Monthly payments on thesettlements total $12,935 and are paid over various periods ranging from 18 to 31 months.If the restructured leases are defaulted, judgments for the original claimed amounts canbe entered and further collection action, including repossession of the secured equipment,can be taken. Payments on five of the restructured leases are in default, but noadditional collection action has been taken. Of the six remaining unsettled suits, threehave received judgments, of which one has filed for a debtors examination which was tooccur in April 2005. The Company has agreed to payment terms on that lease and theexamination has been stayed until June 2005. Legal counsel is actively negotiating two ofthe unsettled suits. No further action has occurred on the other unsettled suit. 

In February 2003 a trade creditor filed suit against the Company in Washoe County,Nevada seeking a total of $85,525 plus attorney fees and other costs. A default judgmentwas entered in May 2003. No further collection action has occurred on this claim. 

As of December 31, 2004 the Company’s subsidiaries were delinquent onapproximately $206,200 in federal payroll taxes. The Company engaged a consultant toassist in working with the IRS to formulate a payment plan. A plan was negotiated to payspecified portions of the liability on or before January 31, 2005 and on the fifteenth ofeach month beginning March 15, 2005 until paid off on May 15, 2005. The Company made therequired payments in January and March 2005, and paid a total of $115,586, but did notmake the subsequent payments as they became due. The Company has received final notice,notice of intent to levy, on the subsidiaries IMI and ICI

26

for a total amount due of $93,273. The notices are dated May 12, 2005. They indicatethe Company has 30 days from that date to pay the tax, make alternative paymentarrangements, or request appeals consideration. After the 30 days, the IRS may seizeproperty to satisfy the debt. The IRS may also file federal tax liens for the amounts dueat any time. Successful completion of a payment plan is dependent on future financing asmore fully discussed in the Working Capital/Liquidity section of Management’sDiscussion and Analysis or Plan of Operations.

Successful settlement of the above claims is dependent on future financing, which theCompany is actively seeking.

 

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF ITS SECURITY HOLDERS.
            None.

 

PART II

ITEM 5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a). Market Information. The Company’s securities are traded on theover-the-counter market under the symbol ITRO.OB, and quoted in the National QuotationBureau, Inc.'s "pink sheets" and on the NASD Electronic Bulletin Board. In 2003the Company’s stock began trading on the Frankfurt, Germany Stock Exchange under thesymbol ITG. In March 2004 the Company’s stock began trading on the Berlin BremenStock Exchange (Germany) under the symbol ITG. 

The following table sets forth the high and low bid prices for the Company's commonstock for each quarter for 2003, 2004, and through March 31, 2005. 
High BidLow Bid3/31/03$0.16$0.096/30/03$0.14$0.089/30/03$0.23$0.1112/31/03$0.17$0.113/31/04$0.22$0.146/30/04$0.17$0.109/30/04$0.10$0.0612/31/04$0.08$0.053/31/05$0.13$0.05
These quotations reflect inter-dealer prices without retail markup, markdown, orcommissions, and may not represent actual transactions.

(b) On December 31, 2004 the number of record holders of the Common Shares wasapproximately 1,000.

(c) Dividends.
The Company has paid no dividends. 

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Recent Sales of Unregistered Securities:

Following is a summary of unregistered securities issued during the three months endedDecember 31, 2004. All securities were issued subject to Rule 144 of the Securities andExchange Commission. Generally, Rule 144 requires shareholders to hold the shares for aminimum of one year before sale. In addition, officers, directors and more than 10%shareholders are further restricted in their ability to sell such shares. There have beenno underwriters of these securities and no underwriting commissions or discounts have beenpaid. 
 
Shares
Value 
Issued
Received
Warrant    exercises for cash
500,000
$    40,000
Conversion    of notes payable and accrued interest
7,757,236
798,094
Private    Placement for cash
3,300,000
165,000
Consultant    labor services
550,000
38,550
Interest    on employee salary in arrears 
141,515
11,787
Director    fees
2,500
200 
12,251,251
$1,053,631
 

During the three months ended December 31, 2004 warrants to acquire 1,650,000restricted common shares were granted as part of the current private placement. Thewarrants are for three years and are exercisable at $0.075 per share the first year, $0.15per share the second year, and $0.225 per share the third year. An additional $32,500 wasreceived from the Private Placement late in December 2004. This resulted in the issuanceof 650,000 restricted common shares in 2005 and the granting of warrants to acquire325,0000 restricted common shares under the terms described above.

During the three months ended December 31, 2004 the accrued interest on the 2000through 2002 Series Convertible Promissory Notes resulted in additional options to acquire745,541 shares of restricted common stock. The options are convertible at prices rangingfrom $0.10 to $1.18.

An officer/stockholder exercised warrants totaling $50,000 during the three monthsended December 31, 2004 for a total of 625,000 shares that were issued in the firstquarter of 2005. The exercise was completed by converting short term loans into restrictedcommon stock. The same officer/stockholder also converted $120,000 in short term loansinto the current Private Placement, for a total of 2,400,000 restricted common shares andthree year warrants to acquire 1,200,000 restricted common shares. These shares andwarrants were issued in the first quarter of 2005 and were under the same terms andconditions as other investors in the Private Placement. 

