UNITED STATES

SECURlTIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-KSB

(Mark One)

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

      EXCHANGE ACT OF 1934

                           For the fiscal year ended **December 31, 2003**
( )   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 

      EXCHANGE ACT OF 1934 (No Fee Required)

For the Transition period from______ to_______

Commission file number 33-18582
**ITRONICS INC.**
(Name of small business issuer in its charter)

                     Texas                                  75-2198369
         (State or other jurisdiction of         (I.R.S. Employer Identification Number)

           incorporation ororganization)

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

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

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

State issuer's revenues for its most recent fiscal year: $1,268,787. 

The aggregate market value of the voting stock held by non-affiliates, computed byreference to the average of the bid and asked prices for such stock as of February 29,2004, was $18,790,000.

As of February 29, 2004 there were issued and outstanding 128,316,161 shares of theRegistrant's Common Stock.

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ITRONICS INC. AND SUBSIDIARIES

2003 FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS
PART I 
PAGEItem 1. Description of Business 
4Item 2. Description of Property 
24Item 3. Legal Proceedings
25Item 4. Submission of Matters to a    Vote of Security Holders 
26PART IIItem 5.Market for Common Equity    and Related Stockholder Matters
26Item 6.Management's Discussion and    Analysis or Plan of Operation
27Item 7. Financial Statements
31Item 8. Changes in and    Disagreements with Accountants on 
Accounting and Financial Disclosure
31Item 8AControls and procedures
32PART IIIItem 9.Directors and Executive    Officers of the Registrant
32Item 10. Executive Compensation
35Item 11. Security Ownership of    Certain Beneficial Owners and 
Management and Related Stockholder Matters
37Item 12. Certain Relationships and    Related Transactions
40Item 13. Financial Statements,    Exhibits and Reports on Form 8K
41Item 14.Principal Accountant Fees    and Services
73
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ITEM 1.DESCRIPTION OF BUSINESS.
Itronics Inc. (OTCBB: ITRO; Frankfurt and Berlin Bremen Stock Exchanges: ITG), is theinventor and developer of the "Beneficial Use Photochemical, Silver, and WaterRecycling" technology that produces environmentally beneficial GOLD'n GROfertilizers, and 5 troy ounce, 0.999 pure, Silver Nevada Miner numismatic bars. 

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

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

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

 

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

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

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

The Company has three wholly owned subsidiaries, Whitney & Whitney, Inc.("WWI"), Itronics Metallurgical, Inc. ("IMI"), and ItronicsCalifornia, Inc. (ICI), a 92.5% owned partnership, Nevada Hydrometallurgical Project("NHP"), and an 81.63% owned joint venture, American Hydromet. A briefdescription of each organization follows:

1. Itronics Metallurgical, Inc.:

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

2. Nevada Hydrometallurgical Project:

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

3. American Hydromet:

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

4. Itronics California, Inc.:

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

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5. Whitney & Whitney, Inc.:

WWI was incorporated in 1977 and is a wholly owned subsidiary of the

Company. WWI is primarily a mineral consulting firm that provides planning andtechnical services to the mining industry. The broad range of services provided by WWIincludes mineral economics, geological studies, mining and cost engineering, and projectmanagement services. WWI has extensive experience with base metals, precious metals, suchas gold and silver, specialty minerals, such as molybdenum and tungsten, coal, andindustrial minerals. WWI performs substantial services for small, medium, and large miningprojects. WWI has historically performed services for many leading U.S. and foreign miningcompanies, various state agencies, for the United States and several foreign governmentsand the United Nations. WWI was under contract with the Country of Bolivia from 1986through early 1992 to assist it in developing its mining industry. 

 

SUMMARY HISTORY OF OPERATIONS

Whitney & Whitney, Inc. was incorporated in Nevada in 1977 to provide a wide rangeof technical services to the mining industry. During the 1980's, WWI completed severalmulti-client fertilizer marketing studies. Also during this time period, WWI was contactedby state and local environmental officials concerning the problem of photographic wastes,laden with silver and other toxic heavy metals, being dumped in local sewer systems.

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

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

In 2001, at the request of its distributor, the Company developed a chelated zincproduct with the objective of selling the product in truckload quantities. This productdevelopment was

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successful and provided the basis for the first tank truck load sales in the fourthquarter of 2001. During 2002 this new bulk product was successfully introduced into thedistributor network. During 2002 work on a bulk GOLD'n GRO product that could be used as a"base liquid" in the distributor's proprietary field blends was commenced. In2003 development work on a second chelated zinc product for bulk sale was initiated. Fieldtesting of both new bulk products was conducted during 2003 and in late 2003 they wereapproved for introduction into the distributor sales network for 2004. 

During the same 2001 to 2003 period, more than two dozen formulations were evaluatedfor suitability and market potential. By the end of 2003, product line development hadbeen completed, and 13 fertilizers covering three categories have been established:multi-nutrient liquid fertilizers, chelated micro-nutrient liquid fertilizers, andGOLD’n GRO base liquid. The fertilizers are sold both to the general public andthrough licensed and non-licensed distributors, and the base liquid is sold only throughlicensed distributors. Product improvement and new product development will continue, butthe Company's focus in 2004 and future years will be primarily on GOLD'n GRO LiquidFertilizer Sales expansion and on expansion of the services business as needed to supportincreasing GOLD'n GRO fertilizer sales. The Company believes that the market for theseproducts in the western U.S. are large enough to produce sales levels needed for theCompany to become profitable within 2004 or 2005.

In 2003 the Company participated in the development of an animal repellent/fertilizerthat will be sold under the trade mark GOLD'n GRO Guardian. Using one of the GOLD'n GROmulti-nutrient liquid fertilizers as a base liquid, which has the property of being takeninto the plant as a fertilizer and imparting odor and taste characteristics that areoffensive to deer and other animals, such as rabbits, that eat plants. The GOLD'n GROGuardian product was field tested during 2003 and was released for sale through the NorthAmerican Deer Management Network in the fourth quarter of 2003. GOLD'n GRO Guardian is arepellent fertilizer product and must be registered under both the pesticide regulationsand the fertilizer regulations for each state in which it will be sold. The product mustalso be registered with the Federal EPA as an insecticide. Introduction of this productfor commercial sales will be delayed until the registrations are completed.

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

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

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

The Company had slowed development and expansion of its silver refining technology andits silver refinery until the GOLD'n GRO liquid fertilizer development was essentiallycompleted. In early 2003 the company re-activated its development efforts at a low leveland also began a low level of product development for glass and tile formulations andproducts. During 2003 the first pieces of glass/ceramic tile were produced. In 2004 andfuture years the silver refining technology development and the glass/ceramic tileproducts development efforts will be expanded in parallel with expansion of GOLD'n GROfertilizer sales. 

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

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

PHOTOCHEMICAL FERTILIZER

1. Operations

The Company operates a commercial scale plant to receive used photochemical liquids,recover the silver and other metals, and convert the demetallized solutions to liquidGOLD'n GRO fertilizer products. Revenues are generated by photochemical managementservices, sale of photochemical concentrators, sale of silver, and sale of GOLD’n GROliquid fertilizer products. A critical component of this integrated manufacturing systemis to match, within a reasonable range, the incoming volume of photochemical liquids withthe utilization of those liquids in fertilizer or other manufactured products. At theoutset, regulatory constraints were imposed to limit the amount of photochemical materialsthat the Company could handle until a commercial

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fertilizer was perfected, or some other commercial use for the material was developed.Development of the GOLD’n GRO fertilizer is now complete and the Company is expandingthe business. 

