UNITED STATES

SECURlTIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-KSB/A

**Amendment No. 1**

(Mark One)

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

    EXCHANGE ACT OF 1934

                                     For the fiscal year ended **December 31, 2005**
( ) 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. EmployerIdentification Number)

       incorporation or organization)

6490 South McCarran Boulevard, Building C, Suite 23 Reno, Nevada89509

         (Address of Principal ExecutiveOffices) Zip Code

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

             Title of eachclass                   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 bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. 

Yes (x) No ( )

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

 

 

State issuer's revenues for its most recent fiscal year: $1,360,987. 

The aggregate market value of the voting stock held by non-affiliates,computed by reference to the average of the bid and asked prices for such stock as ofMarch 31, 2006, was $8,320,400.

As of March 31, 2006 there were issued and outstanding 204,671,731shares of the Registrant's Common Stock.

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ITRONICS INC. AND SUBSIDIARIES

2005 FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS
PART I 
PAGEItem 1. Description of Business 
4Item 2. Description of Property 
20Item 3. Legal Proceedings
21Item 4. Submission of Matters to a    Vote of Security Holders 
22PART IIItem 5.Market for Common Equity    and Related Stockholder Matters
22Item 6.Management's Discussion and    Analysis or Plan of Operation
23Item 7. Financial Statements
33Item 8. Changes in and    Disagreements with Accountants on 
Accounting and Financial Disclosure
33Item 8AControls and procedures
33Item 8BOther Information
33PART IIIItem 9.Directors and Executive    Officers of the Registrant
33Item 10. Executive Compensation
36Item 11. Security Ownership of    Certain Beneficial Owners and 
Management and Related Stockholder Matters
38Item 12. Certain Relationships and    Related Transactions
41Item 13. Financial Statements and    Exhibits 
42Item 14.Principal Accountant Fees    and Services
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ITEM 1.DESCRIPTION OF BUSINESS.
 

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

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

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

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

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

Itronics Metallurgical, Inc.: 

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

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Nevada Hydrometallurgical Project: 

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

American Hydromet: 

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

Itronics California, Inc.: 

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

Whitney & Whitney, Inc.: 

WWI was incorporated in 1977. WWI was primarily a mineral consultingfirm that provided planning and technical services to the mining industry. WWI is nowdeveloping an internet website to provide gold mining industry data to the investingpublic, while maintaining a presence in the technical consulting field. 

SUMMARY HISTORY OF OPERATIONS 

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

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

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

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

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

In 2001, at the request of our licensed distributor, we developed achelated liquid micronutrient zinc fertilizer with the objective of selling the product intruckload quantities. This fertilizer development was successful and provided the basisfor the first tank truck load sales in the fourth quarter of 2001. During 2002 this newbulk liquid fertilizer was successfully introduced into the distributor network. During2002 work on a bulk liquid GOLD'n GRO fertilizer that could be used as a "baseliquid" in the distributor's proprietary field blends was commenced. In 2003development work on a second chelated liquid micronutrient zinc product for bulk sale wasinitiated. Field testing of both new bulk liquid fertilizers was conducted during 2003 andin late 2003 they were approved for introduction into the distributor sales network for2004. 

During the same 2001 to 2003 period, more than two dozen liquidfertilizer formulations were evaluated for suitability and market potential. By the end of2003, product line development had been completed, and 13 fertilizers covering twocategories have been established: chelated liquid multinutrient fertilizers and chelatedliquid micronutrient fertilizers. The fertilizers are sold both to the general public andthrough licensed and non-licensed distributors. Product improvement and new productdevelopment will continue, but our focus in 2005 and future years will be primarily onGOLD'n GRO Liquid Fertilizer sales expansion and on expansion of the services business asneeded to support increasing GOLD'n GRO fertilizer sales. 