During the three months ended December 31, 2004 interest accruing on employee salary inarrears totaled $25,761 for a total of 388,541 restricted common shares, which will beissued in 2005.

The above transactions qualified for exemption from registration under Sections 3(b) or4(2) of the Securities Act of 1933. Private placements for cash were non-publictransactions. The Company believes that all such investors are either accredited or,either alone or with their purchaser representative, have such knowledge and experience infinancial and business matters that they are capable of evaluating the merits and risks ofthe prospective investment. 

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

I. Results of Operations

The Company reported consolidated revenues of $1,720,049 for the year ended December31, 2004, compared to $1,268,787 for the prior year, an increase of 36%. Revenues for thePhotochemical Fertilizer segment increased by $486,016, or 52%. Revenues from the MiningTechnical Services segment declined $34,754, or 10%. The Company reported a gross profitof $32,296 for the year ended December 31, 2004, compared to a gross loss of $159,853 forthe year ended December 31, 2003, an improvement of $192,149. The consolidated net lossfor 2004 was $2,839,872 or $0.020 per share compared to a 2003 loss of $2,752,291 or$0.026 per share. 

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

PHOTOCHEMICAL FERTILIZER
Year Ended    December 31,
2004
2003Revenue 
$    1,422,929
$ 936,913Gross profit (loss)
$ (34,687)
$    (182,918)Operating income (loss) 
$(2,024,481)
$(1,834,621)Net income (loss) before    taxes
$(2,626,694)
$(2,849,442)
Revenues for the Photochemical Fertilizer segment totaled $1,422,900 in 2004, comparedto $936,900 in 2003, an increase of $486,000, or 52%. Fertilizer sales were $1,019,800 and$554,300 for 2004 and 2003, respectively, an increase of 84%. The fertilizer salesincrease is primarily attributable to bulk sales of the GOLD’n GRO 9-0-1+7% Zincmicro-nutrient product that was introduced in the third quarter of 2001. 

Photochemical recycling revenue decreased 8% from 2003 due to decreased sales ofphotochemical evaporators. Silver sales increased $46,200 from 2003, an increase of 84%.The increase is attributable primarily to sales of Silver Nevada Miner silver bars andrecycled film revenue.

In December 2004 photochemical recycling services provided to a major customer werediscontinued by mutual agreement. This customer accounted for 59% of 2004 photochemicalrecycling and silver refining revenue, a total of $201,300. In response, plant personnelhas been reduced by two people. In the near term, this will result in reducedphotochemical recycling revenue. However, the photochemical volume from this customer hadbeen growing so rapidly that the supply was exceeding the Company’s demand for thechemicals needed in fertilizer manufacturing, resulting in storage costs and plantinefficiencies. It is anticipated that there is enough photochemical raw material instorage to meet fertilizer production needs for at least twelve months. The loss of thiscustomer will allow the plant time to catch up on photochemical processing, which willreduce storage costs and increase efficiency in the plant. 

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The Company is in contact with major used photochemical generators, and is activelymarketing Photochemical Silver Concentrators, so, for the longer term, it is anticipatedthat sufficient new sources of photochemical supply will be obtained to meet futurefertilizer manufacturing requirements. The Photochemical Silver Concentrators typicallysell for $22,000 to $200,000, so the loss in photochemical recycling service revenues isexpected to be offset by growth in Photochemical Silver Concentrator sales during 2005 andfuture years. 

Combined cost of sales and operating expenses for the segment amounted to $3,447,400 in2004, compared to $2,771,500 in 2003, a 24% increase. Cost of sales increasedapproximately $337,800 due primarily to a $265,400 increase in direct material costsrelated to increased sales and $61,000 in payroll and related costs. The changes inrevenues and cost of sales resulted in a gross loss of $34,700 in 2004, compared to$182,900 in 2003, an improvement of $148,200. Operating costs increased by $338,100 dueprimarily to increases of $228,800 in sales and marketing and $60,000 in general andadministrative costs. Sales and marketing increased due to a combination of the additionof a fertilizer sales representative in early 2004 and increased corporate marketing.General and administrative expenses increased due to a $98,000 prior year credit forexpired options.

These changes in revenues and operating expenses resulted in a segment operating lossof $2,024,500 in 2004, compared to $1,834,600 in 2003, an increased loss of $189,900 or10%.

Other income (expense) decreased to a net expense of $602,200 for 2004, compared to anet expense of $1,014,800 in 2003, an improvement of $412,600. Interest expense decreased$175,000 due to the conversion into common stock of convertible promissory notes. Otherincome of $187,800 was due to debt forgiveness income from the write off of long termleases. 

The changes in operating loss and other expenses resulted in a segment net loss beforetaxes of $2,626,700 for 2004, compared to a net loss of $2,849,400 for 2003, a decreasedloss of $222,700 or 8%.

MINING TECHNICAL SERVICES
Year Ended    December 31,
2004
2003Revenue 
$ 297,120
$ 331,874Gross profit (loss)
$ 66,983
$ 23,065Operating income (Loss) 
$(382,145)
$(359,324)Net income (loss) before    taxes
$(213,178)
$ 97,151
Mining technical services revenue totaled $297,100 for 2004 compared to $331,900 for2003, a decrease of 10%. Included in these revenue figures are pass-through expenses of$108,300 and $118,700 for 2004 and 2003, respectively. Excluding these amounts, revenuesamounted to $188,900 and $213,100 for 2004 and 2003, respectively, a decrease of 11%. 