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

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

In early 2003 the Company initiated a program to market the Itronics MetallurgicalPhotochemical Silver Concentrators to large consumer photography and medical x-rayfacilities throughout the United States. This is a cost effective method for the Companyto expand its photochemical supply for use in GOLD'n GRO fertilizer manufacturing.Photochemical silver concentrators will be a source of revenue growth in 2004 and futureyears as the company continues to expand nationally. Itronics' photochemical blendingtechnology is designed to utilize the concentrate in fertilizer, after it is demetallized.

A 35,000 square foot manufacturing plant in Reno/Stead, Nevada was purchased in 1999.Construction of the liquid processing area was completed in early 2000, and a"shake-out" period in which small batches of photochemicals were processed andsmall batches of fertilizer were manufactured. By late 2000 the new facility haddemonstrated the ability to "demetallize" the received photo liquids to requiredEPA levels, thereby proving the technical viability of the new technology on a commercialscale. 

Spent photochemical liquid received from customers are logged and recorded, then testedfor silver content and contaminants. The Company achieves high contaminant controlstandards by working proactively with its regular customers. Once testing is completed,the photographic solutions are processed.

Photochemicals presently being handled by the Company are:

   Ammonium thiosulfate concentrate

   Aqueous Ammonia 

   Developer

   E1ectro-flake

   Film

   Fixer

   Sodium meta-bisulfite concentrate

   Stabilizer

   Steel wool/metallic ion exchange cartridges

   Scrap paper that accompanies film

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

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2. New Developments 

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

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

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

GOLD'n GRO 9-0-1+7% Zinc was developed to replace existing products as a direct resultof this process, successfully introduced into the California market to replace a productthat was not fully satisfying customer needs. This product has been primarily responsiblefor the Company’s sales growth over the last 27 months. This same process has led tothe development of a second replacement product, a GOLD’n GRO chelated micronutrientwhich has now been approved for sale by the distributor network and is expected to have agrowth rate similar to that of the GOLD’n GRO 9-0-1+7% Zinc.

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

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In June 2003 the Company began a cooperative effort with North American Deer ManagementNetwork, LLC to develop a single application fertilizer to be sold under the trademarkGOLD’n GRO Guardian that also serves to repel animals such as deer and rabbits.Preliminary testing has been completed showing the products to be compatible, producing apositive growth response while at the same time repelling, but not harming, the unwantedanimals. Holly Ridge Nursery & Landscape Company is managing the project and iscurrently funding a detailed effectiveness study being conducted by the University ofRhode Island that will cover one full growing season. Results of the study will beutilized to support product registration applications and to complete patent applications.Holly Ridge is also funding the commercial trials which are underway in various locations.The Company sold the first bulk quantity of its GOLD’n GRO 8-8-8+4% Sulfur to HollyRidge in July 2003. This cooperative effort provides the Company with an introduction ofits GOLD’n GRO line of fertilizer products into the northeastern U.S. and allowsdevelopment of the GOLD’n GRO Guardian animal repellant/fertilizer market nationwide.In September 2003 The North American Deer Management Network, LLC completed field testingand approved GOLD’n GRO Guardian for use by its members.

The above describes a flexible approach to developing markets for the GOLD’n GROfertilizers which will continue and may require plant modifications to accommodate the newproducts as their development is completed and they are cleared for sale. Using thisflexible approach, the Company believes that it has now identified and established GOLD'nGRO bulk products that have large enough markets to provide the sales volumes needed toachieve profitability within the next 12 to 24 months. 

The GOLD'n GRO fertilizer product line provides several products for the turf andornamental markets, 3 products for the nursery and specialty agriculture markets, and 5high quality chelated micronutrient products which can be used in all of the markets. TheGOLD'n GRO chelated micronutrient and chelated multinutrient products are considered to be"Specialty Liquid Fertilizer" and fit into the Specialty Fertilizers segment ofthe national and international fertilizer markets, generally sold in smaller quantitiesand at higher prices than NPK fertilizers (Nitrogen (N), Phosphate(P), and Potassium(K)),sold as single nutrient products in large tonnages at relatively low bulk commodityprices. The Company presently sells its commercial GOLD’n GRO products in 2.5 gallon,55 gallon, and 250 gallon containers and partial or full truck load quantities of up to4,800 gallons.

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

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Most of the GOLD’n GRO products are currently registered for sale in Arizona,California, Colorado, Hawaii, and Nevada, and GOLD’n GRO 9-0-1+7% Zinc is registeredin Idaho. GOLD’n GRO 8-8-8+4% Sulphur is also registered in Rhode Island,Massachusetts, Connecticut, Delaware, New Jersey, Pennsylvania, and New York. GOLD'n GRObulk product sales are now established in Arizona and California, with the majority of thesales being made in California. In April 2003 the first truckload sale of chelatedmicro-nutrient products was made to a peach grower in western Colorado. Implementation isunderway to begin sales in Idaho, Oregon, and Washington. The Company is developing bulkcustomers in northern Nevada and has started discussions with potential distributors inselected states not covered by its licensed distributor network, including thenortheastern states, Florida, and Texas. 

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

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

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

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

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

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

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

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

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

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

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

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

The Company's manufacturing plant is presently configured for an initial manufacturingcapacity of 7.2 million gallons per year or 36,000 tons of GOLD'n GRO products. Plannedstorage and truck loading capacity expansions, installation of a heat exchange system, andautomation of some manufacturing functions, must be completed before this capacity can beachieved. Some of these requirements are discussed more fully below. Unexpected new marketopportunities have already required modification of certain expansion plans. As theCompany continues to identify and develop its GOLD'n GRO liquid fertilizer productmarkets, additional unforeseen changes could require additional plan modifications.

In 2002 the Company completed the construction of a bulk liquid fertilizer tank truckload out facility which was expected to handle anticipated growth in demand for thechelated micronutrient zinc product during the next two years. With the introduction ofadditional bulk products, additional load out facilities are needed, at a capital costestimate of $300,000. 

Ongoing changes in the manufacturing process, arising as a result of specific salesopportunities such as the chelated zinc fertilizer products, require installation of aheat exchange system that was expected to be operational in the first quarter of 2003, butwhich was delayed due to lack of funding. The capital cost is budgeted at $200,000. Thisproject is now planned for completion during the second quarter of 2004.

3. Markets and Competition

I. Photochemical Recycling and Silver Refining

Estimates are that there are more than 1,500 generators of photographic hazardous wastein the State of Nevada and more than 500,000 throughout the United States. This includesprinted circuit board manufacturers, photo off- set printers, photographic developers,lithographers,

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photographers, micro-filming (banks, companies, etc.) and x-ray users (dentists,doctors, hospitals, podiatrists, orthopedic surgeons, veterinarians, radiologists andindustrial x-ray users). The Company estimates the total annual market for recycling thiscategory of waste to be in the range of $400 to $500 million.

