UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-KSB/A

Amendment No. 1

(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, 2007**
( )     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES 

        EXCHANGE ACT OF 1934 

For the Transition period from______to_______

Commission file number 33-18582

 
**ITRONICS INC.**
(Name of small business issuer in its charter)

                   Texas                                    75-2198369

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

        incorporation or organization)

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

        (Address of Principal Executive Offices)                   Zip Code

Issuer's telephone number: (775) 689-7696
Securities registered under Section 12(b) of the Exchange Act:

        Title of each class                Name of each exchange on

        which registered

               None                                None
Securities registered under Section 12(g) of the Exchange Act:

None

(Title of class)

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

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements 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)

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ( ) No (X)

State issuer's revenues for its most recent fiscal year: $2,342,296. 

The aggregate market value of the voting and non-voting common equityheld by non-affiliates computed by reference to the average bid and asked price of suchcommon equity, as of March 31, 2008, was $6,439,679.

As of March 31, 2008 there were issued and outstanding 999,996,999shares of the Registrant's Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

None

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

 

 
**EXPLANATORY NOTE**
This amendment on Form 10-KSB/A (Amendment No. 1) amends the Annual Report onForm 10-KSB (the "Original Report") of Itronics Inc. (the"Company") for the fiscal year ended December 31, 2007, which was filed with theU.S. Securities and Exchange Commission (the "SEC") on April 15, 2008, and isbeing filed to:

- remove table grid lines and provide underlining, page numbers and other formatting to      make the document more readable.

- correct the dates on the signature page and on the Sections 302 and 906      certifications that were inadvertently omitted and to change the word      "quarterly" to "annual" in Exhibit 32.1. 

- correct a page number reference on page 44

The Company does not believe any such changes are material.

In accordance with the rules of the SEC, the Company has provided updated certifications pursuant to Sections 302 and 906 of theSarbanes-Oxley Act of 2002 which have been included as Exhibits 31.1, 31.2, 32.1 and 32.2to this Amendment No. 1.

This Amendment No. 1 is limited to the items of the OriginalReport set forth above and does not amend, update, or change any other items ordisclosures contained in the Original Report. Accordingly, all other items that remainunaffected are omitted in this filing. The amendments to the Original Report reflected inthis Amendment No. 1 did not result in a change to, or restatement of, the financialstatements or other financial information included in the Original Report. The filingof this Amendment No.1 shall not be deemed an admission that the Original Report, whenfiled, included any untrue statement of a material fact or omitted to state a materialfact necessary to make a statement therein not misleading.

2

 

ITRONICS INC. AND SUBSIDIARIES

2007 FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS
PART I 
PAGEItem 1. Description of Business 
4Item 2. Description of Property 
19Item 3. Legal Proceedings
19Item 4. Submission of Matters to a    Vote of Security Holders 
20PART IIItem 5.Market for Common Equity    and Related Stockholder Matters and 
Small Business Issuer Purchases of Equity    Securities
20Item 6.Management's Discussion and    Analysis or Plan of Operation
24Item 7. Financial Statements
35Item 8. Changes in and    Disagreements with Accountants on 
Accounting and Financial Disclosure
35Item 8AControls and procedures
35PART IIIItem 9.Directors, Executive    Officers, Control persons and Corporate 
Governance; Compliance with Section 16(a) of    the Exchange 

Act 
37Item 10. Executive Compensation
39Item 11. Security Ownership of    Certain Beneficial Owners and 
Management and Related Stockholder Matters
41Item 12. Certain Relationships and    Related Transactions, and Director 
Independence
43Item 13. Financial Statements and    Exhibits 
44Item 14.Principal Accountant Fees    and Services
82
 

3

ITEM 1.DESCRIPTION OF BUSINESS.
 

**INTRODUCTION**
We are the inventor and developer of the "Beneficial UsePhotochemical, Silver, and Water Recycling" technology that produces environmentallybeneficial GOLD'n GRO fertilizers and silver bullion.

We are an environmental process technology company that has developedwhat we believe is a unique technology for photochemical recycling. We, through oursubsidiary, Itronics Metallurgical, Inc., extract more than 99% of the silver andvirtually all of the other toxic heavy metals from used photoliquids and use this"Beneficial Use Photochemical, Silver and Water Recycling" technology to produceenvironmentally beneficial chelated liquid fertilizer sold under the trademark GOLD’nGRO, deer repellant/fertilizer to be sold under the trademark GOLD’n GRO Guardian,and silver bullion. We also provide development planning and technical services to themining industry. 
**OUR PRODUCTS AND SERVICES**
We currently operate the following two business segments under separatewholly owned subsidiaries: 

GOLD’n GRO Fertilizer: This segment, known as ItronicsMetallurgical, Inc., operates a fertilizer manufacturing, photochemical recycling, andsilver refining facility. Revenues are generated by photochemical management services,sales of photochemical silver concentrators, sales of silver, and sales of GOLD’n GROliquid fertilizers. 

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

We have 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: 

Itronics Metallurgical, Inc.: 

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

4

Nevada Hydrometallurgical Project: 

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

American Hydromet: 

American Hydromet is a Nevada joint venture that was formed in 1985 todevelop certain silver and gold refining/recovery technology and to create business basedupon such technology. The GOLD’n GRO fertilizer segment now being managed by IMI isowned by American Hydromet. The ownership interests in American Hydromet are: NHP for76.5%, IMI for 1%, and American Gold & Silver Limited Partnership("AG&S") for 22.5%. AG&S is a Nevada limited partnership, for which WWIserves as the general partner and owns a general and limited partnership interest totaling11%. We own a 37% limited partnership interest in AG&S. In total, we own approximately83% of American Hydromet. 

Itronics California, Inc.: 

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

Whitney & Whitney, Inc.: 

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

SUMMARY HISTORY OF OPERATIONS 

Whitney & Whitney, Inc. was established to provide a wide range oftechnical 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. 

Over the years, the mining technical services business was highlycyclical, closely following the base and precious metals industries, and specifically, theprice of copper, other base metals and gold. This condition pointed out the necessity ofexpanding our business into new industries. When considering the fertilizer marketingstudies previously performed, along with the growing national issue of sewer systemcontamination from toxic photowastes and silver toxicity to fish, it seemed to be anatural extension of WWI's existing expertise to expand

5

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

In March 1998 IMI signed a five year definitive licensing,manufacturing, and distribution agreement with Western Farm Service, Inc. (WFS), one ofthe largest liquid fertilizer bulk retailers in the western United States. The agreementwas renewed in March 2003 for another five years and again in March 2008, subject toannual cancellation provisions. The agreement grants WFS an exclusive license and right tomanufacture and market IMI's GOLD'n GRO line of bulk liquid fertilizer products for theTurf & Ornamental and Specialty Agricultural markets in the states of Arizona,California, Hawaii, Idaho, Oregon, and Washington. WFS has approximately 100 agriculturalretail outlets in these states. In the discussion below, and elsewhere in this report, werefer to this group of retail outlets as our licensed distributor network.

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

By the end of 2003, we had developed 13 fertilizers covering twocategories: chelated liquid multinutrient fertilizers and chelated liquid micronutrientfertilizers. The fertilizers are sold both to the general public and through licensed andnon-licensed distributors.

We are developing a deer repellent/fertilizer that will be sold underthe trademark GOLD'n GRO Guardian. This product will use 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 subsequently approved for use by theNorth American Deer Management Network. GOLD'n GRO Guardian is a repellent fertilizer andmust be registered under both the pesticide regulations and the fertilizer regulations foreach state in which it will be sold. The product must also be registered with the U.S.Environmental Protection Agency (U.S EPA) as a biopesticide. Introduction of this productfor commercial sales will be delayed until the registrations are completed. In 2005 weacquired the interest in the GOLD’n GRO Guardian trademark, product rights, and therepelling product formula owned by Mr. Howland Green. We now own 100% of all rightsrelated to GOLD’n GRO Guardian. Mr. Green has become one of our directors and isNortheast Manager for GOLD’n GRO Sales Development. Substantial funding over the next24 months will be required to complete the U.S. EPA and California registration processand to begin manufacturing and sales.

During the period 1999 through 2003 we developed a "lowtemperature vacuum distillation" machine that operates at room temperature and isable to remove up to 80% of the water from photochemical solutions without damaging thechemicals, producing a high silver content concentrate that can be shipped as a commercialproduct in inter-state commerce. The distilled

6

water is clean enough for re-use on site and the reduction in volume ofmaterial needing to be shipped produces an 80 percent reduction in transportation costmaking shipment possible anywhere in the United States. These machines are being soldunder the trademark "Itronics Metallurgical Photochemical Silver Concentrators".

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

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

GOLD’n GRO FERTILIZER 

Operations 

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

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

Growth of silver bullion output is driven by photochemical processingto support GOLD'n GRO fertilizer sales. There are some opportunities to expand silveroutput separate from photochemical recycling, but profit margins for the refining servicesare very small when compared to the inventory requirements and the security risk. Becauseof these factors, gold and silver refining services are limited to categories of materialswhere our proprietary technology can be used and that offer better profit margins thanconventional precious metal refining. We will be actively looking at opportunities toexpand this segment in future years. 

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

7
Growth Plans and Implementation

With the successful completion of the initial pioneering developmentwork by the GOLD’n GRO Fertilizer Division, we are implementing growth plans that areexpected to drive expansion well into the future. The status of these plans and theirimplementation is described below.

Our manufacturing plant is presently configured to produce 1.2 milliongallons (on a single shift basis) of GOLD’n GRO fertilizer annually (about 5,700tons) and can be expanded to produce 7.2 million gallons of GOLD'n GRO per year, or about36,000 tons. GOLD'n GRO fertilizer production in 2007 utilized about 5 percent of plannedcapacity. Planned expansions to achieve the 36,000 ton volume include increasing both dryraw material and liquid storage, increasing tank truck loading capacity, and automation ofcertain manufacturing functions. Expansion is being done incrementally as fertilizer salescontinue to grow.