On March 1, 2005 the technical services contract for a major client expired and was notrenewed. Excluding pass through revenue, revenue from this client was $124,300 for 2004and $15,000 for the two months ended February 2005. In response, in May 2005 the Companyclosed the satellite office for technical services and reduced staff the equivalent ofapproximately three

30

people. The Company’s plans to expand the technical services segment are morefully discussed on page 25 of this report.

Combined cost of sales and operating expenses totaled $679,300 for 2004 compared to$691,200 for 2003, a nominal decrease. Included in these operating expense figures arepass-through expenses of $108,300 and $118,700 for 2004 and 2003, respectively. Excludingthese amounts, combined cost of sales and operating expenses amounted to $571,000 and$572,500 for 2004 and 2003, respectively, a nominal decrease. Included in operatingexpense is $74,200 in research and development costs that were not incurred in the prioryear. This expense is related to the development of the insidemetals.com website asdiscussed on page 25 of this report. The majority of this expense is an allocation ofpersonnel costs, which was offset by an $81,000 decrease in payroll and related costs thatare included in cost of sales expenses.

The above changes in revenues and operating expenses resulted in a segment operatingloss of $382,100 for 2004, compared to $359,300 for 2003, an increased operating loss of$22,800 or 6%.

Other income (expense) decreased to a net other income of $169,000 for 2004, comparedto a net other income of $456,500 in 2003, a decline of $287,500. The decline is due todecreased gain on sale of GPXM and other marketable securities.

The changes in operating loss and other income resulted in a segment net loss beforetaxes of $213,200 for 2004, compared to a net income of $97,200 for 2003, a decrease of$310,300. 

SUMMARY

On a consolidated basis, the various changes in revenues, operating expenses, and otherincome and expenses resulted in a gross profit of $32,300 for 2004 compared to a grossloss of $159,900 for 2003, an improvement of $192,100, an operating loss of $2,406,600 for2004 compared to $2,193,900 for 2003, an increased loss of $212,700 or 10%, and a net lossof $2,839,900 for 2004 compared to $2,752,300 for 2003, an increased loss of $87,600 or3%. 

 

II. Changes in Financial Condition; Capitalization

Cash amounted to $5,200 as of December 31, 2004 compared to $34,500 as of December 31,2003. Net cash used by operations was $1,417,900 in 2004 compared to $1,626,500 in 2003.Operating resources utilized to finance the 2004 loss of $2,839,900 include approximately$681,900 in expenses paid with the Company's common stock. Cash amounting to approximately$56,800 was invested in property and equipment in 2004, primarily for equipment in themanufacturing plant. Sales of Golden Phoenix Minerals, Inc. stock and other marketablesecurities provided $356,100 in cash from investing activities. Financing sources of cashin 2004 were $843,500 in proceeds from the private placement of restricted common stock,$235,000 from the exercise of warrants, and $150,000 from short term loans from anofficer/stockholder.

Total assets decreased from $4,440,500 at December 31, 2003 to $4,147,900 at December31, 2004. Current assets decreased $115,000, net property and equipment decreased $38,900,and other

31

assets decreased $138,700. The primary changes in current assets were a decrease inmarketable securities of $387,100 due to the sale of GPXM and other stock, an increase inaccounts receivable of $92,400 due to a one-time billing on the GPXM consulting contract,an increase of $146,200 in inventory due primarily to the build-up of unprocessed silverin photochemical solutions, and an increase in prepaid expenses of $89,400 due tocorporate marketing contracts. The Company is actively selling its GPXM shares to assistwith its working capital needs. The Company’s investment in GPXM stock decreased to atotal value of $26,200 at December 31, 2004, all of which is classified in current assets.

Total liabilities decreased from $8,142,200 at December 31, 2003 to $6,712,200 atDecember 31, 2004, a decrease of $1,430,000. Of this amount, current liabilities decreased$510,600 and long-term liabilities decreased $919,400. The overall decrease in liabilitiesis due primarily to the conversion of $1,962,200 in convertible promissory notes andaccrued interest into restricted common stock. Current liabilities decreased primarily dueto a net reduction in convertible promissory notes of $665,300. This reduction waspartially offset by increases in accounts payable of $91,800, accrued management salariesof $170,900, and accrued expenses of $185,400. Nearly all of the increase in accruedexpenses is attributable to delinquent federal and state payroll taxes. Subsequent toDecember 31, 2004 $115,600 of the federal payroll taxes were paid.