Nationally, more than 80 million ounces of silver are consumed in photomaterialsannually. Approximately 30% of this is lost through disposal. The Silver Instituteindicates that silver usage in photography is increasing, and will continue to do so overthe next several years.

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

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

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

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

The Company is aware of digital imaging and its impact on usage of conventionalphotography. The impact is different for each of the major segments; medical, colorphotography, and printing/microfiche. Digital imaging has made significant inroads intoprinting/microfiche processing with an almost 85% reduction in volume of photographicliquids over the past ten years. Several years of experience with digital imaging hasdemonstrated that there is

15

significant degradation of the quality of digital images, often in three or four years,requiring copying onto new disks, which is time consuming and costly. Consequently,microfiche is making a comeback. The new digital cameras are getting wider usage. In 2001it became clear that contrary to popular belief, digital photography is creating a newsource of photowastes from internet companies that combine digital imaging services withthe ability to print high quality photographs for their customers. The Company has had onesuch customer since 2001, where photochemical volume has been increasing dramatically on amonthly basis. This rapid growth is expected to continue in 2004. Digital methods arebeing adopted in the medical industry, and although the medical sector is relatively highgrowth with the aging U.S. population, digital imaging has had the effect of slowing thegrowth of waste photo liquids being generated.

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

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

The Company believes that it has the following competitive advantages:

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

* Proprietary solution conditioning process and equipment. 

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

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

* Systematic pick up services for photochemical generators.

* Quantitative material control procedures meeting all EPA reporting guidelines.

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

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

* Line of proprietary environmentally friendly chelated liquid fertilizer products thatare formulated using the "heavy-metal-free" photoliquids. 

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

II. Photochemical Fertilizer

The urbanization of the United States has led to the development of an "UrbanFertilizer Market". The total fertilizer market consists of the "AgriculturalMarket" and the "Urban Market". The Urban Market accounts for at least $9billion in annual sales in the United States. The "Specialty Ag" segment of theAgricultural Market is a $1 billion segment making the total a $10 billion market.

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

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

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

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

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

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

The Company is developing branded products that have the GOLD'n GRO trademark. TheCompany is

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implementing and expanding a plan for Home Lawn and Garden sales through its web page.Significant capital, in the form of advertising budgets and the ability to carry largeinventories of finished goods, is required to achieve meaningful sales in the Urban Marketsegments. The Company plans to expand its internet sales program over the next severalyears. The methods and costs of retail distribution are changing making the internet salesplatform more economically feasible as a method of large scale retail selling. 

4. Seasonality and Working Capital

In analyzing the market and industry competitors, it is apparent that two factorssignificantly impact the Company's ability to penetrate these markets in a meaningful way.First, the seasonal aspect of photochemical and fertilizer sales, which directly resultsin the second factor, the need for a much higher level of working capital when compared toother industries. Based on experience, the Company's photochemical hauling volume startseach year at comparatively low levels in the first quarter, steadily increases during thesecond quarter peaking in June or July, declining during the third quarter, and reachinglevels similar to that of the first quarter by year end. Consequently, revenues from bothphotochemical liquid services and silver sales are significantly reduced during six monthsof each year. To mitigate the seasonal effect on this segment of operations, the Companyis focusing its marketing efforts on larger volume customers in the medical, military,printing and industrial photo fields. The acquisition of photochemical concentratesupplies from photochemical concentrator customers is expected to moderate this seasonalfactor. 

The Company expects fertilizer sales to have a strong seasonal component, with theprimary sales season running from April through November each year, with an in-season lowin July and August. In addition to the general seasonal nature of sales caused by normalweather patterns, unusual weather can further affect fertilizer sales, especially in thewintertime. For example, unusually cold or wet spring seasons may delay the growth cycleof various crops for which the Company's fertilizer products are utilized. To overcomeweather related effects on fertilizer sales, the Company is evaluating markets in thesouthern areas of the United States where growing seasons are longer and, in some cases,year round.

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

5. Research, Development, and Technology

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

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status of development of the three integrated components is more fully described below:

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

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

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

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

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

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

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

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

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

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

6. Environment and Regulation

I. Liability

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

However, once the spent chemistry reaches the Company's facility and has beenprocessed, the generator's hazardous waste liability has been removed. Using the Company'sprocess, virtually all metals, including most of the iron, are removed. The end resultleaves the Company with a non-hazardous "toxic-metal-free" liquid which is legalfor discharge into the environment. As discussed above, the demetallized liquids are beingused in commercial fertilizer products, entirely safe for the environment.

II. Increased Regulation

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

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

III. Permits and Inspections

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

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

IV. Regulatory Direction

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

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

 

MINING TECHNICAL SERVICES

1. Services offered

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

Management Support:

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

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

- Complete project development plans.

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

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

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

Other Specialized Technical Services:

- Mineral economics and cost studies.

- Metallurgical process development.

- Open pit and underground mine planning. 

- Ore reserve development.

2. Operations

The Mining Technical Services segment accounted for 26% of the Company's 2003consolidated revenue. Three major clients produced 98% of this revenue. At present one ofthese clients has one ongoing project, involving project management of a Nevada mineproperty, including sampling, mapping and data compilation and property acquisitionservices. The purpose of these services is to acquire and organize the land andinformation necessary to prepare the property for presentation to major mining companiesfor potential investment for exploration and development activities. This client hasdecided to accelerate the process of locating a buyer for the property. Consequently, thelevel of work done by WWI is expected to be reduced in future years. 

The second client is a junior mining company with three mineral properties in Nevada.WWI is providing technical assistance in moving these properties into the development andoperating stages. WWI is also providing administrative support. 

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

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

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Expansion Plans

Prior to 1991, the Company had plans to directly invest or joint venture 

in mining projects and had formed a subsidiary to enter that market. Those plans wereput on hold until completion of the photochemical fertilizer R&D program. Now that theR&D program is being converted to commercial operations, the Company has recentlytaken steps to expand the mining technical services presence in the mining industry, bothfrom a services perspective and from a mining operations perspective.

First, in January 1999 WWI initiated a long term R&D project toreplace the use of cyanide in the extraction of metals from silver/gold and gold/copperores. The new thiosulfate leaching technology being developed under this program utilizesthe same technology as the Company’s proprietary photochemical recycling process. Theproject, called Itronics Thiomet, is seeking to establish operating joint ventures atspecific mine sites to apply the thiosulfate leaching technology. Second, in March 1999WWI signed a consulting agreement with Golden Phoenix Minerals, Inc. (GPXM). Under theagreement, WWI will provide management, merger and property acquisition, and technicalservices to GPXM. WWI’s workload for GPXM and other companies is expected to expandin 2004.

NEW DEVELOPMENTS – OTHER

In October 2003 the Company’s common stock was listed and began trading in theFrankfurt, Germany Stock Exchange under the symbol ITG and in mid-March 2004 theCompany’s common stock was listed for trading under the symbol ITG on the Berlin,Germany Stock Exchange. 

 

ITEM 2.DESCRIPTION OF PROPERTY.
I. FACILITIES.
Itronics leases approximately 3,000 square feet of office space at 6490 South McCarranBlvd., Building C-23, Reno, Nevada. IMI leases approximately 2,000 square feet ofwarehouse space in Reno, Nevada. This space is being used for supply storage. 

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

W&W leases approximately 2,500 square feet of office space in Reno, Nevada.