We have developed the following eight-part approach to growth:

    1. Increase sales in the established marketsegments.

    2. Develop GOLD'n GRO fertilizer applications formore crops.

    3. Expand sales to new territories.

    4. Expand the GOLD'n GRO specialty fertilizerproduct line.

    5. Complete development of and commercialize the newglass/tile products.

    6. Develop and commercialize environmentallyfriendly metal leaching reagents for recovery     of silver, gold, andother metals.

    7. Continue facilities expansion and technologydevelopment. 

    8. Acquire established companies and/or theirtechnologies.

Plans and status of implementing each of the growth categories isexplained in more detail in the following sections.

1. Increase sales in established market segments.
We are selling into or developing applications for the three majorsegments. These are:

a. Specialty Agriculture which includes Avocados, Citrus, Grapes, Fruit  and Nut Trees, and Vegetables.

b. Bulk Field Crops which include alfalfa, cereal grains, corn, cotton,  and soybeans.

c. The Urban Market, which includes Home Lawn and Garden, Landscape  Construction and Maintenance, and Nursery and Greenhouse markets, and Golf Courses. 

Our primary focus is to increase bulk GOLD’n GRO liquid fertilizer  sales as rapidly as possible. This is being achieved by expanding sales in the Specialty  Agriculture segment and in the Bulk Field Crops segment. There are on-going small package  sales in the Urban Market, but these are small relative to the other two segments.

2. Develop GOLD'n GRO fertilizer applications for more crops.

Based on our experience to date, it takes approximately two to five years to develop a  new fertilizer product, which includes regulatory approval. It typically takes another two  to four years to achieve market acceptance of successful products, which includes field  trials to demonstrate product effectiveness. 

8

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

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

In 2006 we began contributing to an ongoing Zinc Nutrition Research  Program at Utah State University in Logan, Utah. To date, the research has demonstrated  the effectiveness of GOLD’n GRO 9-0-1+7% Zinc as a chelated liquid zinc micronutrient  fertilizer for zinc deficient corn. Results include preventing visual symptoms of zinc  deficiency, significantly increased tissue concentration of zinc compared to untreated  plants, and doubled dry mass. 

3. Expand sales to new territories.

The GOLD'n GRO products are being sold in Arizona, California,  Colorado, Idaho, Nevada, Oregon, Rhode Island, Washington, and Utah, with the majority of  our sales in central California. We completed registration of select GOLD’n GRO  fertilizers in Idaho, Oregon and Washington in 2005 and in Utah in 2006; sales development  is now underway. Two GOLD'n GRO products are registered in seven northeastern states and  all of the products are registered in New York and in New Jersey. Based on our experience,  commercial sales can be generated approximately one to three years after introductory  sales activities are initiated. We are in the process of identifying distributors for New  York and the other seven northeastern states. Each new geographic area developed will  require the same procedural approach.

The expansion into the Northwest states of Idaho, Oregon, Washington,  and Utah is being managed by one field agronomist. The cost of maintaining that position  ranges from $120,000 to $150,000 per year. The expansion into the Northeast states is  being managed by one part time person at an annual cost of approximately $30,000. That  person is also the lead person in seeking customers for our Photochemical Silver  Concentrators. We may increase these spending levels in 2008, depending on sales support  requirements. 

In general, expansion to new regions of the country will require at  least one field agronomist for each new region at a cost similar to that for the Northwest  region. In addition, each state has varying registration requirements for product labels  and costs of registration. Development of product labels is done internally using existing  staff. Registration fees for each state vary widely, ranging from $25 to $600 per year,  largely depending on how many products are registered in the particular state. For the  near term, we anticipate utilizing present staff and management for corporate support of  the sales efforts for both existing regions and for the new regions. For the longer term,  as we expand we will need to add corporate support personnel. In 2006 we added a Ph.D.  agronomist, to support GOLD’n GRO sales efforts.

Our plan to expand sales in Urban Markets requires the consumer to  utilize fertilizer injection equipment. This equipment provides economical, easy use of  liquid

9

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

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

We are developing two new specialty products, a calcium plus magnesium  fertilizer named GOLD’n GRO 11-0-0+5% Ca (Calcium) and a high magnesium content  fertilizer named GOLD’n GRO 8-0-0+3% Mg (Magnesium), both targeting foliar and soil  application. We have registered GOLD’n GRO 11-0-0+5% Ca in Nevada and California. The  registration of GOLD’n GRO 8-0-0+3% Mg is planned for the second quarter of 2008 at  which time sales development will be started.

We are developing a new category of repellent fertilizers that are  expected to be sold at higher profit margins than our other products. The GOLD’n GRO  Guardian deer repellent fertilizer is an example of this type of specialty fertilizer. The  U.S. market for deer repellents is believed to exceed $200 million in annual sales.  Products currently in the market have limited effectiveness so we believe that there is a  real opportunity for a line of systemic products that are effective for several weeks  after each application. GOLD'n GRO Guardian small plot tests have shown effectiveness for  8 to 12 weeks as well as excellent wintertime effectiveness. 

We acquired ownership interest in the GOLD’n GRO Guardian  trademark, product rights, and the repelling product in 2005. We now own 100% of all  rights related to GOLD’n GRO Guardian. Results of the research of the GOLD’n GRO  Guardian deer repellent fertilizer has provided a basis for a bird (goose) repellent  fertilizer that will be perfected for small plot field trials. Currently, this product  line is strictly for non-food plant applications. We have engaged consultants experienced  in the EPA registration process. We are presently working with them to plan the process  and lab work needed to complete a series of registrations. One registration was issued in  March 2008. 

We believe the users of the GOLD’n GRO deer repellent fertilizer  will be upscale homeowners, commercial landscapers, and municipal facilities, and  wholesale and retail nurseries. Initial sales development will be centered in Utah and  seven northeastern states. 

5. Complete development of and commercialize glass/tile products.

In 2003, we developed and produced glass /tile products proving that  the product concept is technically viable. When the development of the glass/ceramic tile  product is completed, we will achieve the ability to recycle 100 percent of the  photoliquid materials received from customers, including waste that is generated  internally during fertilizer production. We have completed preliminary market research for  the tile markets, but expect to do much more work to develop a plan to enter this market.

 

6. Develop and commercialize metal leaching reagents for recovery of  silver, gold, and other metals.
We are developing applications of our technology to extract silver  from photoliquids to the mining sector. This work is being expanded and a small pilot  circuit is being established to chemically process certain categories of silver-bearing  solid wastes. The gold mining sector currently uses cyanide and other toxic chemicals in  their

10

leaching process. We believe it may be possible to create and adapt new  non-toxic leaching reagents and leaching procedures for processing other secondary  materials and certain types of mine generated products. The specific markets for leaching  reagents in gold and silver mining is large and world wide, but has not yet been studied  in detail for market development. Our Technical Services Division maintains an extensive  library and database of mines and mining activities worldwide, which provides us ready  access to market information as we need it. Much pilot plant work, including one or more  field pilot operations, must be completed before quantitative market studies can be  completed.

7. Continue facilities expansion and technology development.

As fertilizer sales volume increases, we need to increase tank truck  loading capacity. With the introduction of additional bulk products and increased demand  for our products, load out capacity for shipment of three more bulk products is needed.  The first phase, construction of a containment area, was substantially completed in late  2006. While we believe that we can handle expected growth in 2008 with the existing  load-out module, we hope to complete construction on the new load out equipment during the  second half of 2008, subject to the availability of financing. 

 

8. Acquire established companies and/or their technologies.
To enhance our operations and market presence, we intend to acquire  small established companies or their technologies. In 2005, we completed our acquisition  of the GOLD’n GRO Guardian technology. Further acquisitions will depend on the  potential benefits and suitable financing.

 

Competition 

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

Our photochemical recycling fees are generated primarily from  processing used photochemicals from our customer’s sites. We are now providing  services to large national firms like Safety Kleen and Philips Environmental. We are also  providing these services to smaller regional firms. Our primary competition is small  regional firms. 

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

11
Markets

Fertilizer 

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

More than 50 million tons of fertilizer products are sold annually in  the United States. This includes almost 20 million tons of multi-nutrient fertilizers and  almost 3.5 million tons of secondary nutrient and micro-nutrient products. About 38  percent of the total usage is as fluid fertilizers. Our 2007 sales represent less than  0.05 percent of the specialty ag segment of the fertilizer market.

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

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

Dry fertilizers are typically applied with dry spreaders. Liquids are  sprayed on with tank sprayers or aircraft, injected into the soil using special  applicators, or applied through irrigation systems using sprinklers, micro-sprinklers, or  drip irrigation. Liquid fertilizers can also be applied with ditch irrigation by running  the fertilizer into the water at controlled rates. The use of irrigation water to apply  the liquid fertilizers is called fertigation.

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

12

Because of less cost for application and improved availability of the  liquid nutrients to the plants, liquid fertilizers in the United States are continuing to  gain market share. Use of liquid starter mixes for dry land crops is also expanding,  especially for planting field crops such as cotton, corn, soybeans, and wheat.

Only certain fertilizer distribution companies are specialized in  marketing liquid fertilizers and have the facilities and equipment required to sell,  deliver, and apply the liquid fertilizers. Our licensed distributor is one of those  companies. 

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

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

The U.S. market for deer repellents is believed to be well in excess of  $200 million per year. Products currently in the market are believed to have limited  effectiveness so we believe that an opportunity exists for a line of systemic products  that are effective for several weeks after each application. The GOLD'n GRO Guardian is  demonstrating effectiveness for periods of 8 to 12 weeks, and may be able to provide  "year round" protection. We are pursuing development of this line of products as  rapidly as possible. 

Photochemical Recycling

We estimate that there are more than 1,500 generators of  photographic hazardous waste in the State of Nevada and more than 500,000 throughout the  United States. This includes printed circuit board manufacturers, photo off-set printers,  photographic developers, lithographers, photographers, micro-filming (banks, companies,  etc.) and x-ray users (dentists, doctors, hospitals, podiatrists, orthopedic surgeons,  veterinarians, radiologists and industrial x-ray users). We estimate the total annual  market for recycling this category of waste to be in the range of $200 to $400 million. 