The above discussion and the discussion of various legal proceedings elsewhere in thisreport does not succinctly summarize the progress that the Company has made inimplementing its business plan and improving its financial condition over the last severalyears. However, there has been significant progress. First, in 2004 fertilizer salesexceeded $1 million for the first time, compared to sales in the $500,000 range for eachof the two previous years. This resulted in a gross loss for the photochemical fertilizersegment of $34,700, which was a $148,200 improvement over 2003 and a $217,100 improvementover 2002. This demonstrates one of the fundamental concepts in the business plan, that alarge part of the Company’s operating cost structure is fixed or semi-fixed, whichmeans that as sales rise, many of the costs will not rise proportionally, resulting ingross profits that will contribute to paying general overhead costs. This improvement inthe photochemical fertilizer segment, combined with a gross profit from the technicalservices segment, resulted in an overall gross profit for the year, which is the firsttime that this was accomplished since before the move to the Stead manufacturing facilityin 2000. 

Addressing the Company’s financial condition, improvements have been made there aswell. The stockholders’ deficit, $4,587,900 at December 31, 2002, has been reduced toa deficit of $2,564,300 at December 31, 2004, an improvement of $2,023,600. This has beenachieved by the conversion of approximately $3.4 million in convertible notes and accruedinterest into common stock. One significant area of difficulty for the Company has beenmeeting the payments on capital lease obligations. However, the capital lease obligationat December 31, 2002 of $1,193,900 has been reduced to $807,700 at December 31, 2004, areduction of $386,200. This includes the write off five leases as debt forgiveness incomein 2004 of $187,800. The Company expects to make further meaningful progress expandingsales and reducing debt in 2005.

 

III. Working Capital/Liquidity

During the year ended December 31, 2004, the working capital deficit was reduced by$395,600 to a deficit balance of $3,215,300. $665,300 of the improved working capital isdue to a net

32

reduction in convertible notes payable and accrued interest due to the conversion ofconvertible promissory notes into restricted common stock. This improvement was partiallyoffset by increases in various current liabilities as discussed above. The Company has hadlimited cash liquidity since the third quarter of 2000. The Company has sought andobtained the funding described above, which has not been sufficient to maintain allobligations on a current basis. The cash shortage is a result of two factors. First,fertilizer sales in 2004 and prior years did not expand to the extent anticipated, sooperating losses were not reduced as much as expected. Second, the $15 million equity lineof credit agreement with Swartz Private Equities, LLC (Swartz) was not available betweenOctober 2001 and May 2002 due to a Securities and Exchange Commission rule change thatnecessitated renegotiating the contract with Swartz and filing a new registrationstatement which was filed and became effective on April 30, 2002. The Swartz agreementexpired on February 27, 2004. During the years ended December 31, 2004 and 2003, $-0- and$119,600, respectively, were received under the Swartz agreement. The Swartz equityfunding was not able to function to meet the Company’s ongoing working capital needs,so private placements of stock with attached three year warrants have been undertakensince the fourth quarter of 2002. $843,500 and $703,500 was raised from private placementsduring 2004 and 2003, respectively. In addition, the Company sold GPXM and other sharesduring the year ended December 31, 2004, raising a total of $356,100 and $235,000 wasreceived from the exercise of warrants. For 2003, sale of GPXM shares raised $786,400 and$185,800 was received from the exercise of warrants. Subsequent to December 31, 2004 theCompany has received $560,000 from the private placement and $6,000 from the sale of GPXMstock.

The Company is actively working to establish a longer term financing plan that willidentify capital sources for the Company’s financing needs over a two to three yearperiod. Once this plan is established, needs for financing will be adjusted and the planwill be extended annually. 

IV. Critical Accounting Estimates and Off-Balance Sheet Arrangements

The Company does not have any critical accounting estimates or assumptions that are sosubjective or uncertain as to materially affect the Company’s financial condition orresults of operations. The Company also has no off balance sheet arrangements that are nototherwise disclosed in this report.

 

Forward-Looking Statements

Statements in this Form 10-KSB may constitute forward-looking statements and aresubject to numerous risks and uncertainties, including the failure to completesuccessfully the development of new or enhanced products, the Company’s futurecapital needs, the lack of market demand for any new or enhanced products the Company maydevelop, any actions by the Company’s partners that may be adverse to the Company,the success of competitive products, other economic factors affecting the Company and itsmarkets, and other risks detailed from time to time in the Company’s filings with theSecurities and Exchange Commission. The actual results may differ materially from thosecontained in this Form 10-KSB. 

33

ITEM 7.FINANCIAL STATEMENTS
The response to this Item is submitted under Item 13.

 

ITEM 8.CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE
On November 7, 2003 the registrant accepted theresignation of its prior accountant, Kafoury, Armstrong & Co., as the certifyingaccountant had not registered with the Public Company Accounting Oversight Board (PCAOB)and was discontinuing its SEC practice. 
For each of the past two years the certifying accountant’s report on theregistrant’s financial statements was modified as to an uncertainty. The uncertaintyin each of the two years was a substantial doubt about the registrant’s ability tocontinue as a going concern.

The registrant’s Board of Directors has approved the change in certifyingaccountants.

During the registrant’s most recent two fiscal years and subsequent interimperiods there have been no disagreements between the registrant and its certifyingaccountant regarding accounting principles or practices, financial statement disclosure,or auditing scope or procedures. 

During the registrant’s most recent two fiscal years and subsequent interimperiods the registrant’s certifying accountant has not advised the registrant of anyof the matters identified in paragraph (a)(1)(v) of Item 304 of Regulation S-K.