 

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

The refining operation consists of a material handling section, solids roasting, and amelting

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section. The equipment arrangements are proprietary, but the main items are pumps,tanks, filtration equipment, drying ovens, and the melting furnaces. 

The new facility is now capable of processing up to 100,000 un-concentrated gallons ofused photochemicals per month and to manufacture up to 200,000 gallons per month of liquidfertilizer. Refinery capacity is being expanded to produce up to 50,000 ounces of silverper month. 

 

ITEM 3.LEGAL PROCEEDINGS.
In August 2002 a supplier of equipment for the Stead manufacturing plant filed suitagainst the Company and its subsidiary, Itronics Metallurgical, Inc. (IMI) in JohnsonCounty, Indiana for the unpaid amount of $64,234 plus attorney’s fees and courtcosts. On October 1, 2002 the plaintiff received a default judgment awarding the $64,234plus $1,500 attorney’s fees plus 8% interest. On November 5, 2002 the plaintiff fileda "Notice of Filing of Foreign Judgment" in Washoe County, Nevada and hasreceived the judgment. Plaintiff’s attorney is actively seeking to collect the amountdue. In December 2003 a settlement agreement was accepted that required a $10,000 paymentin December 2003 plus monthly payment of $5,161 over twelve months in 2004. 

During the period of September 2002 through September 2003 a total of ten lawsuits havebeen filed against the Company’s subsidiaries, WWI and IMI, by various equipmentlessors. Six of the suits were filed in Washoe County, Nevada, two in Cook County,Illinois, one in Los Angeles County, California, and one in Oakland County, Michigan. Thesuits seek a total of $588,706 plus attorneys fees and other costs. Four of these suits,seeking a total of $252,688 plus costs, were settled by restructuring the leases, signingstipulated judgments and agreeing to pay total payments of $178,231. Monthly payments onthe settlements total $10,033 and are paid over various periods ranging from 6 to 31months. If the restructured leases are defaulted, judgments for the original claimedamounts can be entered and further collection action, including repossession of thesecured equipment, can be taken. Payment arrangement has been agreed to on two additionalsuits and stipulated judgments have been signed. The two payment arrangements call for thedelinquent payments to be added onto the end of the leases, with regular monthly paymentsat the original terms beginning in August 2003. Of the remaining unsettled suits, threehave received judgments and are being actively negotiated. No further action has occurredon the fourth unsettled suit. 

In September and October 2002 three mechanics liens totaling $104,708 were filed onIMI’s Stead manufacturing facility due to non payment for work performed on theproperty. In November 2002 the general contractor filed suit for its portion of the aboveamount, a total of $81,233, which was paid prior to September 30, 2003 and two of theliens were released. Payment of the remaining $23,475 was made subsequent to December 31,2003 and the remaining lien has been released. 

In December 2002 a trade creditor filed suit against the Company and WWI in WashoeCounty, Nevada seeking a total of $12,100. The Company has signed a stipulated judgmentand has made partial payments. The Company is in periodic communication with theplaintiffs lawyer regarding the past due payments. Final payment of $1,235 is expected tobe made in April 2004. 

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In February 2003 a trade creditor filed suit against the Company in Washoe County,Nevada seeking a total of $85,525 plus attorney fees and other costs. A default judgmentwas entered in May 2003. The Company is attempting to negotiate a settlement. 

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

 

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

PART II

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

The following table sets forth the high and low bid prices for the Company's commonstock for each quarter for 2002, 2003, and through February 29, 2004. 
High BidLow Bid3/31/02 $0.57$0.116/30/02$0.39$0.219/30/02$0.26$0.1612/31/02$0.15$0.083/31/03$0.16$0.096/30/03$0.14$0.089/30/03$0.23$0.1112/31/03$0.17$0.112/29/04$0.22$0.14
These quotations reflect inter-dealer prices without retail markup, markdown, orcommissions, and may not represent actual transactions.

(b) On December 31, 2003 the number of record holders of the Common Shares wasapproximately 1,000.

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

Recent Sales of Unregistered Securities:

Following is a summary of sales of unregistered securities for the fourth quarter of2003. These securities were issued as restricted common shares which are subject to Rule144 of the Securities and Exchange Commission. Generally, Rule 144 requires shareholdersto hold the shares for a minimum of one year before sale. In addition, officers, directorsand more than

26

10% shareholders are further restricted in theirability to sell such shares. There have been no underwriters of these securities and nounderwriting commissions or discounts have been paid.
 
Shares
ValueTransaction Description
Issued
ReceivedPrivate placement of    restricted stock for cash
1,293,750
$103,500Exercise of warrants for    cash
1,072,188
85,775Conversion of notes payable    and accrued interest
1,023,511
130,145Employee salaries
1,215,000
121,500Interest on employee salary    in arrears
186,972
26,274Director fees
2,500
425 
4,793,921
$467,619
The above transactions qualified for exemption from registration under Sections 3(b) or4(2) of the Securities Act of 1933. Private placements for cash were non-publictransactions. The Company believes that all such investors are either accredited or,either alone or with their purchaser representative, have such knowledge and experience infinancial and business matters that they are capable of evaluating the merits and risks ofthe prospective investment. 

ITEM 6.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
I. Results of Operations

The Company reported consolidated revenues of $1,268,787 for the year ended December31, 2003, compared to $1,285,685 for the prior year, a nominal decrease. Revenues for thePhotochemical Fertilizer segment decreased nominally by $1,700. Revenues from the MiningTechnical Services segment declined $15,200, or 4%. The consolidated net loss for 2003 was$2,752,291 or $0.026 per share compared to a 2002 loss of $3,290,562 or $0.039 per share.The primary reasons for the decreased loss are reduced cost of sales and operatingexpenses combined with an increase in gain on sale of investments. 

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

PHOTOCHEMICAL FERTILIZER

Year Ended December 31,
2003
2002Sales revenue 
$ 936,913
$ 938,653Gross profit (loss)
(182,918)
(251,794)Operating income (loss) 
(1,834,621)
(2,251,024)Net income (loss) before    taxes
(2,849,442)
(3,109,931)
Revenues for the Photochemical Fertilizer segment totaled $936,900 in 2003, compared to$938,700 in 2002, a nominal decrease. Fertilizer sales were $554,300 and $502,300 for 2003and 2002, respectively, an increase of 10%. The fertilizer sales increase is attributableto bulk

27

sales of the GOLD’n GRO Zinc micro-nutrient product that was introduced in thethird quarter of 2001. 

Photochemical recycling revenue increased 6% from 2002. The recycling services portionincreased 9% on an increased volume of 30%. Revenue did not increase at a comparable rateas volume due to the current year growth in volume from one major customer with acentralized location for picking up photowaste materials. In 2002, the Company servicedone significant customer with multiple locations. A separate fee is charged to thecustomer for each pickup from each location. Consequently, revenue can decline even thoughvolume is increased. The reduced revenue has been more than offset by reduced labor andtransportation costs required to service multiple locations. Silver sales decreased$71,800 from 2002, a decrease of 56%. The decrease is attributable to the prior yearprocessing of raw photographic wastes in order to build up an inventory of base liquidsused in GOLD’n GRO liquid fertilizer manufacturing. The base liquid inventory hasfilled the plant’s available storage capacity, resulting in a current period decreasein processing raw materials and a resultant decrease in silver sales.