We are aware of digital imaging and its impact on usage of conventional  photography. The impact is different for each of the major segments; medical, color  photography, and printing/microfiche. Digital imaging has made significant inroads into  printing/microfiche processing with an almost 85% reduction in volume of photographic

13

liquids over the past ten years. We are estimating that the volume of  color photography waste liquids has been reduced by up to 50%. Digital photography is  creating a new source of photowastes from Internet companies that combine digital imaging  services with the ability to print high quality photographs for their customers. Digital  methods are being adopted in the medical industry, and although the medical sector is  relatively high growth with the aging U.S. population, digital imaging has had the effect  of slowing the growth of waste photo liquids being generated and may lead to a decline in  future years. 

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

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

The Company believes that the volume of photochemical liquids being  generated in the United States continues to greatly exceed its needs for fertilizer  manufacturing. 

Silver

Nationally, more than 40 million ounces of silver are consumed in  photomaterials annually. Approximately 30% of this is lost through disposal. The Silver  Institute indicates that silver usage in photography declined in 2006.

Seasonality and Working Capital 

In analyzing the market and industry competitors, it is apparent  that two factors significantly impact our ability to penetrate these markets in a  meaningful way. First, the seasonal aspect of fertilizer sales, which directly results in  the second factor, the need for a much higher level of working capital when compared to  other industries. Based on experience, we expect fertilizer sales to continue to have a  strong seasonal component, with the primary sales season running from April through  November each year, with an in-season low in July and August. In addition to the general  seasonal nature of sales caused by normal weather patterns, unusual weather can further  affect fertilizer sales, especially in winter and spring. For example, unusually cold or  wet spring seasons may delay the growing cycle of various crops for which our fertilizers  are utilized. To overcome weather related effects on fertilizer sales, we are evaluating  markets in the southern areas of the United States where growing seasons are longer and,  in some cases, year round. 

14

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

Research, Development, and Technology 

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

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

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

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

During 2003, we completed a key phase of the research project to  produce formulated glass products. The research identified three product categories: (1) a  glass ceramic mixture that can be used to produce tile and other shapes suitable for  glazing and commercial use; (2) glass formulations that can be used as "lead  free" low and intermediate temperature glazes for decorative tile and the craft  pottery trade; and (3) specialty boro-silicate glass formulations. The next phase of the  research will focus on production of small quantities of products for evaluation and  market studies and is expected to be completed over the next two to three years.

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

15

association with the processed photochemical materials. 

Environment and Regulation 

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

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

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

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

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

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

16

Permits and Inspections 

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

 

MINING TECHNICAL SERVICES 

Services offered 

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

 

Operations

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

We launched the insidemetals.com website in 2005, targeting the  companies and individuals interested in the mining and precious metals industry. The  website is generating revenue by charging a subscription fee for monthly access to the  site. Currently, the site contains an array of information about gold mining and gold  mining stocks. We intend to add information on other mineral sectors gradually over time.  A program to solicit advertising customers is being developed and is being offered to gold  exploration companies. To assist with the sales development program of the website, we  hired a manager of marketing and sales in October 2006. He was responsible for marketing  efforts for both the insidemetals.com website and for technical consulting services to the  mining industry. As no revenue was generated

17

from this work, the position was eliminated in February 2008. We are  presently evaluating the steps we need to take to improve the revenue growth from the  website. 

New technical consulting contracts are now being generated from this  effort. 

Expansion Plans 

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

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

We anticipate that mining company professionals, all government  agencies with minerals related responsibilities, financial industry investment  professionals, and individual investors who have an interest in investing in mining  companies but who have limited mineral industry knowledge will benefit from this  Information Portal. The market scope for this service is global and is accessible with a  "click of a mouse" in all countries of the world through the Internet. Whitney  & Whitney, Inc. has contacts throughout the world and expects that the good will  generated over a period of more than 25 years will provide market support for this  service. The site is now receiving visits from more than 170 countries world wide. 

Competition

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

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

18

ITEM 2.DESCRIPTION OF PROPERTY.
I. FACILITIES.
Itronics leases approximately 3,000 square feet of office space at  6490 South McCarran Blvd., Building C-23, Reno, Nevada. IMI leases approximately 2,000  square feet of warehouse space in Reno, Nevada. This space is being used for supply  storage and will be used for manufacturing GOLD’n GRO Guardian. 

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

 

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

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

 

ITEM 3.LEGAL PROCEEDINGS.
As of December 31, 2007 we have accrued for liabilities, including  interest, of $544,965 which relate to various lawsuits and claims for the collection of  the funds due. These include 8 leases totaling $366,358 (reflected in Capital Lease  Obligations) plus $62,435 in additional interest (reflected in Accrued Interest) and one  trade payable totaling $85,801 (reflected in Accounts Payable) plus $30,371 in additional  interest (reflected 

in Accrued Interest). The leases are individually secured by specified  equipment. 

The accrued interest noted above was recorded based on our assessment  of three cases that are seeking $251,522, which we believe are probable. The creditors  have received judgments in these cases, but have taken no further collection action. We  will continue to accrue interest until these cases are settled or paid in full. 

We have two cases, that originally sought $171,853, that we deem to  have a remote possibility of incurring an additional unrecorded loss. We have negotiated  payment agreements on these cases and, as of December 31, 2007, the recorded liability was  $163,128. We are delinquent in our payments under the respective settlement agreements,  but we are in contact with the lender’s legal representative and no collection action  has been taken. 

In addition to the above leases that are subject to litigation, there  are four leases, with a recorded liability of $189,110, that are in default. As required  by U.S. Generally Accepted Accounting Principles, the principal balance of the leases

19

that are in default have been classified as current liabilities. 

Successful settlement of the above claims is dependent on future  financing.

We may become involved in a lawsuit or legal proceeding at any time in  the ordinary course of business. Litigation is subject to inherent uncertainties, and an  unexpected adverse result may arise that may adversely affect our business. Certain  lawsuits have been filed against us for collection of funds due that are delinquent, as  described above. Other than as described above, we are currently not aware of any  litigation pending or threatened for any reason other than collection of funds due and  already recorded nor are we aware of any additional legal proceeding or claims that the  Company believes will have, individually or in the aggregate, a material adverse affect on  our business, financial condition or operating results.

 

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

 

PART II

ITEM 5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL  BUSINESS ISSUER PURCHASES OF EQUITY 
(a). Market Information. The Company’s common shares are  traded on the over-the-counter market under the symbol ITRO.OB, and quoted in the National  Quotation Bureau, Inc.'s "pink sheets" and on the NASD Electronic Bulletin  Board. In 2003 the Company’s stock began trading on the Frankfurt, Germany Stock  Exchange under the symbol ITG. In 2004 the Company’s stock began trading on the  Berlin Bremen Stock Exchange (Germany) under the symbol ITG. 

The following table sets forth the high and low bid prices for the  Company's common stock for each quarter for 2006, 2007, and through March 31, 2008. 
High BidLow Bid3/31/06
$0.08
$0.046/30/06
$0.05
$0.029/30/06
$0.04
$0.0112/31/06
$0.02
$0.013/31/07
$0.03
$0.016/30/07
$0.03
$0.019/30/07
$0.02
$0.00412/31/07
$0.005
$0.0023/31/08
$0.02
$0.003
These quotations  reflect inter-dealer prices without retail markup, markdown, or commissions, and may not  represent actual transactions.

(b) On March 31, 2008 the number of record holders of the Common Shares  was approximately 1,052.

20

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

Recent Sales of Unregistered Securities:

In October 2007 we issued an aggregate of 5,000,000 common shares John  W. Whitney, our President, upon conversion of $18,500 in short term loans. 

In October 2007, we issued an aggregate of 214,286 shares of common  stock valued at $1,500 to John W. Whitney, our President, as compensation for services  performed on our behalf in his capacity as a director of our Company for the third quarter  of 2007. 

In October 2007, we issued an aggregate of 30,000 shares of common  stock valued at $210 to two employees as compensation for services performed on our behalf  in their capacities as employees of our Company for the third quarter of 2007.

In November 2007 we issued an aggregate of 7,761,710 shares of common  stock valued at $15,523 to Wayne Baker as compensation for consulting services performed  on our behalf in 2007.

In November 2007 we issued an aggregate of 1,600,000 shares of common  stock valued at $200,000 to one accredited investor upon the conversion of the principal  portion of his Series 2000 Convertible Note. 

During the fourth quarter of 2007 we issued an aggregate of 382,925,910common shares to four accredited investors upon the  conversion of $387,545 in callable secured convertible notes.
On October 23, 2007, the Company entered into a Securities Purchase  Agreement with three accredited investors (the "Investors") for an aggregate  amount of (i) $275,000 in secured convertible notes, and (ii) warrants to purchase  15,000,000 shares of the Company’s common stock (the "Financing"). The  Company anticipates that the proceeds of the Financing will be used to advance its eight  part business plan which was summarized in its press release issued by the Company on June  3, 2005. The Financing will provide working capital to expand GOLD’n GRO fertilizer  sales, EPA registration of the GOLD’n GRO Guardian deer repellant fertilizer, certain  capital improvements to expand production capacity, and payment of existing debt  obligations.

The Financing was completed in one closing. The closing consisted of  gross proceeds of $275,000, less financing costs of $15,000, for net proceeds of $260,000.  

The Investors received three year convertible notes (the  "Notes") bearing simple interest at 8% per annum. The Notes are convertible into  the Company’s common stock at a price equal to the lesser of (i) $0.10 or (ii) 55% of  the average of the lowest 3 trading prices during the 20 trading day period ending one  trading day before the conversion date. In addition, we granted the Investors a further  security interest in substantially all of our assets, including the assets of our wholly  owned subsidiaries, and intellectual property. 