On November 7, 2003 the Cacciamatta Accountancy Corporation of Irvine, California wasappointed as the registrant’s new certifying accountant. During the two most recentfiscal years, Itronics has not consulted Cacciamatta with respect to either (a) theapplication of accounting principles to a specified transaction, either completed orproposed, or the type of audit opinion that might be rendered on Itronics financialstatements; or (b) any matter that was either subject of a disagreement (as defined inparagraph 304(a)(1)(iv) or a reportable event (as described in paragraph 304(a)(1)(v) ofItem 304 of Regulation S-K). 

To the Company's and its management's knowledge, there is no accounting or financialdisclosure dispute involving any present or former accountant.

 

ITEM 8A CONTROLS AND PROCEDURES

Itronics’ management, including the Chief Executive and Financial Officer, haveconducted an evaluation of the effectiveness of disclosure controls and procedures as ofthe end of the year ending December 31, 2004 and have evaluated whether any changes ininternal controls over financial reporting have occurred during the quarter ended December31, 2004 that has materially affected, or is reasonably likely to materially affect, theCompany’s internal

34

control over financial reporting. These evaluations were conducted pursuant to ExchangeAct Rule 13a-15. Based on these evaluations, the Chief Executive and Financial Officerconcluded that the disclosure controls and procedures are effective in ensuring that allmaterial information required to be filed in this annual report has been made known to himin a timely fashion. He also concluded that there were no significant changes in internalcontrols over financial reporting, or in factors that could significantly affect internalcontrols over financial reporting, during the quarter ended December 31, 2004.

 

PART III

ITEM 9.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. I. Directors and Executive Officers - Summary Information.
The following are the directors and executive officers of the Company:

Age as ofName
12/31/04PositionPosition Held SinceDr. John W. Whitney
58President/Treasurer May 1988DirectorPaul H. Durckel 
87DirectorSeptember 1995Howland S. Green
51Northeast Manager April 2005of GOLD’n GRO salesDirectorGregory S. Skinner 
50SecretaryDecember 1990Duane H. Rasmussen
74Vice President; November 1997Vice President and May 1994General Manager-IMI
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 ofDirectors, presently scheduled to be held immediately following the annual meeting of theshareholders.

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, ItronicsMetallurgical, Inc. and Whitney & Whitney, Inc. Dr. Whitney also serves as the GeneralManager 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 Geologyfrom the University of Nebraska in 1970. Dr. Whitney has served as President of Whitney& Whitney, Inc. since its formation in 1977.

35

Prior to his serving as W&W full-time president, Dr. Whitney worked as a consultantfor the Office of Technology Assessment, U.S. Congress, doing analysis of various Alaskanmineral issues (1977-1978), a consultant for various government agencies, including theoffice of Mineral Policy Analysis in the U.S. Department of Interior, and the Washingtonoffice of the U.S. Bureau of Mines, consulting firms, law firms and mining companies on avariety of mineral planning issues (1976-1977), as a consultant for BKW Associates, Inc.evaluating mining investment opportunities in Mexico and the Philippines (1973-1975), andas 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 andMaterial Resource Economics. Dr. Whitney has presented seminars for various clients onMining Economics, and has taught a three-credit graduate course on International MetalEconomics for the University of Arizona's College of Mines. Dr. Whitney is an HonoraryFaculty Member of the Academy for Metals and Materials under the seal of the AmericanSociety for Metals. Dr. Whitney has made numerous presentations and written a number ofpublications on various technical subjects within his broad area of expertise. Dr. Whitneyis coinventor of the American Hydromet process technology and holds four patents. DrWhitney was selected as Nevada’s Inventor of the Year for 2000 and became a member ofthe Inventor’s Hall of Fame at the University of Nevada, Reno.

 

Paul H. Durckel:

Mr. Durckel has served as a Director of the Company since September 1995. He received apre-legal degree from Stanford University in 1940. He has served various companiesinvolved in fertilizer manufacturing and sales for approximately 30 years. He is presentlyan Independent Real Estate Salesman for Verus Realty. He served Myers Realty, Inc. invarying capacities, including Broker-Salesman, Consultant, Manager, Vice President ofOperations, and Director, from 1987 to 2001. His experience in the fertilizer industryincludes Vice President and General Manager and Vice President- Operations for AmericanPlant Food Corp., Executive Assistant to the Chairman for Best Fertilizers Co., VicePresident and General Manager for Best Fertilizer of Texas, and Vice President and GeneralManager for Farm Services Co.

Howland S. Green

Mr. Green was appointed as a director of the Company and as the Northeast Manager ofGOLD’n GRO Sales in April 2005. He received a B.Sc. degree in plant science andlandscape architecture from the University of Rhode Island in 1981. He is the founder,owner and President of Holly Ridge Nursery in Kingston, Rhode Island, and is the conceptcreator and a founder of the North American Deer Management Network. He has served asconsultant to "Ask This Old House". Mr. Green researched and developed theMirrepel and subsequently co-developed the GOLD’n GRO Guardian systemic deer andrabbit repellent. As owner and manager of a landscape construction company and a wholesalenursery for almost thirty years, he has gained extensive knowledge of the landscapeconstruction and maintenance and wholesale and retail nursery markets.