Combined cost of sales and operating expenses for the segment amounted to $2,771,500 in2003, compared to $3,189,700 in 2002, a 13% decrease. Cost of sales decreasedapproximately $70,600 due primarily to a $61,700 decrease in payroll and related costs.Operating costs decreased by $347,500 due primarily to reductions of $266,600 in sales andmarketing and $153,100 in general and administrative costs. These reductions werepartially offset by an increase in depreciation and amortization of $69,200. Sales andmarketing decreased due to a combination of reduced corporate marketing and a reducedcommon stock price used to calculate the cost of marketing services paid with stock.

These changes in revenues and operating expenses resulted in a segment operating lossof $1,834,600 in 2003, compared to $2,251,000 in 2002, an improvement of $416,400 or 18%.

Other income (expense) increased to a net expense of $1,014,800 for 2003, compared to anet expense of $858,900 in 2002. The other expenses increased due to a $110,500 increasein interest expense related to the increase in interest rate from 9% to 12% on the 2000Series Convertible Promissory Notes and to an increase of $45,400 in other expensesrelated to the Company’s purchase of minority interests in American Gold & SilverLtd. that are required under U.S. Generally Accepted Accounting Principles to be expensedwhen there is no carrying value of the total minority interests. 

The changes in operating loss and other expenses resulted in a segment net loss beforetaxes of $2,849,400 for 2003, compared to a net loss of $3,109,900 for 2002, animprovement of $260,500 or 8%.

 

MINING TECHNICAL SERVICES
Year Ended    December 31,
2003
2002Sales revenue 
$ 331,874
$ 347,032Gross profit (loss)
23,065
31,842Operating income (Loss) 
(359,324)
(338,483)Net income (loss) before    taxes
97,151
(180,631)
28

Mining technical services revenue totaled $331,900 for 2003 compared to $347,000 for2002, a decrease of 4%. Included in these revenue figures are pass-through expenses of$118,700 and $117,700 for 2003 and 2002, respectively. Excluding these amounts, revenuesamounted to $213,100 and $229,300 for 2003 and 2002, respectively, a decrease of 7%. Therevenue decrease reflects the decision by one of the Company’s primary clients tofocus on selling, rather than developing, its Nevada mining property. Services to theclient are limited primarily to locating a buyer for the property. In prior years, theCompany actively managed the property for the purpose of accumulating the informationnecessary to present the property to major mining companies. Such work is nowsubstantially complete. The Company’s plans to expand the technical services segmentare more fully discussed on page 24 of this report.

Combined cost of sales and operating expenses totaled $691,200 for 2003 compared to$685,500 for 2002, a nominal increase. Included in these operating expense figures arepass-through expenses of $118,700 and $117,700 for 2003 and 2002, respectively. Excludingthese amounts, combined cost of sales and operating expenses amounted to $572,500 and$567,800 for 2003 and 2002, respectively, a nominal increase.

The above changes in revenues and operating expenses resulted in a segment operatingloss of $359,300 for 2003, compared to $338,500 for 2002, an increased operating loss of$20,800 or 6%.

Other income (expense) increased to a net other income of $456,500 for 2003, comparedto a net other income of $157,900 in 2002, an improvement of $298,600. The improvement isdue to increased gain on sale of GPXM stock during the year.

The changes in operating loss and other income resulted in a segment net income beforetaxes of $97,200 for 2003, compared to a net loss of $180,600 for 2002, an improvement of$277,800. 

SUMMARY

On a consolidated basis, the various changes in revenues, operating expenses, and otherincome and expenses resulted in a gross loss of $159,900 for 2003 compared to $220,000 for2002, an improvement of $60,100 or 27%, an operating loss of $2,193,900 for 2003 comparedto $2,589,500 for 2002, an improvement of $395,600 or 15%, and a net loss of $2,752,300for 2003 compared to $3,290,600 for 2002, an improvement of $538,300 or 16%. 

 

II. Changes in Financial Condition; Capitalization

Cash amounted to $34,500 as of December 31, 2003 compared to $57,200 as of December 31,2002. Net cash used by operations was $1,626,500 in 2003 compared to $1,439,100 in 2002.Operating resources utilized to finance the 2003 loss of $2,752,300 include approximately$864,600 in expenses paid with the Company's common stock. Cash amounting to approximately$47,800 was invested in property and equipment in 2003, primarily for equipment in themanufacturing plant. Sales of Golden Phoenix Minerals, Inc. stock provided $786,400 incash from investing activities. Financing sources of cash in 2003 were $703,500 inproceeds from the private placement of restricted common stock, $185,800 from the exerciseof warrants, and $119,600 from the Swartz agreement.

29

Total assets decreased from $4,814,800 at December 31, 2002 to $4,440,500 at December31, 2003. Current assets increased $6,400, net property and equipment decreased $219,300,and other assets decreased $161,400. The primary changes in current assets were a decreasein marketable securities of $70,700, due to the sale of GPXM stock, and an increase of$88,400 in inventory due primarily to the build-up of unprocessed silver in photowastesolutions. The Company is actively selling its GPXM shares to assist with its workingcapital needs. The Company’s investment in GPXM stock decreased by $370,800 to atotal value of $333,200 at December 31, 2003, all of which is classified in currentassets. 

Total liabilities decreased from $9,402,700 at December 31, 2002 to $8,142,200 atDecember 31, 2003, a decrease of $1,260,500. Of this amount, current liabilities decreased$2,159,000 and long-term liabilities increased $898,500. The overall decrease inliabilities is due primarily to the conversion of $1,420,500 in convertible promissorynotes and accrued interest into restricted common stock. Current liabilities decreasedprimarily due to a net reduction in convertible promissory notes of $1,688,600. Currentliabilities also decreased due to reductions in accounts payable of $92,800, accruedmanagement salaries of $123,100, accrued expenses of $86,900, and current maturities oflong term debt, excluding convertible promissory notes and related accrued interest, of$219,200. These reductions were partially offset by an increase in accrued interest of$49,100.

III. Working Capital/Liquidity

During the year ended December 31, 2003, the working capital deficit was reduced by$2,165,300 to a deficit balance of $3,610,900. $1,688,600 of the improved working capitalis due to a net reduction in convertible notes payable and accrued interest due to acombination of extending the 2000 Series Convertible Promissory Notes and to theconversion of later series convertible promissory notes into restricted common stock. TheCompany has had limited cash liquidity since the third quarter of 2000. The Company hassought and obtained the funding described above, which has not been sufficient to maintainall obligations on a current basis. However, cash liquidity is being managed and theCompany has been able to make sufficient payments to keep most significant creditorsworking with it. The cash shortage is a result of two factors. First, fertilizer sales in2003 and prior years did not expand to the extent anticipated, so operating losses werenot reduced as much as expected. Second, the $15 million equity line of credit agreementwith Swartz Private Equities, LLC (Swartz) was not available between October 2001 and May2002 due to a Securities and Exchange Commission rule change that necessitatedrenegotiating the contract with Swartz and filing a new registration statement which wasfiled and became effective on April 30, 2002. The Swartz agreement expired on February 27,2004. During the years ended December 31, 2003 and 2002, $119,600 and $339,900,respectively, were received under the Swartz agreement. Since the Swartz equity fundinghas not been sufficient to meet the Company’s ongoing working capital needs, aprivate placement of stock with attached three year warrants was begun in the fourthquarter of 2002. The initial offering price was $0.08 per share and the attached threeyear warrant for an equal number of shares is exercisable at prices of $0.08 for the firstyear, $0.16 for the second year, and $0.24 for the third year. $703,500 was raised fromthis private placement during 2003. In addition, the Company sold GPXM shares during theyear ended December 31, 2003, raising a total of $786,400

30

and $185,800 was received from the exercise of warrants. Subsequent to December 31,2003 the Company has received $278,000 from the private placement, $73,500 from theexercise of warrants, and $95,300 from the sale of GPXM stock.