The parties entered into a Registration Rights Agreement whereby we are  required to

21

file a registration statement with the Securities and Exchange  Commission within 180 days of closing, registering the common stock underlying the secured  convertible notes and the warrants. If the registration statement is not declared  effective within 180 days from the date of closing, we are required to pay liquidated  damages to the investors. In the event that we breach any representation or warranty in  the Securities Purchase Agreement, we may be required to pay liquidated damages in shares  or cash, at our election, equal to two percent of the outstanding principal amount of the  secured convertible notes per month plus accrued and unpaid interest. 

The Investors received seven year warrants to purchase a total of  15,000,000 common shares of the Company at a purchase price of $0.004 per share. 

Other than under these Agreements and under certain specified  circumstances, should we issue shares of common stock below the market price, the exercise  price of the warrants will be reduced accordingly. 

The conversion price of the secured convertible notes and the exercise  price of the warrants may be adjusted in certain circumstances such as if we pay a stock  dividend, subdivide or combine outstanding shares of common stock into a greater or lesser  number of shares, or take such other actions as would otherwise result in dilution of the  selling stockholder's position. 

The Investors have agreed to restrict their ability to convert their  secured convertible notes or exercise their warrants and receive shares of our common  stock such that the number of shares of common stock held by them in the aggregate and  their affiliates after such conversion or exercise does not exceed 4.9% of the then issued  and outstanding shares of common stock. 

In addition to the above terms, the Company has agreed to restructure  the current and all previous unpaid Callable Secured Convertible Notes ("the  Notes") by increasing the discount on the conversion price from 50% to 60%, such that  the conversion price is 40% of the average of the lowest 3 trading prices during the 20  trading day period ending one trading day before the conversion date, instead of the 55%  as stated in the Notes and related Securities Purchase Agreements. 

On December 27, 2007, the Company entered into a Securities Purchase  Agreement with three accredited investors (the "Investors") for an aggregate  amount of (i) $200,000 in secured convertible notes, and (ii) warrants to purchase  15,000,000 shares of the Company’s common stock (the "Financing"). The  Company anticipates that the proceeds of the Financing will be used to advance its eight  part business plan which was summarized in its press release issued by the Company on June  3, 2005. The Financing will provide working capital to expand GOLD’n GRO fertilizer  sales, EPA registration of the GOLD’n GRO Guardian deer repellant fertilizer, certain  capital improvements to expand production capacity, and payment of existing debt  obligations.

The Financing was completed in one closing. The closing consisted of  gross proceeds of $200,000, less financing costs of $15,000, for net proceeds of $185,000.  

The Investors received three year convertible notes (the  "Notes") bearing simple interest at 8% per annum. The Notes are convertible into  the Company’s common stock at a price equal to the lesser of (i) $0.10 or (ii) 35% of  the average of the lowest 3 trading prices during the 20 trading day period ending one  trading day before the

22

conversion date. In addition, we granted the Investors a further  security interest in substantially all of our assets, including the assets of our wholly  owned subsidiaries, and intellectual property. 

The parties entered into a Registration Rights Agreement whereby we are  required to file a registration statement with the Securities and Exchange Commission  within 180 days of closing, registering the common stock underlying the secured  convertible notes and the warrants. If the registration statement is not declared  effective within 180 days from the date of closing, we are required to pay liquidated  damages to the investors. In the event that we breach any representation or warranty in  the Securities Purchase Agreement, we may be required to pay liquidated damages in shares  or cash, at our election, equal to two percent of the outstanding principal amount of the  secured convertible notes per month plus accrued and unpaid interest. 

The Investors received seven year warrants to purchase a total of  15,000,000 common shares of the Company at a purchase price of $0.001 per share. 

Other than under these Agreements and under certain specified  circumstances, should we issue shares of common stock below the market price, the exercise  price of the warrants will be reduced accordingly. 

The conversion price of the secured convertible notes and the exercise  price of the warrants may be adjusted in certain circumstances such as if we pay a stock  dividend, subdivide or combine outstanding shares of common stock into a greater or lesser  number of shares, or take such other actions as would otherwise result in dilution of the  selling stockholder's position. 

The Investors have agreed to restrict their ability to convert their  secured convertible notes or exercise their warrants and receive shares of our common  stock such that the number of shares of common stock held by them in the aggregate and  their affiliates after such conversion or exercise does not exceed 4.9% of the then issued  and outstanding shares of common stock. 

In addition to the above terms, the Company has agreed to restructure  all previous unpaid Callable Secured Convertible Notes ("the Notes") by  increasing the discount on the conversion price from 60% to 65%, such that the conversion  price is 35% of the average of the lowest 3 trading prices during the 20 trading day  period ending one trading day before the conversion date, instead of the 55% as stated in  the Notes and related Securities Purchase Agreements. 

We issued options to purchase an aggregate of 9,000 shares of common  stock to Michael C. Horsley, our Controller, on November 1, 2007. The options are  exercisable at $0.15 per share and expire three years after grant. 

We issued options to purchase an aggregate of 62,000 shares of common  stock to four of our employees in October and November 2007. The options are exercisable  at $0.15 to $0.16 per share per share and expire in three years to ten years from grant. 

All of the above offerings and sales were deemed to be exempt under  rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No  advertising or general solicitation was employed in offering the securities. The offerings  and sales were made to a limited number of persons, all of whom were accredited investors,  business associates of Itronics Inc. or executive officers of

23

Itronics Inc., and transfer was restricted by Itronics Inc. in  accordance with the requirements of the Securities Act of 1933. In addition to  representations by the above-referenced persons, we have made independent determinations  that all of the above-referenced persons were accredited or sophisticated investors, and  that they were capable of analyzing the merits and risks of their investment, and that  they understood the speculative nature of their investment. Furthermore, all of the  above-referenced persons were provided with access to our Securities and Exchange  Commission filings.

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

ITEM 6.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Some of the information in this report contains forward-looking  statements that involve substantial risks and uncertainties. You can identify these  statements by forward-looking words such as "may," "will,"  "expect," "anticipate," "believe," "estimate" and  "continue," or similar words. You should read statements that contain these  words carefully because they: 

- discuss our future expectations; 

- contain projections of our future results of operations or of our        financial condition; and 

     - state other "forward-looking"      information. 

We believe it is important to communicate our expectations. However,  there may be events in the future that we are not able to accurately predict or over which  we have no control. Our actual results and the timing of certain events could differ  materially from those anticipated in these forward-looking statements. 
**General Overview**
We are the inventor and developer of the "Beneficial Use  Photochemical, Silver, and Water Recycling" technology that produces environmentally  beneficial GOLD'n GRO fertilizers and silver bullion.

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

Our fertilizer is sold primarily through Western Farm Service, Inc.  (WFS), a wholly owned subsidiary of Agrium, Inc. (a NYSE company). Our distribution  agreement with WFS gives them exclusive rights to sell our fertilizer products in Arizona,  California, Hawaii, Idaho, Oregon, and Washington, which represented 99% of our

24

fertilizer sales in 2007 and 95% of such sales in 2006. This agreement  is discussed in more detail in the Business section. Our plans to increase GOLD’n GRO  fertilizer sales, including plans to expand the product line, expand to more geographical  regions in the U.S., enter new market segments, and add new distributors, are also  discussed in more detail in the Business section.

We obtain a significant portion of our raw materials to manufacture  fertilizer from used photoliquids. A byproduct of our fertilizer manufacturing process is  silver. We sell three types of silver: silver bullion, 5 troy ounce 99.9% pure Silver  Nevada Miner numismatic bars, and recycled film containing silver. Our processed silver  bullion is sold to a commercial refiner under standard industry terms, which include  pricing the silver based on published market quotes and applicable service fees. The  Silver Nevada Miner bars sell to the consumer collectibles market. Recycled film is  primarily X-ray film from hospitals that we sort and sell to a commercial film recycler;  we are paid based on the value of contained silver, 30 to 45 days after shipment. 

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

The majority of our raw material inventory is comprised of silver in  photochemical solutions. The table below indicates that silver prices were relatively  stable in 2001 to 2003, then rose dramatically in 2004 through 2007. We regularly compare  our weighted average cost of silver per ounce to current market prices; historically we  have not had impairment losses. The average London spot price of silver per ounce is shown  as follows:

                                Year

Year         2001  2002    2003  2004  2005  2006   2007
Silver      $4.36 $4.60 $4.88 $6.67 $7.32  $11.55 $13.38 

 

We also provide consulting services to the mining industry. To  supplement this business line, we launched an internet website. Our plans with regard to  the website are discussed more fully in the Growth Plan and Implementation section below.
**Critical Accounting Policies and Estimates.**
The preparation of financial statements in accordance with  accounting principles generally accepted in the United States requires that management  make a number of assumptions and estimates that affect the reported amounts of assets,  liabilities, revenues and expenses in our consolidated financial statements and  accompanying notes. Management bases its estimates on historical information and  assumptions believed to be reasonable. Although these estimates are based on  management’s best knowledge of current events and circumstances that may impact the  Company in the future, actual results may differ from these estimates.

25

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

Revenue Recognition**.**
We operate two divisions: Photochemical Fertilizer and Technical  Services. Within the fertilizer division, revenue is derived from three sources (1) sales  of fertilizer, (2) photochemical recycling including pick up and transportation of  photochemical waste and sales of Photochemical Silver Concentrators, and (3) sales of  silver. Fertilizer and retail silver sales are recognized when goods are shipped to our  customers. We pay 1% of invoice amount to our primary fertilizer distributor in order to  receive accelerated payment terms. The fee is netted against fertilizer sales. Sales of  silver bullion and silver in film are recorded when the silver content and the sales price  are determined, which is approximately two weeks after shipment for silver bullion and 30  to 45 days after shipment for film. Returns since inception have been nominal; therefore,  the Company has not established a returns allowance. Photochemical recycling fees are  recognized in income after the used photochemical solution is removed from our customer  sites and transported to our manufacturing facility.

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

 

Inventory. 