Gregory S. Skinner, Esq.

Mr. Skinner has served as secretary and general counsel of the Company and itssubsidiaries since December 1990. He obtained his B.A. degree in Economics from theUniversity of California

36

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 thestates of California and Nevada. He retired from the practice of law on January 1, 2003and is "of counsel" to the law office of Watson & Rounds, a ProfessionalCorporation (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. Priorto becoming Secretary of Itronics Inc., Mr. Skinner has provided legal services and adviceto 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 Companyin 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. inIndustrial Management in 1955 from the same University. He served as President of ScreenPrinting Systems, Inc. from 1987 to 1990 and from 1995 to October 1998. Other businessexperience includes approximately 20 years with Jacobs Engineering Group, Inc. in varyingcapacities, 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 entireBoard serves as the audit committee. The Board presently consists of three members, one ofwhom is independent. The Company has interviewed several qualified individuals for theposition of Audit Committee Financial Expert on the Board of Directors. All have declinedto serve, with the primary reason being personal liability issues, especially theperceived view that being the "financial expert" increases the individual’spersonal 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 isapplicable to the Company’s directors, principal executive and financial officer,principal accounting officer or controller, and persons performing similar functions. Acopy of the Code is included in this report as Exhibit 14. A copy of the Code may beobtained 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 atwww:itronics.com. If requesting by e-mail, please indicate a preference of a reply bye-mail or by physical mail. 

 

ITEM 10.EXECUTIVE COMPENSATION.
Summary of Cash and Certain Other Compensation

The following table sets forth information as to the compensation of the ChiefExecutive Officer and the four most highly compensated officers whose compensation for theyear ended December 31, 2004 exceeded $100,000:

37

 

Long Term
CompensationName and
SecuritiesPrincipalCalendarAnnual    Compensation
UnderlyingPositionYear
Salary
Bonus
Options    (#)Dr. John W. Whitney:
2004
$126,150
$-0-
550,000President, Treasurer 
2003
$126,375
$-0-
-0-and Director (1) (2) 
2002
$127,350
$-0-
3,250,000Duane H. Rasmussen
2004
$132,000
$-0-
425,000Vice President, VP
2003
$132,000
$-0-
-0-and General Manager 
2002
$132,000
$-0-
-0-IMI (3)
 

(1) The 2004, 2003 and 2002 salary amounts include $125,000, for each year,respectively, that were not paid currently. In 2003 Dr. Whitney converted $260,000 ofthese amounts into the then existing private placement at $0.08 per share for a total of3,250,000 shares plus an equal number of three year warrants. This transaction is underthe same terms and conditions as for other investors in the current private placement,consequently, the warrants are treated as non-compensatory. These shares have not yet beenissued, pending accumulation of sufficient cash to pay required withheld payroll taxes. 

Effective January 1, 1999, Dr. Whitney was granted an option for 1,000,000 restrictedcommon shares at $0.25 per share, effective July 1, 2002 he was granted an option for3,000,000 restricted common shares at $0.30 per share, and effective May 7, 2004 he wasgranted an option for 550,000 restricted common shares at $0.15 per share. These optionsare exercisable at any time until one year after Dr. Whitney leaves the employment of theCompany. Effective October 2, 2002 Dr. Whitney was granted a five year option for 250,000restricted common shares at $0.20 per share. 

(2) The salary amounts listed above include $1,150, $1,375, and $2,350 for 2004, 2003,and 2002, respectively, that represent compensation paid in common stock for service as adirector of the Company. The compensation plan for all directors was 2,500 shares perquarter for 2004 and previous years.

(3) The 2004, 2003, and 2002 salary amounts include $55,000, $77,000, and $132,000,respectively, that were not paid currently. In 2003 Mr. Rasmussen converted $170,000 ofthese amounts into the then existing private placement at $0.08 per share for a total of2,125,000 shares plus an equal number of three year warrants. This transaction is underthe same terms and conditions as for other investors in the current private placement,consequently, the warrants are treated as non-compensatory. These shares have not yet beenissued, pending accumulation of sufficient cash to pay required withheld payroll taxes.

Effective May 7, 2004 Mr. Rasmussen was granted a compensatory option for 425,000restricted common shares at $0.15 per share. This option is exercisable at any time untilone year after Mr. Rasmussen leaves the employment of the Company.

38

 

Option Grants in Last Fiscal Year:

Number of
% of    Total
Securities
Options    to
Underlying
Employees
Exercise
Options
in Fiscal
or BaseExpirationName
Granted    (1)
Year
PriceDateDr. John W. Whitney 
550,000 
33%
$0.15One year after employment    endsDuane H. Rasmussen
425,000
25%
$0.15One year after employment    ends
(1) In addition to the above, Dr Whitney acquired a total of 1,200,000 non-compensatorythree year warrants by converting $120,000 of short term loans into the then existingprivate placement. All transactions were under the same terms and conditions as for otherinvestors in current private placements and consequently the warrants are treated asnon-compensatory. 