IV. Critical Accounting Estimates and Off-Balance Sheet Arrangements

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

Forward-Looking Statements

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

 

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

 

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

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

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

31

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

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

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

ITEM 8A CONTROLS AND PROCEDURES

Itronics’ management, including the Chief Executive and Financial Officer, haveconducted an evaluation of the effectiveness of disclosure controls and procedures as ofthe end of the year ending December 31, 2003 and have evaluated whether any changes ininternal controls over financial reporting have occurred during the quarter ended December31, 2003 that has materially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting. These evaluations were conductedpursuant to Exchange Act Rule 13a-15. Based on these evaluations, the Chief Executive andFinancial Officer concluded that the disclosure controls and procedures are effective inensuring that all material information required to be filed in this annual report has beenmade known to him in a timely fashion. He also concluded that there were no significantchanges in internal controls over financial reporting, or in factors that couldsignificantly affect internal controls over financial reporting, during the quarter endedDecember 31, 2003.

 

PART III

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

Age as ofName
12/31/03PositionPosition Held SinceDr. John W. Whitney
57President/Treasurer May 1988DirectorPaul H. Durckel 
86DirectorSeptember 1995Alan C. Lewin 
58DirectorSeptember 1997Gregory S. Skinner 
49SecretaryDecember 1990Duane H. Rasmussen
73Vice President; November 1997Vice President and May 1994General Manager-IMI
32

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

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

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

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

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

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

Paul H. Durckel:

Mr. Durckel has served as a director of the Company since September

1995. He received a pre-legal degree from Stanford University in 1940. He has servedvarious companies involved in fertilizer manufacturing and sales for approximately 30years. He is presently an Independent Real Estate Salesman for Verus Realty. He servedMyers Realty, Inc. in varying capacities, including Broker-Salesman, Consultant, Manager,Vice President of Operations, and Director, from 1987 to 2001. His experience in thefertilizer industry includes

33

Vice President and General Manager and Vice President- Operations for American PlantFood Corp., Executive Assistant to the Chairman for Best Fertilizers Co., Vice Presidentand General Manager for Best Fertilizer of Texas, and Vice President and General Managerfor Farm Services Co.

Alan C. Lewin:

Mr. Lewin has served as a Director since September 1997. He had previously served as aDirector from September 1995 through June 1996.He received a B.A. in Psychology from SanDiego State University in 1967. He has extensive operations management experience,primarily in the x-ray film processing chemical industry. His positions include Founder,President and Chief Executive Officer of Guardian X-Ray Equipment Service, Inc. from 1976to 1992, General Manager of Douglas Roesch Communications, Inc. from 1992 to 1994,Technical Sales Representative of Commerce Chemical Company from 1994 to 1996, VicePresident of Commodity Resource & Environmental, Inc. from August 1996 to July 1997,and Vice President of Merry X-Ray in Los Angeles, California since November 1997. 

Gregory S. Skinner, Esq.

Mr. Skinner has served as secretary and general counsel of the Company and itssubsidiaries since December 1990. He obtained his B.A. degree in Economics from theUniversity of California at Berkeley in 1976. He obtained his J.D. degree from HastingsCollege of the Law, University of California at San Francisco in 1979. He is licensed topractice law in the states of California and Nevada. He retired from the practice of lawon 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 inSkinner, Watson & Rounds, which had offices located in Reno, Las Vegas, and InclineVillage, Nevada. Prior to becoming Secretary of Itronics Inc., Mr. Skinner has providedlegal 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 Companyin 1991 as Assistant Manager and Business Consultant for W&W. He received his B.S.degree in Chemical Engineering from the University of Wisconsin in 1953 and his M.B.A. inIndustrial Management in 1955 from the same University. He served as President of ScreenPrinting Systems, Inc. from 1987 to 1990 and from 1995 to October 1998. Other businessexperience includes approximately 20 years with Jacobs Engineering Group, Inc. in varyingcapacities, including Project Manager, Regional Sales Manager, Regional Vice President,and Group Vice President.

B. AUDIT COMMITTEE

At present the Company does not have an audit committee and consequently the entireBoard serves as the audit committee. The Board presently consists of three members, two ofwhom are independent. The Company has interviewed several qualified individuals for theposition of Audit Committee Financial Expert on the Board of Directors. All have declinedto serve, with the primary reason being personal liability issues, especially theperceived view that being the "financial expert" increases the individual’spersonal exposure over that of being a regular Board member. 

34

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

 

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

The following table sets forth information as to the compensation of the ChiefExecutive Officer and the four most highly compensated officers whose compensation for theyear ended December 31, 2002 exceeded $100,000:

Long Term
CompensationName and
SecuritiesPrincipalCalendarAnnual    Compensation
UnderlyingPositionYear
Salary
Bonus
Options    (#)Dr. John W. Whitney:
2003
$126,375
$-0-
-0-President, Treasurer 
2002
$127,350
$-0-
3,250,000and Director (1) (2) 
2001
$127,001
$-0-
-0-Duane H. Rasmussen
2003
$132,000
$-0-
-0-Vice President, VP
2002
$132,000
$-0-
-0-and General Manager 
2001
$132,000
$-0-
-0-IMI (3)
(1) The 2003, 2002 and 2001 salary amounts include $125,000, $125,000 and $70,000,respectively, that was not paid currently. In 2003 Dr. Whitney converted $260,000 of theseamounts into the then existing private placement at $0.08 per share for a total of3,250,000 shares plus an equal number of three year warrants. This transaction is underthe same terms and conditions as for other investors in the current private placement,consequently, the warrants are treated as non-compensatory. These shares have not yet beenissued, pending accumulation of sufficient cash to pay required withheld payroll taxes. 

Effective January 1, 1999, Dr. Whitney was granted an option for 1,000,000       restricted common shares at $0.25 per share andeffective July 1, 2002 he was granted on option for 3,000,000 restricted common shares at$0.30 per share. These options are exercisable at any time until one year after Dr. Whitney leaves the employment of the Company. Effective       October 2, 2002 Dr. Whitney was granted a five yearoption for 250,000 restricted common       shares at $0.20per share. 

(2) The salary amounts listed above include $1,375, $2,350, and $2,001 for 2003, 2002,and 2001, respectively, that represent compensation paid in common stock for service asa       director of the Company. The compensation plan forall directors was 2,500 shares per       quarter for 2003 andprevious years.