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

 

Convertible Debt Derivative 

The fair value of the conversion feature and the prepayment penalty are  estimated using the Black-Scholes option pricing model and taking a weighted average value  based on various probabilities that the debt would be paid off prior to maturity at  specified dates and therefore incurring the prepayment penalty. This model requires  management to use significant assumptions in applying the model to estimate the fair  value. As the Company’s stock price is highly volatile, and the underlying debt  amounts are relatively large, the valuation of the derivatives is subject to material  gains and losses from period to period. 
**26**Recent Accounting Pronouncements**
In December 2006 the FASB staff issued *FSP EITF 00-19-2*  "*Accounting for Registration Payment Arrangements*" to specify the  accounting treatment of contingent obligations to make future payments or otherwise  transfer consideration under a registration payment arrangement. Our callable secured  convertible debt includes an obligation for us to file registration statements with the  Securities and Exchange Commission (SEC) to register sufficient common shares for the note  holders to convert the debt into common stock frames and also obligates us to have the  registration statements declared effective by the SEC. This new standard requires us to  evaluate the contingent future payments under the criteria of a probable loss under FAS 5.  The Company adopted this new standard effective for the first fiscal quarter of 2007. The  new standard has not had a significant impact on the Company’s financial position or  results of operations. 

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

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

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

27

obtain meaningful sales typically between two and four years after  product launch. 

The primary factors affecting the revenue fluctuation between periods  in photochemical recycling revenue are our need to acquire this material for use in  fertilizer production and our ability to store this material until it is needed. We have  an unusual business model in that we need to sell our photowaste management services in  order to acquire a raw material necessary for the production of our fertilizer products,  as opposed to purchasing it from suppliers as most businesses do. Our management goal is  to combine the incoming volume of photowastes with existing stored photowastes to meet the  peaks in demand for fertilizer products. In the liquid fertilizer industry, the practice  of both our distributor and the ultimate consumer, the farmer, is to purchase fertilizer  on a just in time basis, to minimize their storage requirements and related costs. For  this same reason, we process our photowastes as needed for fertilizer production. Because  of this, the need to seek new customers to expand the service side of our business is  driven by fertilizer sales. There is also a seasonal factor in the consumer photography  portion of our photowaste management services business, with the Christmas holiday season  being the busiest, followed by the early summer, school graduation period. At present  volumes of photowaste, this is not a significant factor, but it could become one as we  grow. 

The primary factor affecting the revenue fluctuation between periods in  sales of silver bullion is our dependence on the timing of processing used photochemical  wastes, which is primarily dependent on fertilizer manufacturing and related sales. Our  silver in solution is separated from the photowaste materials during processing of the  photowastes for use in fertilizer manufacturing. As described above, the timing of  processing of photowastes is dependent on fertilizer sales, therefore sales of silver  bullion is also dependent on the level of fertilizer sales. Market price changes will also  contribute to silver revenue fluctuations by increasing or decreasing revenues depending  on whether the silver price increases or decreases.
**Comparison of the Year Ended December 31, 2007 with the Year Ended  December 31, 2006.

We reported consolidated revenues of $2,342,296 for the year ended  December 31, 2007, compared to $1,871,918 for the prior year, an increase of 25%. Revenues  for the GOLD’n GRO Fertilizer segment increased by $471,600, or 26%. Revenues from  the Mining Technical Services segment declined $1,200, or 4%. We reported a gross profit  of $124,200 for the year ended December 31, 2007 compared to a gross profit of $75,200 for  the year ended December 31, 2006, an improvement of $49,000, or 65%. The consolidated net  loss for 2007 was $10,482,500 or $0.021 per share compared to a 2006 consolidated net loss  of $3,809,900 or $0.016 per share, an increased loss of $6,672,600, or 175%. 

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

28

PHOTOCHEMICAL FERTILIZER 

Year Ended December 31,
2007
2006Revenue Fertilizer
$      1,663,361
$      1,297,282Photochemical      recycling
$ 334,965
$ 128,033Silver
$ 316,815
$ 418,265Total Segment      Revenue
$      2,315,141
$      1,843,580Gross profit      (loss) 
$ 130,998
$ 83,462Operating      income (loss) 
$(2,199,386)
$(1,682,464)Net income      (loss) before taxes 
$(9,881,206)
$(3,370,803)
Revenues for the  Photochemical Fertilizer segment totaled $2,315,100 in 2007, compared to $1,843,600 in  2006, an increase of $471,600, or 26%. 

Fertilizer sales were $1,663,400 (1,958 tons) and $1,297,300 (1,746  tons) for 2007 and 2006, respectively. This represents an increase of 28% in dollars and  an increase in tonnage of 12%. Our fertilizer product sales are presently grouped into  three primary categories, Chelated Liquid Micro-nutrients, Chelated Liquid  Multi-nutrients, and Chelated Secondary Nutrients. The Micro-nutrient category includes  five products, which includes the two zinc products, GOLD’n GRO 9-0-1+7% Zn and  GOLD’n GRO 9-0-2+3% Zn. These zinc products were introduced in 2001 and 2004,  respectively. The Multi-nutrient category has a total of six products, which includes the  GOLD’n GRO 4-0-9+6.6% S Base Liquid, which was introduced in 2003. The Secondary  Nutrient category includes GOLD’n GRO 11-0-0+5% Ca which was introduced in 2006 and  GOLD’n GRO 8-0-0+3% Mg which was registered in 2007. Sales of bulk Micro-nutrients  were $1,362,500 (1,438 tons) and $1,080,000 (1,259 tons) for 2007 and 2006, respectively,  an increase of 26% in dollars and 14% in tonnage. Sales of bulk Multi-nutrients were  $201,700 (483 tons) and $172,200 (479 tons) for 2007 and 2006, respectively, an increase  of 17% in dollars and an increase of 1% in tonnage. Sales of bulk Secondary Nutrients were  $49,300 (37 tons) and $10,800 (9 tons) for 2007 and 2006, respectively. The increase in  total sales dollars, was achieved by both volume and sales price increases during 2007. 

Photochemical recycling revenue was $335,000 and $128,000 in 2007 and  2006, respectively, an increase of 162%. Excluding the current year sale of a  Photochemical Silver Concentrator for $163,500, photochemical recycling revenue increased  34% on increased volume of 186%. In October and November 2006 we obtained two new large  scale wholesale customers and in April 2007 we added a third wholesale customer. The  addition of these customers is expected to increase photochemical raw material (on an  unconcentrated basis) to a level about 50% greater than the volume at the end of 2004 when  our contract with Shutterfly was ended (Shutterfly supplied 65% of our 2004 photochemical  raw materials). 

We previously developed statistical information that more than 50  million gallons of used liquid silver-bearing photochemicals are generated in the United  States annually. Using conversion ratios developed for the GOLD'n GRO fertilizers, this is  enough volume to support manufacture and sale of more than 100 million gallons of liquid  fertilizer products, or about 500,000 tons, so we believe the raw material is available in  the market to meet future manufacturing needs. Based on 2007 production usage, we estimate  that current supplies of photochemical raw material in storage at our manufacturing plant,  combined with ongoing receipts of material from other existing customers, is sufficient to  meet fertilizer production needs through 2008,

29

depending on fertilizer sales volumes. We anticipate that with  continuing sales growth, we will need to obtain new large scale photochemical recycling  customers to meet the demand. 

We are in contact with both small and large photochemical generators,  and are actively marketing Photochemical Silver Concentrators. The concentrators allow us  to receive the raw materials needed to manufacture our fertilizer in much smaller volume,  resulting in a higher content of chemicals desirable for fertilizer manufacturing,  reducing the storage problems we were facing. The Photochemical Silver Concentrators are  manufactured under contract by a third party to meet the specifications of each customer.  Concentrators typically sell for $20,000 to $200,000. By using a third party manufacturer  to produce the Concentrators, we are outsourcing the fixed and variable costs that are  associated with assembling them. Primarily, these are the facilities space needed to  assemble the various parts and the specialized equipment and labor required for the  assembly. Generally, we have self financed the production of Concentrators sold in the  past. In the future, we anticipate that non-governmental customers will advance the funds  necessary to acquire the parts and labor needed to produce the Concentrators. For our most  recent governmental customer, we borrowed the funds needed to fulfill the contract from an  unrelated individual. We anticipate using similar arrangements for future Concentrators  sold to governmental customers. 

Silver revenue was $316,800 and $418,300 for 2007 and 2006,  respectively, a decrease of $101,500, or 24%. Sales of all silver or silver bearing  products were $293,900 (21,818 ounces) for 2007, compared to $399,200 (33,690 ounces) for  2006. This is a decrease of 26% in dollars and 35% in ounces. The decrease is primarily  from decreased sales of processed silver bullion due to a combination of closing the  refinery during the first quarter for installation of a scrubber for air quality purposes  and to problems with our power supply in to the refinery. The power supply issue has been  reduced in recent months, but not eliminated. We are continuing to work with the local  power company to solve the problem. 

Combined cost of sales and operating expenses for the segment amounted  to $4,514,500 in 2007, compared to $3,526,000 in 2006, an increase of 28%. Cost of sales  increased approximately $424,000, primarily due to an increase of raw material costs of  $267,000 from increased sales, $70,000 in increased payroll and related costs, and $27,700  in transportation costs related to increased travel for the new wholesale photowaste  customers. The changes in revenues and cost of sales resulted in a 2007 gross profit of  $131,000 compared to a gross profit of $83,500 in 2006, an improvement of $47,500, or 57%.  Operating costs increased $564,500 due primarily to increases of $379,900 in sales and  marketing, $59,800 in research and development, and $119,300 in general and administrative  costs. Sales and marketing expenses increased primarily due to increased corporate  marketing. The increase in research and development costs is related primarily to the EPA  registration of the GOLD’n GRO Guardian deer repellant. General and administrative  expenses increased primarily due to $161,700 in consulting services for seeking  operational funding, which was partially offset by a reduction in payroll and related  costs of $54,200. 