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option

Values

 

Options Exercised:

Shares    Acquired onName
Exercise    (#)
Value    RealizedDr. John W. WhitneyNon-compensatory (1)
4,750,461
$ -0-
(1) Dr. Whitney exercised non-compensatory warrants for 4,750,461 shares by paying cashof $185,008 and converting short term debt totaling $195,029. Since the warrants werenon-compensatory, no realized value is listed above.

Options Unexercised:

Number of Securities
Value of Unexercised
Underlying Unexercised
In-the-Money Options
Options at 12/31/04
At 12/31/04Name 
Exercisable
Unexerciseable
Exercisable
UnexerciseableDr. John W. Whitney Compensatory
4,800,000
-0-
$ -0- (1)
$ -0-Non-compensatory 
1,200,000
-0-
$ -0- (1)
$ -0-Duane H. RasmussenCompensatory
425,000
-0-
$ -0- (2)
$ -0-Non-compensatory
2,125,000
-0-
$ -0- (2)
$ -0-
(1)If value realized was based on the average of the closing bid and ask prices onDecember 31, 2004, the value realized would have been $-0- for the compensatory optionsand $-0- for the non-compensatory warrants. The securities under option, common stock ofthe Company, are restricted under Rule 144 and thus are not tradable within one year ofexercise. In addition, as an officer and a greater than 10% shareholder of the Company,Dr. Whitney is further

39

restricted by SEC regulations as to the sale of the Company’s securities. Theactual value realized, if and when the securities are sold, may be more or less than thevalue listed above. Consequently, the value of the unexercised options is reported at$-0-.

(2)If value realized was based on the average of the closing bid and ask prices onDecember 31, 2004, the value realized would have been $-0- for the compensatory andnon-compensatory warrants. The securities under option, common stock of the Company, arerestricted under Rule 144 and thus are not tradable within one year of exercise. Inaddition, as an officer of the Company, Mr. Rasmussen is further restricted by SECregulations as to the sale of the Company’s securities. The actual value realized, ifand when the securities are sold, may be more or less than the value listed above.Consequently, the value of the unexercised options is reported at $-0-.

 

ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED 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
5,996,626
$0.25
989,000    
Total
5,996,626
$0.25
989,000
 

b) Security Ownership of Certain Beneficial Owners.
The following table sets forth certain data with respect to those persons known to theCompany, as of March 31, 2005, to be the beneficial owners of more than 5% of theoutstanding shares of common stock of the Company:

 

Amount and Nature of Beneficial Ownership
Common    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)
29,399,530
6,000,000
35,399,530
17.3
40

(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 shares at$0.25 per share, 3,000,000 shares at $0.30 per share, 250,000 shares at $0.20 per share,and 550,000 shares at $0.15 per share. Dr. Whitney also has non-compensatory three yearwarrants for 1,200,000 shares at $0.075, $0.15, and $0.225 per share for the first throughthird years of the option period. He received these warrants by converting $120,000 inshort term loans into the then existing private placement under the same terms andconditions as other investors.

 

c) Security Ownership of Management.
The following table sets forth as of March 31, 2005, certain information, with respectto director and executive officer ownership of common stock in the Company:

Amount and Nature of Beneficial Ownership
Common    Shares
PercentName and 
Which May    Be
ofAddress of 
Common    Shares
Acquired    Within
ClassBeneficial    Owner 
Presently Held
60 days(1)
Total
(2)Dr. John W. WhitneyP.O. Box 10725Reno, NV 89510 (3)(4)(5) 
29,399,530
6,000,000
35,399,530
17.3Paul H. Durckel1655 Highway 395Minden, NV 89423 (3)
574,668
138,400
713,068
.4Duane H. RasmussenP.O. Box 10725Reno, NV 89510 (4)
4,364,011
2,550,000
6,914,011
3.4All directors andexecutive officers asa group (4 persons) 
34,990,528
8,688,400
43,678,928
21.1
(1) Dr. Whitney’s options include compensatory options of 1,000,000 shares at$0.25 per share, 3,000,000 shares at $0.30 per share, 250,000 shares at $0.20 per share,and 550,000 shares at $0.15 per share. Dr. Whitney also has non-compensatory three yearwarrants for 1,200,000 shares at $0.075, $0.15, and $0.225 per share for the first throughthird years of the option period. He received these warrants by converting $120,000 inshort term loans into the then existing private placement under the same terms andconditions as other investors.

Mr. Durckel has three year warrants to acquire 138,400 restricted common shares relatedto his

41

cash investment in the 2002 and 2003 Equity Private Placements, which are convertibleat $0.08, $0.16, and $0.24 per share for the first through third years of the optionperiod. 

Mr. Rasmussen has a three year non-compensatory warrant to acquire 2,125,000 shares at$0.08, $0.16, and $0.24 per share for the first through third years of the option period.He acquired this warrant by investing $170,000 of his back salary in the existing privateplacement. Mr. Rasmussen also was granted a compensatory option to acquire 425,000restricted common shares at $0.15 per share. This option is exercisable at any time untilone year after Mr. Rasmussen leaves the employment of the Company.

(2) The percent of class is based on the sum of 198,389,068 shares outstanding or to beissued as of March 31, 2005 plus, for each individual, the number of common shares as towhich the named individual has the right to acquire beneficial ownership within 60 days ofMarch 31, 2005.

(3) Director

(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 changesin control of the Company.