35

(3) The 2003, 2002, and 2001 salary amounts include $77,000, $132,000 and $52,500,respectively, that was not paid currently. In 2003 Mr. Rasmussen converted $170,000 ofthese amounts into the then existing private placement at $0.08 per share for a total of2,125,000 shares plus an equal number of three year warrants. This transaction is underthe same terms and conditions as for other investors in the current private placement,consequently, the warrants are treated as non-compensatory. These shares have not yet beenissued, pending accumulation of sufficient cash to pay required withheld payroll taxes.

Option Grants in Last Fiscal Year:

Number of
% of    Total
Securities
Options    to
Underlying
Employees
Exercise
Options
in Fiscal
or BaseExpirationName
Granted
Year
PriceDateNone (1)
(1) Dr. Whitney acquired a total of 4,750,461 three year warrants by investing $260,000in back salary, $108,000 in cash, and $12,037 in notes payable and accrued interest in theexisting private placements. Mr. Rasmussen acquired 2,125,000 three year warrants byinvesting $170,000 of his back salary in the existing private placement. All transactionswere under the same terms and conditions as for other investors in current privateplacements and consequently the warrants are treated as non-compensatory. 

 

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

Values

Options Exercised:

Shares    Acquired onName
Exercise    (#)
Value    RealizedDr. John W. WhitneyNon-compensatory (1)
1,365,938
$ -0-
(1) Dr. Whitney exercised a non-compensatory warrant that he received in 2002 inexchange for assigning his options to acquire GPXM stock. The warrant was exercised forcash totaling $109,275. Since the warrant was non-compensatory, no realized value islisted above.

36

Options Unexercised:

Number of Securities
Value of Unexercised
Underlying Unexercised
In-the-Money Options
Options at 12/31/03
At 12/31/03Name 
Exercisable
Unexerciseable
Exercisable
UnexerciseableDr. John W. Whitney   Compensatory
4,250,000
-0-
$ -0- (1)
$ -0-  Non-compensatory 
4,750,461
-0-
$ -0- (1)
$ -0-Duane H. Rasmussen  Non-compensatory
2,125,000
-0-
$ -0- (2)
$ -0-
(1)If value realized was based on the average of the closing bid and ask prices onDecember 31, 2003, the value realized would have been $-0- for the compensatory optionsand $320,656 for the non-compensatory warrants. The securities under option, common stockof the Company, are restricted under Rule 144 and thus are not tradable within one year ofexercise. In addition, as an officer and a greater than 10% shareholder of the Company,Dr. Whitney is further restricted by SEC regulations as to the sale of the Company’ssecurities. The actual value realized, if and when the securities are sold, may be more orless than the value listed above. Consequently, the value of the unexercised options isreported at $-0-.

(2)If value realized was based on the average of the closing bid and ask prices onDecember 31, 2003, the value realized would have been $143,438 for the non-compensatorywarrants. The securities under option, common stock of the Company, are restricted underRule 144 and thus are not tradable within one year of exercise. In addition, as an officerof the Company, Mr. Rasmussen is further restricted by SEC regulations as to the sale ofthe Company’s securities. The actual value realized, if and when the securities aresold, may be more or less than the value listed above. Consequently, the value of theunexercised options is reported at $-0-.

 

ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS
a) Equity Compensation Plan Information  
Number    of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average    exercise price of outstanding options, warrants and rights
Number of    securities remaining available for future issuance under equity compensation plans    (excluding securities reflected in column (a)
Plan    Category
(a)
(b)
(c)Equity compensation plans    approved by security holders
-0-
$-0-
-0-Equity compensation plans    not approved by security holders
4,409,591
$0.29
169,000
Total
4,409,591
$0.29
169,000
37
b) Security Ownership of Certain Beneficial Owners.

The following table sets forth certain data with respect to those persons known to theCompany, as of February 29, 2004, to be the beneficial owners of more than 5% of theoutstanding shares of common stock of the Company:

Amount and Nature of Beneficial Ownership
Common    SharesName and
Which May    Be
PercentAddress of
Common    Shares
Acquired    Within
ofBeneficial Owner
Presently    Held
60    days
Total
ClassJohn W. WhitneyP.O. Box 10725Reno, NV 89510(1)(2)(3)(4)
21,213,487
9,000,461
30,213,948
21.0
(1) Director

(2) Officer

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

(4) Dr. Whitney’s options include compensatory options of 1,000,000 shares at$0.25 per share, 3,000,000 shares at $0.30 per share, and 250,000 shares at $0.20 pershare. Dr. Whitney also has non-compensatory three year warrants for 4,750,461 shares at$0.08, $0.16, and $0.24 per share for the first through third years of the option period.He received these warrants by investing $260,000 in back salary, $108,000 in cash, and$12,037 in notes payable and accrued interest in the existing private placement.

 

c) Security Ownership of Management.
The following table sets forth as of February 29, 2004, certain information, withrespect to director and executive officer ownership of common stock in the Company:

38

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) 
21,213,487
9,000,461
30,213,948
21.0Paul H. Durckel1655 Highway 395Minden, NV 89423 (3)
451,900
247,077
698,977
.5Alan C. Lewin P.O. Box 10725Reno, NV 89510 (3)
270,000
-0-
270,000
.2Duane H. RasmussenP.O. Box 10725Reno, NV 89510 (4)
3,614,221
2,125,000
5,739,221
4.2All directors andexecutive officers asa group (5 persons) 
26,201,927
11,372,538
37,574,465
25.7
 

(1) Dr. Whitney’s options include compensatory options of 1,000,000 shares at$0.25 per share, 3,000,000 shares at $0.30 per share, and 250,000 shares at $0.20 pershare. Dr. Whitney also has non-compensatory three year warrants for 4,750,461 shares at$0.08, $0.16, and $0.24 per share for the first through third years of the option period.He received these warrants by investing $260,000 in back salary, $108,000 in cash, and$12,037 in notes payable and accrued interest in the existing private placement.

Mr. Durckel’s options include 46,177 shares at $0.15 related to his investment inthe 2001 Convertible Promissory Notes and 200,900 warrants related to his investment inthe 2002 and 2003 Equity Private Placements, which are convertible at $0.08, $0.16, and$0.24 per share for the first through third years of the option period. 

Mr. Rasmussen has a three year non-compensatory warrant to acquire 2,125,000 shares at$0.08, $0.16, and $0.24 per share for the first through third years of the option period.He acquired this warrant by investing $170,000 of his back salary in the existing privateplacement.

(2) The percent of class is based on the sum of 134,924,352 shares outstanding or to beissued as of February 29, 2004 plus, for each individual, the number of common shares asto which the named individual has the right to acquire beneficial ownership within 60 daysof February 29, 2004.

(3) Director

(4) Officer

39

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

c) Changes in Control
The Company is not aware of any arrangement which at some later date results in changesin control of the Company.