A significant portion of our silver inventory is contained in  byproducts from our refining process. We have developed new procedures to more cost  effectively obtain this silver and initial plans were to install the necessary equipment  in 2006 and recover the majority of it during 2006. The project was delayed by the  necessity of installing air purification equipment in the refinery. The air purification  system was substantially completed in March 2007. Plans were developed to determine the

30

specifications of the equipment needed to process the byproducts and  obtain the silver. We estimate there will be a two stage process of equipment  installation. The equipment for the first stage was received in early 2008 and a temporary  installation has been completed. Silver recovery is expected to begin during the second  quarter of 2008. Planning is underway for the second stage, and, subject to funding, is  expected to be completed in the third quarter of 2008. In order to determine the amount of  the silver contained in these materials, we developed an estimate of recoverable silver  ounces. Accordingly, we recorded a recoverability reserve of $70,200 based on our estimate  of recoverable silver at December 31, 2006. The portion of silver that we estimate will be  recovered in 2008 was deemed to be slow moving inventory, and accordingly, we recorded a  reserve of $34,000. Our review of these reserves determined that the reserves were  adequate as of December 31, 2007. 

These changes in revenues and operating expenses resulted in a segment  operating loss of $2,199,400 in 2007, compared to $1,682,500 in 2006, an increased loss of  $516,900 or 31%. 

Other income (expense) increased to a net expense of $7,681,800 for  2007, compared to a net expense of $1,688,300 in 2006, an increased net expense of  $5,993,500. The primary reason for the increased expense is an increase of the loss on  derivatives of $6,256,700, which is related to the callable secured convertible debt  financing obtained in July 2005 and subsequent dates. This increase was partially offset  by a decrease in interest expense of $87,100 related to the convertible debt financing and  other income of $205,900 from the sale of a membership interest in our worker’s  compensation mutual insurance company. 

The changes in operating loss and other expenses resulted in a segment  net loss before taxes of $9,881,200 for 2007 compared to $3,370,800 for 2006, an increased  loss of $6,510,400 or 193%. 

 

MINING TECHNICAL SERVICES 
Year Ended      December 31, 
2007
2006 Revenue 
$27,155
$ 28,338Gross profit (loss) 
$(6,838)
$ (8,269)Operating income (Loss) 
$(744,042)
$(542,042)Net income (loss) before      taxes 
$(601,318)
$(439,082)
Mining technical  services revenue totaled $27,200 for 2007 compared to $28,300 for 2006, a decrease of 4%.  Included in these revenue figures are pass-through expenses of $1,500 and $2,500 for 2007  and 2006, respectively. Excluding these amounts, revenues amounted to $25,600 and $25,800  for 2007 and 2006, respectively, a nominal decrease. The number of clients we serve and  the amount of work needed by those clients varies from period to period.

Combined cost of sales and operating expenses totaled $771,200 for 2007  compared to $570,400 for 2006, an increase of 35%. Research and development expense  increased $41,700. Research and development expense is related to the development of the  insidemetals.com website. The majority of this expense is an allocation of personnel  costs. Sales and marketing increased $152,500 due to the addition of a marketing position  in October 2006 and to increased advertising related to the insidemetals.com

31

website. 

The redirection of Whitney & Whitney, Inc. to reduce emphasis on  technical consulting services and to launch an internet information portal is brought  about by the fact that Dr. Whitney, our President, has often been the lead person in  generating new consulting contracts. Our President’s increased responsibilities for  managing the expanding photochemical recycling segment and overall corporate activities  has reduced his time availability to actively participate in the consulting segment. Part  of our objective in shifting the focus of the technical services segment is to retain our  core professional staff that can provide assistance on possible future technical service  contracts as well as perform administrative duties for the photochemical recycling  segment, while at the same time adding a potential source of revenue that is not dependent  upon labor sales and which can be managed by a professional staff. The information portal  also better utilizes the Whitney & Whitney, Inc. library and information resources  that are already in existence. For the years ended December 31, 2006 and 2005 we allocated  costs of approximately $248,500 and $206,900, respectively, to the development of the web  site. The site was launched in mid-August 2005 and we are now fine-tuning the general  presentation and functionality of the site, as well as improving the profiled mining  company information. We expect this level of spending to decline beginning in the first  quarter of 2008. As improvements to the site are completed and information maintenance  becomes routine, we will adjust or redirect staff resources as needed. A program to  solicit advertising customers was developed and is being offered to gold exploration  companies beginning in the first quarter of 2007. We hired a manager of marketing and  sales in October 2006. He was responsible for marketing efforts for both the  insidemetals.com website and for technical consulting services to the mining industry.As no revenue was generated  from this work, the position was eliminated in February 2008. We are presently evaluating  the steps we need to take to improve the revenue growth from the website. 
The above changes in revenues and operating expenses resulted in a  segment operating loss of $744,000 for 2007, compared to $542,000 for 2006, an increased  operating loss of $202,000 or 37%. 

Other income (expense) is a net gain of $142,700 for 2007, compared to  a net gain of $103,000 in 2006, an improvement of $39,800. The improvement is due to the  sale of a membership interest in our worker’s compensation mutual insurance company. 

The changes in operating loss and other income resulted in a segment  net loss before taxes of $601,300 for 2007, compared to $439,100 for 2006, an increased  loss of $162,200, or 37%. 
**Changes in Financial Condition; Capitalization**
We had a cash balance of $93,000 as of December 31, 2007 compared  to a cash overdraft of $13,800 as of December 31, 2006. Net cash used by operations was  $1,890,900 in 2007 compared to $1,698,200 in 2006. Operating resources utilized to finance  the 2007 operations include approximately $859,400 in expenses paid with our common stock,  $151,000 in increased accounts payable, and $225,900 in deferred management salaries. Cash  amounting to approximately $61,400 was invested in property and equipment in 2007,  primarily for equipment in the manufacturing plant. Sale of our interests in our  workers’ compensation mutual insurance company provided $348,000 in cash from  investing activities. The primary financing source of cash in 2007 was $1,960,000 in

32

proceeds from callable secured convertible debt, less $140,100 in debt  issuance costs. 

Total assets increased from $4,265,500 at December 31, 2006 to  $4,355,900 at December 31, 2007. Current assets increased $193,700. The primary changes in  current assets were increases in cash of $93,000 and $341,600 in inventory, which were  partially offset by decreases in accounts receivable of $18,900 and $221,900 in prepaid  expenses. The increase in inventory is primarily from silver in our photowaste products  due to the refinery issues discussed above. The reduction in prepaid expenses was  primarily due to a $250,000 2007 corporate marketing program paid in common stock at the  end of 2006 that was not renewed for 2008. 

Property and equipment decreased by $91,200 due to investment in  equipment totaling $118,200, which was offset by an increase in accumulated depreciation  and amortization of $209,500. Other assets decreased $12,200 due to in the amortization of  deferred loan fees related to the callable secured convertible debt financing. 

Total liabilities increased from $11,695,000 at December 31, 2006 to  $20,019,800 at December 31, 2007, an increase of $8,324,800. Of this amount, current  liabilities increased $8,896,300 and long term liabilities decreased $571,500. The primary  increase in liabilities was due to the change in estimated fair value of our callable  secured convertible Notes. The Notes must be accounted for as derivative liabilities and  recorded at estimated fair value at each reporting date, which was $13,003,800 at December  31, 2007 and $4,876,200 at December 31, 2006. The increase in the estimated fair value of  convertible debt derivatives of $8,127,600 in 2007 was primarily due to the addition of  $2.06 million in Notes, offset by the conversion of $1.021 million in Notes, a reduction  in our stock market price as of December 31, 2007 compared to previous periods, and an  increase of the discount to market upon conversion of Notes from 45% at December 31, 2006  to 65% at December 31, 2007. In addition, all outstanding warrants and options are  required to be recorded as derivative liabilities at estimated fair value, which was  $231,200 at December 31, 2007 and $380,100 at December 31, 2006. The value of the warrants  and options decreased primarily due to the decrease in our stock market price compared to  previous periods. A more detailed discussion of the factors affecting the estimated fair  value of our derivatives follows:

In estimating the fair value of warrants and options and determining  the gain or loss on the derivative for each period, the most significant factor is the  stock price at the end of each period. As the stock price goes up, the value of warrants  and options goes up, and consequently there is a greater loss on derivatives. As the stock  price goes down, the value of the warrants and options goes down and consequently there is  a greater gain on derivatives. As of December 31, 2007, the stock price was $0.0026 and at  December 31, 2006 it was $0.013. This decrease in stock price resulted in a reduction in  the value of the warrants and options and consequently, there was a $156,200 gain on  warrant and option derivatives for the year ended December 31, 2007. 

The factors affecting the valuation of the convertible debt derivatives  are more complex. As the stock price goes up, that would tend to increase the value of the  derivative and therefore increase the loss. However, an increased stock price also results  in fewer shares needed to convert the debt, which tends to lower the value and reduce the  loss. The reverse is true as the stock price goes down. Another factor that affects the  valuation model is the length of time it takes to convert the debt. We estimate that  length by first determining the number of shares it takes to convert

33

the debt based on the stock price on the balance sheet date. We then  estimate how many shares will be issued to convert debt on a monthly basis based on recent  conversion history from our investors. In general, the investors have increased the  frequency of conversions and the number of shares converted as the stock price has gone  down. Also affecting the conversion practice of the investors is recent changes in  interpretation of the securities laws by the SEC as to the frequency of filing  registration statements. It was originally contemplated under the general concept of this  type of financing that registration statements could be filed as frequently as needed and  with as many shares being registered as needed to meet the terms of the agreements. In  recent months, the SEC has determined to restrict registration filings for the same  investor group to once every six months and to restrict the number of shares being  registered to approximately one third of the outstanding shares held by non-affiliates.  This factor has tended to lengthen the estimated time it will take to convert the debt  which increases the value of the debt derivatives, and therefore increases the loss on  derivatives. However, beginning in the third quarter of 2007, some of our Notes have been  outstanding over two years. At that point the investors can convert the debt into stock  under Rule 144 without limitation, except for the 4.99% of outstanding shares under the  terms of the agreements. Consequently, there has been a substantial increase in the  frequency of conversions and in the number of shares being issued for each conversion.  This would tend to shorten the time period necessary to convert the Notes into common  stock. In the Black-Scholes option pricing model, this decreases the value of the  derivatives, and therefore, increases the gain on derivatives. Conversely, at December 31,  2007 the lowered market price, combined with the increase in the market price discount  from 45% to 65%, the number of shares needed to convert the debt is over 6 billion shares,  which has substantially increased the length of time needed to convert all of the debt. At  December 31, 2006 we had estimated a period of 16 months to convert the debt, while at  December 31, 2007 the estimated period was 35 months. These factors resulted in a loss on  convertible debt derivatives of $6,954,400 for the year ended December 31, 2007.