 

ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
After approval from the Company's Board of Directors, in March 1999 the Company'ssubsidiary, WWI, agreed to provide technical services to Golden Phoenix Minerals, Inc.(GPXM), a junior mine exploration and development company whose common shares trade on theOTC Bulletin Board. Services were billed monthly and WWI received a combination of GPXMcommon stock, SEC Rule 144 restricted common stock, and cash. Separately, Dr. Whitneypersonally 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. Any unexercised optionsunder this arrangement can be assigned to WWI. Dr. Whitney is a principal in a group thatcontrols the mining claims underlying one of GPXM's principal exploration and developmentproperties. At December 31, 2004 WWI owned 123,198 restricted GPXM shares. At December 31,2003 WWI owned 736,442 restricted GPXM shares. The initial Rule 144 one year period forresale began in April 2000, and continues monthly thereafter. Total revenue from GPXM for2004 and 2003 was $224,039 and $146,893, respectively. A total of $101,281 and $13,707 isincluded in accounts receivable at December 31, 2004 and 2003, respectively. At December31, 2004, the average bid/asked price for GPXM common was $0.213, resulting in a value ofshares held on that date of $26,180. Included in the GPXM shares held at December 31, 2003and 2002 are 300,000 and 1,050,000 restricted common shares, respectively, that wereacquired by WWI purchasing $0.10 options from Dr. Whitney and

42

subsequently exercising the options by offsetting accounts receivable due it from GPXM.The purchase price of the options was $109,275, which was determined at 85% of fair marketvalue of the then current trading price of GPXM, less the $0.10 option price. Thisvaluation method is under the same terms that WWI uses to accept GPXM restricted commonshares for its monthly services. Dr. Whitney accepted Company restricted common shares inthe 2002 Equity Private Placement as payment for the options, which amounted to 1,365,938shares plus an equal number of warrants with conversion prices ranging from $0.08 to $0.24per share. The total cost to WWI of these GPXM shares was $214,275 and the market value atDecember 31, 2002 was $241,500. The 300,000 shares held at December 31, 2003 were valuedat $135,750 and had a cost of $70,650.

 

ITEM 13.FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K.
I. Index of Financial Statements and Exhibits1. Index of Financial    Statements:
Page    No.INDEPENDENT AUDITOR’S    REPORT ON THE FINANCIAL STATEMENTS
44Consolidated Balance Sheets    as of December 31, 2004 and 2003
45Consolidated Statements of    Operations and Comprehensive Income for the Years ended    December 31, 2004 and 2003
47Consolidated Statements of    Stockholders' Equity (Deficit)for the Years ended    December 31, 2004 and 2003
48Consolidated Statements of    Cash Flows for the Years endedDecember 31, 2004 and 2003
49Notes to Consolidated    Financial Statements
512. 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
81
 

II. Reports on Form 8-K.

The following forms 8-K were filed during the fourth quarter of 2004:

  October 7, 2004    Announced GOLD’n GRO fertilizer sales forthe three and 

                    nine months ended September 30, 2004.

November 19, 2004    Announced sales and operating results for the threeand 

                    nine months ended September 30, 2004.

December 2, 2004     Announced development of a subscription basedinternet 

                    publication featuring gold industry and gold company 

                    profiles.

 

STATEMENTS AND SCHEDULES

Schedules not included are omitted for the reason that they are not applicable or notrequired.

43

 

CACCIAMATTA ACCOUNTANCY CORPORATION

CERTIFIED PUBLIC ACCOUNTANTS

 

The Board of Directors and Stockholders of Itronics Inc.

We have audited the accompanying consolidated balance sheet of Itronics Inc. (a Texascorporation) and subsidiaries as of December 31, 2004 and 2003, and the relatedconsolidated statements of operations and comprehensive income, stockholders' equity(deficit), and cash flows for the years then ended. These consolidated financialstatements are the responsibility of the Company's management. Our responsibility is toexpress an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidated financialstatements are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the consolidated financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basis for ouropinion.

In our opinion, the consolidated financial statements referred to in the firstparagraph present fairly, in all material respects, the consolidated financial position ofItronics Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of theiroperations and their cash flows for the years then ended in conformity with U.S. generallyaccepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that theCompany will continue as a going concern. As of December 31, 2004, the Company has anaccumulated deficit of $22,944,959, a negative working capital of $3,215,298, and astockholders’ deficit balance of $2,564,270. The Company’s ability to continueas a going concern is contingent upon (a) future profitable operations and (b) the abilityto generate sufficient cash to meet obligations as they become due. These conditions raisesubstantial doubt about the Company’s ability to continue as a going concern.Management's plans regarding this matter are described in Note 13. The financialstatements do not include any adjustments that might result from the outcome of thisuncertainty.

 

                                              /S/ Cacciamatta Accountancy Corporation

Irvine, California

May 19, 2005

44

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003

 

ASSETS
 
2004
2003CURRENT ASSETS   Cash 
$ 5,180
$ 34,499Accounts receivable, less    allowance for    doubtful accounts,    2004, $5,700;    2003, $5,700
188,805
96,384Marketable securities,    available for sale
26,180
413,240Inventories
571,704
425,525************