 

ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
After approval from the Company's Board of Directors, in March 1999 the Company'ssubsidiary, WWI, agreed to provide technical services to Golden Phoenix Minerals, Inc.(GPXM), a junior mine exploration and development company whose common shares trade on theOTC Bulletin Board. Services are billed monthly and WWI receives a combination of GPXMcommon stock, SEC Rule 144 restricted common stock, and cash. Separately, Dr. Whitneypersonally agreed to acquire up to 10,000,000 common shares of GPXM at $0.10 per share,making him beneficial owner of more than ten percent of GPXM. Any unexercised optionsunder this arrangement can be assigned to WWI. Dr.'s Whitney and Cavell are principals ina group that controls the mining claims underlying one of GPXM's principal exploration anddevelopment properties. At December 31, 2003 WWI owned 736,442 restricted GPXM shares. AtDecember 31, 2002 WWI owned 3,061,212 restricted GPXM shares. The initial Rule 144 oneyear period for resale began in April 2000, and continues monthly thereafter. Totalrevenue from GPXM for 2003 and 2002 was $146,893 and $191,672, respectively. A total of$13,707 and $37,822 is included in accounts receivable at December 31, 2003 and 2002,respectively. At December 31, 2003, the average bid/asked price for GPXM common was$0.453, resulting in a value of shares held on that date of $333,240. Included in the GPXMshares held at December 31, 2003 and 2002 are 300,000 and 1,050,000 restricted commonshares, respectively, that were acquired by WWI purchasing $0.10 options from Dr. Whitneyand subsequently exercising the options by offsetting accounts receivable due it fromGPXM. The purchase price of the options was $109,275, which was determined at 85% of fairmarket value of the then current trading price of GPXM, less the $0.10 option price. Thisvaluation method is under the same terms that WWI uses to accept GPXM restricted commonshares for its monthly services. Dr. Whitney accepted Company restricted common shares inthe 2002 Equity Private Placement as payment for the options, which amounted to 1,365,938shares plus an equal number of warrants with conversion prices ranging from $0.08 to $0.24per share. The total cost to WWI of these GPXM shares was $214,275 and the market value atDecember 31, 2002 was $241,500. The 300,000 shares held at December 31, 2003 were valuedat $135,750 and have a cost of $70,650.

During the first quarter of 2002 Dr. Whitney loaned WWI 600,000 shares of GPXM stock ata value of $105,000 The loaned shares were sold by WWI for $83,045, for a realized loss of$21,955. In 2002, WWI repaid 416,463 of the GPXM shares out of shares owned by it at avalue of $72,881 and a realized gain of $35,587. During 2003 the remaining balance of theloan and accrued interest was paid by a combination of 87,283 GPXM shares, 250,000 sharesof other securities, and 150,461 Company restricted common shares. The portion of the loanpaid in Company shares was converted into the $0.08 per share Private Placement under thesame terms and conditions as other investors, including an equal number of three yearwarrants. WWI realized a net gain of $19,369 on the transaction.

40

ITEM 13.FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K.
I. Index of Financial Statements and Exhibits1. Index of Financial    Statements:
Page    No.INDEPENDENT AUDITOR’S    REPORT ON THE FINANCIAL STATEMENTS    2003
42  2002
43Consolidated Balance Sheets    as of December 31, 2003 and 2002.
44Consolidated Statements of    Operations and Comprehensive    Income for the Years    ended December 31, 2003 and 2002.
46Consolidated Statements of    Stockholders' Equity (Deficit)   for the Years ended    December 31, 2003 and 2002.
47Consolidated Statements of    Cash Flows for the Years ended   December 31, 2003    and 2002.
48Notes to Consolidated    Financial Statements.
50  2. Index of Exhibits: 14 Code of Business Conduct    and Ethics
7521 List of significant    subsidiaries 
7631 Rule 15d-14(a)    Certification
7732 Section 1350    Certification
78
 

II. Reports on Form 8-K.

A Form 8-K was filed in the fourth quarter of 2003, with a report date of November 7,2003. The 8-K was filed to report a change in the Registrant’s certifying accountant.

 

STATEMENTS AND SCHEDULES

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

41

CACCIAMATTA ACCOUNTANCY CORPORATION

CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders of Itronics Inc.

 

We have audited the accompanying consolidated balance sheet of Itronics Inc. (a Texascorporation) and subsidiaries as of December 31, 2003, and the related consolidatedstatements of operations and comprehensive income, stockholders' equity (deficit), andcash flows for the year then ended. These consolidated financial statements are theresponsibility of the Company's management. Our responsibility is to express an opinion onthese consolidated financial statements based on our audit.

We conducted our audit in accordance with U.S. generally accepted auditing standards.Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the consolidated financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the consolidated financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audit provides a reasonablebasis for our opinion.

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

The accompanying consolidated financial statements have been prepared assuming that theCompany will continue as a going concern. As of December 31, 2003, the Company has anaccumulated deficit of $20,105,000 a negative working capital of $3,611,000, and astockholders’ deficit balance of $3,702,000. The Company’s ability to continueas a going concern is contingent upon (a) future profitable operations and (b) the abilityto generate sufficient cash to meet obligations as they become due. These conditions raisesubstantial doubt about the Company’s ability to continue as a going concern.Management's plans regarding this matter are described in Note 13. The financialstatements do not include any adjustments that might result from the outcome of thisuncertainty.

 

                                            /S/ Cacciamatta Accountancy Corporation

Irvine, California

March 20, 2004

42

KAFOURY, ARMSTRONG & CO.

A PROFESSIONAL CORPORATION

CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Itronics Inc.

 

We have audited the accompanying consolidated balance sheet of Itronics Inc. (a Texascorporation) and subsidiaries as of December 31, 2002, and the related consolidatedstatements of operations and comprehensive income, stockholders' equity (deficit), andcash flows for the year then ended. These consolidated financial statements are theresponsibility of the Company's management. Our responsibility is to express an opinion onthese consolidated financial statements based on our audit.

We conducted our audit in accordance with U.S. generally accepted auditing standards.Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the consolidated financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the consolidated financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audit provides a reasonablebasis for our opinion.

In our opinion, the consolidated financial statements referred to in the firstparagraph present fairly, in all material respects, the consolidated financial position ofItronics Inc. and subsidiaries as of December 31, 2002, and the results of theiroperations and their cash flows for the year then ended in conformity with U.S. generallyaccepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that theCompany will continue as a going concern. As shown in the financial statements, theCompany and its subsidiaries have reported recurring losses from operations, including anet loss of $3,290,562 during the year ended December 31, 2002, a negative working capitalof $5,776,237, and a stockholders’ deficit balance of $4,587,859 as of December 31,2002. The ability to continue as a going concern is contingent primarily upon (a) futureprofitable operations, and (b) the ability to generate sufficient cash from operations andadditional operating capital raised from other sources to meet obligations as they becomedue. This condition raises substantial doubt about the ability to continue as a goingconcern. Management's plans regarding this matter are described in Note 13. The financialstatements do not include any adjustments that might result from the outcome of thisuncertainty.

 

 

                                        /S/ Kafoury, Armstrong & Co.

Reno, Nevada

April 8, 2003

43

 

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2003 AND 2002

 

ASSETS
 
2003
2002CURRENT ASSETS   Cash 
$ 34,499
$ 57,201Accounts receivable, less    allowance for  doubtful accounts, 2003,    $5,700;  2002, $5,700
96,384
88,239Marketable securities,    available for sale
413,240
483,983Inventories
425,525
337,153Prepaid expenses
53,073
44,331Current portion of deferred    loan fees
40,773
46,225Total Current Assets
1,063,494
1,057,132   PROPERTY AND EQUIPMENT   Land 
215,000
215,000Building and improvements
1,167,315
1,167,315************