Current liabilities increased primarily due to the increase in  convertible debt derivatives of $8,127,600 discussed above. Current liabilities also  increased due to increases in accounts payable of $151,000, interest payable to management  of $70,000, current maturities of convertible notes and accrued interest of $193,800,  current maturities of long term debt of $391,500, and current maturities of capital lease  obligations of $75,000. The current portion of long term debt and capital lease  obligations increased due to the respective obligations being in default at December 31,,  2007, requiring the classification of all the debt as current liabilities. 

In connection with the callable secured convertible debt discussed  above, we registered 50 million shares in February 2006 and increased the authorized  shares in March 2006 to 1 billion shares. We also completed registrations of 75 million  shares each in October 2006 and June 2007. 
**Working Capital/Liquidity**
During the year ended December 31, 2007, the working capital  deficit was increased by $8,702,500 to a deficit balance of $18,842,100. The primary  changes in working capital are the increase in callable secured convertible debt financing  as discussed above. The Company has had limited cash liquidity since the third quarter of  2000. The Company has sought and obtained the funding described above, which has not been  sufficient to maintain all obligations on a current basis. The cash shortage is

34

primarily because fertilizer sales in 2007 and prior years did not  expand to the extent anticipated, so operating losses were not reduced as expected.  Second, the $15 million equity line of credit agreement with Swartz Private Equities, LLC  (Swartz) was not able to function to meet the Company’s ongoing working capital needs  and was allowed to expire on February 27, 2004. As a result, various private placements of  stock with attached three year warrants were undertaken beginning in the fourth quarter of  2002 into 2005. In addition, the Company sold GPXM and other shares for net proceeds of  $229,400 during the year ended December 31, 2006. We obtained callable secured convertible  debt financing beginning in 2005 and received proceeds of $1,960,000, less debt issuance  costs of $140,100 in 2007 and proceeds of $1,941,200, less debt issuance costs of $247,600  in 2006. Subsequent to December 31, 2007, we received net proceeds of $300,000 in  additional callable secured convertible debt financing. We anticipate these proceeds will  provide for the Company’s working capital needs to April 2008.

We are actively working to establish longer term financing that will  provide capital sources for the Company’s financing needs over a three to five year  period. Once this plan is established, needs for financing will be adjusted and the plan  will be extended annually.

 

 

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

 

 

ITEM 8.CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
To our knowledge, there is no accounting or financial disclosure  dispute involving any present or former accountant.

ITEM 8A CONTROLS AND PROCEDURES
**Disclosure Controls and Procedures**
As required by Rule 13a-15 under the Exchange Act, our  management, including our Chief Executive Officer and our Chief Financial Officer,  evaluated the effectiveness of the design and operation of our disclosure controls and  procedures as of December 31, 2007.

Disclosure controls and procedures refer to controls and other  procedures designed to ensure that information required to be disclosed in the reports we  file or submit under the Securities Exchange Act is recorded, processed, summarized and  reported within the time periods specified in the rules and forms of the SEC and that such  information is accumulated and communicated to our management, including our Chief  Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions  regarding required disclosure. In designing and evaluating our disclosure controls and  procedures, management recognizes that any controls and procedures, no matter how well  designed and operated, can provide only reasonable assurance of achieving the desired  control objectives, and management is required to apply its judgment in evaluating and  implementing possible controls and procedures.

35

Management conducted its evaluation of disclosure controls and  procedures under the supervision of our Principal Executive and Financial Officer and our  Principal Accounting Officer. Based on that evaluation, our Principal Executive and  Financial Officer and Principal Accounting Officer concluded that because of the material  weakness in internal control over financial reporting described below, our disclosure  controls and procedures were not effective as of December 31, 2007.

 
*Management’s Report on Internal Control over Financial  Reporting*
Our management is responsible for establishing and maintaining  adequate internal control over financial reporting as defined in Rules 13a-15(f) and  15d-15(f) under the Securities Exchange Act.  Our management is also required to  assess and report on the effectiveness of our internal control over financial reporting in  accordance with Section 404 of the Sarbanes-Oxley Act of 2002 ("Section  404").  Management assessed the effectiveness of our internal control over  financial reporting as of December 31, 2007.  In making this assessment, we  used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway  Commission (COSO) in Internal Control – Integrated Framework.  During  our assessment of the effectiveness of internal control over financial reporting as of  December 31, 2007, management identified material weaknesses related to the  following:
* Accounting and Reporting Oversight – Because  of our size, we have ineffective segregation of duties relative to key financial reporting  functions. However, one person in our company, our Principle Accounting Officer/Controller  has extensive US GAAP accounting and SEC reporting experience. However, we do not have  anyone else on staff with sufficient knowledge to review his work for completeness and  accuracy. We do not have anyone with financial expertise on our Board so we have been  unable to form an audit committee to perform oversight of this function.

In order to correct the foregoing weaknesses, we have taken the  following remediation measures:

 

We continue to search for independent directors; however, given our  current financial condition, we expect we will not be successful until we can become  profitable and/or adequately funded.
**Changes in Internal Controls.

There was no change in our internal controls or in other factors that  could affect these controls during our last fiscal quarter or subsequent to our last  evaluation that has materially affected, or is reasonably likely to materially affect, our  internal control over financial reporting.

36

PART III

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

A. I. Directors and Executive Officers - Summary Information.
The following are the directors and executive officers of the Company:

Age as ofName
12/31/07PositionPosition Held SinceDr. John W. Whitney
61President/Treasurer May 1988DirectorHowland S. Green
54Northeast Manager April 2005of GOLD’n GRO salesDirectorGregory S. Skinner 
53SecretaryDecember 1990Duane H. Rasmussen
77Vice 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 of Directors, presently scheduled to  be held immediately following the annual meeting of the shareholders.

 

II. Narrative Information Concerning the Directors and Executive
Officers of the Company.

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

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

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

37

Oil & Refining Company and GeoTerrex Ltd. (1971-1972).

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

Howland S. Green

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

 

Gregory S. Skinner, Esq.

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

 

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

38

Engineering Group, Inc. in varying capacities, including Project  Manager, Regional Sales Manager, Regional Vice President, and Group Vice President.

 

B. AUDIT COMMITTEE

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

 

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

 

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

The following table sets forth information as to the compensation of  the Chief Executive Officer and the four most highly compensated officers whose  compensation for the year ended December 31, 2007 exceeded $100,000:
Summary      Compensation Table: 
NonqualifiedName and
DeferredPrincipalCalendar
Compensation
All OtherPosition
Year
Salary
Earnings
Compensation
TotalDr. John W.      Whitney:President,      Treasurer 
2007
$131,000
$33,006
$ 3,138
$167,144and Director      (1) (2) 
2006
$126,788
$28,310
$ 3,138
$158,236Duane H.      RasmussenVice President,      VPand General      Manager IMI (3)
2007
$132,000
$25,420
-
$157,420
2006
$132,000
$21,731
-
$153,731
(1) The 2007 and 2006  salary amounts include $98,566 and $74,600, respectively, that were not paid currently. 

39

Dr Whitney has $709,566 in unpaid salary as of December 31, 2007, of  which $506,000 is committed to be converted into 15,250,000 common shares. The shares will  be issued when sufficient cash is available to pay required payroll tax withholdings. This  unpaid salary has accumulated since July 2001 and interest at 12% per annum accrues on the  unpaid balance. The interest rate is based on the rate accruing to investors on  convertible debt private placements in effect in 2001. Interest earned was $79,372 and  $68,080 for 2007 and 2006, respectively. Of the 2007 amount, $67,104 remained unpaid at  December 31, 2007. The Nonqualified Deferred Compensation Earnings amounts in the above  table represent accrued interest in excess of a defined interest rate using 120% of the  July 2001 federal long term applicable rate. 

(2) The salary amounts listed above include $6,000 and $1,788 for 2007  and 2006, respectively, that represent compensation paid in common stock for service as a  director of the Company. 

(3) The 2007 and 2006 salary amounts include $72,500 and $72,500,  respectively, that were not paid currently. 

Mr. Rasmussen has $559,500 in unpaid salary as of December 31, 2007, of  which $154,000 is committed to be converted into 1,925,000 common shares. The shares will  be issued when sufficient cash is available to pay required payroll tax withholdings. This  unpaid salary has accumulated since July 2001 and interest at 12% per annum accrues on the  unpaid balance. The interest rate is based on the rate accruing to investors on  convertible debt private placements in effect in 2001. Interest earned was $61,130 and  $52,260 for 2007 and 2006, respectively. Of the 2006 and 2007 amounts, $63,845 remained  unpaid at December 31, 2007. An additional total of $37,430 in interest earned from July  2004 to June 2005 remains unpaid and will be paid by issuing 500,703 restricted common  shares. The Nonqualified Deferred Compensation Earnings amounts in the above table  represent accrued interest in excess of a defined interest rate using 120% of the July  2001 federal long term applicable rate.

Outstanding Equity Awards at Fiscal Year-End:
 
Number of      Securities

Underlying Unexercised   
Options      at
Option
Option 
12/31/07
Exercise
ExpirationName 
Exercisable
Price 
DateDr. John W. Whitney 
1,000,000
$0.25One year after employment      ends 
3,000,000
$0.30
One year      after employment ends  
550,000
$0.15
One year      after employment ends Total
4,550,000      Duane H. Rasmussen
425,000
$0.15
One year      after employment ends
 
Director Compensation:
StockName
Awards
TotalDr. John W. Whitney 
$ 6,000
$ 6,000Howland S. Green
$ 6,000
$ 6,000
40

 

The compensation plan for all directors was $1,500 per quarter in  common stock beginning with the fourth quarter of 2006. 

ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND  RELATED STOCKHOLDER MATTERS
a) Equity Compensation Plan Information  
Number      of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average      exercise price of outstanding options, warrants and rights
Number of      securities remaining available for future issuance under equity compensation plans      (excluding securities reflected in column (a)
Plan      Category
(a)
(b)
(c)Equity compensation plans      approved by security holders
-0-
$-0-
-0-Equity compensation plans      not approved by security holders
6,264,000
$0.240
2,393,583    
Total
6,264,000
$0.240
2,393,583
 

b) Security Ownership of Certain Beneficial Owners.
The following table sets forth certain data with respect to those  persons known to the Company, as of March 31, 2008, to be the beneficial owners of more  than 5% of the outstanding 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)
33,081,313
20,300,000
53,381,313
5.2
(1) Director

(2) Officer

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

(4) Dr. Whitney’s options include compensatory options of  1,000,000 common shares at $0.25 per share, 3,000,000 common shares at $0.30 per share,  and 550,000 common shares at $0.15 per share. The options are exercisable at any time  until one year after Dr. Whitney leaves the employment of the Company. The Common Shares  Which May

41

Be Acquired Within 60 Days also includes 15,250,000 shares that are to  be issued to Dr. Whitney when sufficient cash is available to pay payroll tax withholdings  and 500,000 common shares to be issued in connection with his service on the Board of  Directors.

c) Security Ownership of Management.
The following table sets forth as of March 31, 2008, certain  information, with respect to 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) 
33,081,313
20,300,000
53,381,313
5.2Howland S. Green895 Liberty LaneWest Kingston, RI 02892
1,899,483
1,500,000
3,399,483
0.3Duane H. RasmussenP.O. Box 10725Reno, NV 89510 (4)
2,202,973
2,850,703
5,053,676
.5All directors andexecutive officers asa group (4 persons) 
37,836,088
24,650,703
62,486,791
6.1
(1) Dr. Whitney’s options  include compensatory options of 1,000,000 common shares at $0.25 per share, 3,000,000  common shares at $0.30 per share, and 550,000 common shares at $0.15 per share. The  options are exercisable at any time until one year after Dr. Whitney leaves the employment  of the Company. The Common Shares Which May Be Acquired Within 60 Days also includes  15,250,000 shares that are to be issued to Dr. Whitney when sufficient cash is available  to pay payroll tax withholdings and 500,000 common shares to be issued in connection with  his service on the Board of Directors.

In April 2005 Mr. Green was granted a compensatory option to acquire  1,000,000 of the Company’s restricted common shares at $0.10 per share. The first  500,000 shares subject to the option became exercisable when the Federal EPA accepted the  registration application for the GOLD’n GRO Guardian and the second 500,000 shares  subject to the option became exercisable when the Federal EPA issued the registration for  the GOLD’n GRO Guardian. The entire option is exercisable for two years after the EPA  registration was received in March 2008. The Common Shares Which May Be Acquired Within 60  Days includes 500,000 common shares to be issued in connection with his service on the  Board of Directors. 

Mr. Rasmussen was granted a compensatory option to acquire 425,000  restricted common shares at $0.15 per share. This option is exercisable at any time until  one year after Mr. Rasmussen leaves the employment of the Company. The Common Shares Which  May Be Acquired Within 60 Days also includes 2,425,703 shares that are to be issued to Mr.  Rasmussen when sufficient cash is available to pay payroll tax withholdings.

42

(2) The percent of class is based on the sum of 999,996,999 shares  outstanding as of March 31, 2008 plus, for each individual, the number of common shares as  to which the named individual has the right to acquire beneficial ownership within 60 days  of March 31, 2008

.

(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 changes in control of the Company.

 

ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR  INDEPENDENCE.
Advances from an  officer/stockholder totaled $143,025 and $161,525 at December 31, 2007 and 2006,  respectively. 
$779,073 and $796,200 of the accrued management salaries as of December  31, 2007 and 2006, respectively, is for salary in arrears due to several  officer/stockholders and employee/stockholders. In addition, salary in arrears of $746,800  and $514,800 for 2007 and 2006, respectively, are included in stock to be issued at the  respective year ends. These amounts represent the portion of salaries earned but unpaid  that the officers/employees/stockholders have agreed to accept in the Company’s  common stock and have relinquished their right to receive cash. When the stock is  eventually issued, it will be issued at the market price on the date of the respective  agreements. The number of shares to be issued is 18,173,958 and 6,348,958 for 2007 and  2006, respectively. Issuance of the stock is pending sufficient cash available to pay the  related federal withholding taxes. Interest expense at 12% per annum on salaries due  officer and employee/stockholders amounted to $168,146 and $143,478, respectively, in 2007  and 2006. 

Interest expense on related party loans amounted to $18,851 and $19,383  for the years ended December 31, 2007 and 2006, respectively. Accrued interest on related  party loans and accrued salaries totaled $157,181 and $87,211 at December 31, 2007 and  2006, respectively. 

During 2003, WWI’s lease of a vehicle utilized by Dr. Whitney was  completed. Dr. Whitney purchased the vehicle by financing it through a commercial lender.  The purchase price was $21,741 and the monthly payment for four years is $531. WWI is  leasing the vehicle from Dr. Whitney by making the monthly payments to the commercial  lender and acquired ownership of the vehicle when the loan was paid off in 2007. 

43
 

Director Independence

The Company had two directors who served on the Board during 2007.  Dr. John W. Whitney is the President and Treasurer, and as such he is not independent.  Howland S. Green serves as the Northeast Manager of GOLD’n GRO sales, and as such he  is not independent. 

 

 

ITEM 13.FINANCIAL STATEMENTS AND EXHIBITS 
I. Index of Financial Statements and Exhibits1. Index of Financial      Statements:
Page      No.REPORT OF INDEPENDENT      REGISTERED PUBLIC ACCOUNTING FIRM
45Consolidated Balance Sheets      as of December 31, 2007 and 2006
47Consolidated Statements of      Operations for the Years endedDecember 31, 2007 and 2006
49Consolidated Statements of      Stockholders' Equity (Deficit)for the Years ended      December 31, 2007 and 2006
50Consolidated Statements of      Cash Flows for the Years endedDecember 31, 2007 and 2006
51Notes to Consolidated      Financial Statements
532. Index of Exhibits:14 Code of Business Conduct      and Ethics
8421 List of significant      subsidiaries 
8531 Rule 15d-14(a)      Certification
8632 Section 1350      Certification
90
 

 

STATEMENTS AND SCHEDULES

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

44

 
**REPORT OF INDEPENDENT REGISTERED  PUBLIC ACCOUNTING FIRM**
 

To the Board of Directors and Shareholders  of Itronics, Inc

 

We have audited the accompanying consolidated balance sheet of Itronics  Inc. and subsidiaries (the "Company") as of December 31, 2007, and the related  consolidated statements of operations, stockholders’ equity (deficit) and cash flows  for the year then ended. These consolidated financial statements are the responsibility of  the Company’s management. Our responsibility is to express an opinion on these  consolidated financial statements based on our audit. The consolidated financial  statements of the Company as of December 31, 2006, were audited by other auditors whose  report dated April 11, 2007, expressed an unqualified opinion on those statements.

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

In our opinion, the consolidated financial statements referred to above  present fairly, in all material respects, the financial position of the Company as of  December 31, 2007, and the results of its operations and cash flows for the year then  ended in conformity with accounting principles generally accepted in the United States of  America.

The accompanying financial statements have been prepared assuming that  the Company will continue as a going concern. As of December 31, 2007, the Company has an  accumulated deficit of $42,143,980, a negative working capital of $18,842,148, and a  stockholders’ deficit balance of $15,663,973, and is in default on various leases and  loans. The Company’s ability to continue as a going concern is contingent upon the  Company’s ability to generate sufficient cash either through operations or through  capital injections from debt or equity offerings, to meet obligations as they become due.  These conditions raise substantial doubt about the Company’s ability to continue as a  going concern. Management’s plans regarding this matter are described in Note 14. The  financial statements do not include any adjustments that might result from the outcome of  this uncertainty.

/s/ Moore Stephens Wurth Frazer and Torbet, LLP

Walnut, California

April 14, 2008

45

 

Report of Independent Registered Public Accounting Firm

 

The Board of Directors and Shareholders

Itronics, Inc.

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

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

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

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

 

/s/CACCIAMATTA ACCOUNTANCY CORPORATION

Irvine, California

April 11, 2007

46

 

 

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2007 AND 2006

 

ASSETS
 
2007
2006CURRENT ASSETS   Cash 
$ 92,987
$ -Accounts receivable, less      allowance for  doubtful accounts, 2007,      $4,600; 2006, $4,600
17,561
36,493Inventories
889,996
548,399Prepaid expenses
94,952
316,872Total Current Assets
1,095,496
901,764   PROPERTY AND EQUIPMENT   Land 
215,000
215,000Building and improvements
1,312,409
1,167,315Design and construction in      progress,   manufacturing facility
97,110
234,347Equipment and furniture 
2,879,938
2,543,682Vehicles 
222,298
200,557Equipment under capital      lease-equipment and furniture
466,571
692,438Equipment under capital      lease-vehicles
-
21,741 
5,193,326
5,075,080Less: Accumulated      depreciation and amortization
2,341,004
2,131,542Total Property and      Equipment 
2,852,322
2,943,538   OTHER ASSETS   Intangibles 
76,500
76,500Deferred loan fees, less      accumulated amortization 2007,  $580,849; 2006, $328,120 
323,042
335,629Deposits
8,508
8,108Total Other Assets 
408,050
420,237 
$4,355,868
$4,265,539
 

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

 

47

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
2007
2006CURRENT LIABILITIES   Bank overdraft*******