In 2003 we participated in the development of an animalrepellent/fertilizer that will be sold under the trademark GOLD'n GRO Guardian. Using oneof the GOLD'n GRO multi-nutrient liquid fertilizers as a base liquid, which has theproperty of being taken into the plant as a fertilizer and imparting odor and tastecharacteristics that are offensive to deer and other animals, such as rabbits, that eatplants. The GOLD'n GRO Guardian product was field tested

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during 2003 and was approved for use by the North American DeerManagement Network in the fourth quarter of 2003. GOLD'n GRO Guardian is a repellentfertilizer product and must be registered under both the pesticide regulations and thefertilizer regulations for each state in which it will be sold. The product must also beregistered with the Federal EPA as a biopesticide. Introduction of this product forcommercial sales will be delayed until the registrations are completed. In 2005 weacquired the interest in the GOLD’n GRO Guardian trademark, product rights, and therepelling product formula owned by Mr. Howland Green. We now own 100% of all rightsrelated to GOLD’n GRO Guardian. Mr. Green has become one of our directors and isNortheast Manager for GOLD’n GRO Sales Development. Substantial funding over twelveto twenty-four months will be required to complete the EPA and California registrationprocess. 

During the period 1999 through 2003 we developed a "lowtemperature vacuum distillation" machine that operates at room temperature and isable to remove up to 80% of the water from photochemical solutions without damaging thechemicals, producing a high silver content concentrate that can be shipped as a commercialproduct in inter-state commerce. The distilled water is clean enough for re-use on siteand the reduction in volume of material needing to be shipped produces 80 percentreduction in transportation cost making shipment possible anywhere in the United States.These machines have been released for commercial sale under the trademark "ItronicsMetallurgical Photochemical Silver Concentrators". 

In 2002 we delivered five of these Photochemical Silver Concentratorsto the Department of Defense. Two additional Photochemical Silver Concentrators weredelivered in the third quarter of 2003. This program is regarded as a pilot project, whichmay lead to providing "Beneficial Use Photochemical, Silver, and WaterRecycling" services to all branches of the U.S. military and is being developed bythe Department of Defense in consultation with the Federal EPA. 

After we began producing fertilizer, we noted that the by products ofthe process were the main materials needed to manufacture glass and ceramic. Therefore, inearly 2003, we began research and development of glass and tile formulations. During 2003,the first pieces of glass/ceramic tile were produced. With the successful development of aglass/ceramic tile product, we achieve the ability to recycle 100 percent of the materialsreceived from customers, including waste that is generated internally during processing.In 2006, and future years the silver refining technology development and the glass/ceramictile products development efforts will be expanded in parallel with expansion of GOLD'nGRO fertilizer sales.

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

PHOTOCHEMICAL FERTILIZER 

Operations 

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

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Photochemical services operates as a regional business in northernNevada, serving more than 200 customers in the northern Nevada market. A satellite serviceoperation has been established in the San Francisco Bay Area which is a large market withat least three strong competitors. We are able to compete effectively based upon pricingand service quality. 

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

In early 2003 we initiated a program to market the ItronicsMetallurgical Photochemical Silver Concentrators to large consumer photography and medicalx-ray facilities throughout the United States. This is a cost effective method for us toexpand our photochemical supply for use in GOLD'n GRO fertilizer manufacturing.Photochemical silver concentrators are expected to be a source of revenue growth in futureyears as we continue to expand nationally. Our photochemical blending technology isdesigned to utilize the concentrate in fertilizer, after it is demetallized. 

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

Growth Plans and Implementation

Our Photochemical Fertilizer Division created the GOLD’n GRO lineof liquid fertilizers. The pioneering development work is complete, field trials have beencompleted on the first products and other field trials are under way. 

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

With the successful completion of the initial pioneering developmentwork by the Photochemical Fertilizer Division, and with the launch of the informationportal by the Mining Technical Services Division, we are implementing growth plans forboth divisions that are expected to drive expansion well into the future. The status ofthese plans and their implementation is described for each division.

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Photochemical Fertilizer Division (Itronics Metallurgical, Inc.)

Our manufacturing plant is presently configured to produce 1.2 milliongallons (on a single shift basis) of GOLD’n GRO fertilizer annually (about 5,700tons) and can be expanded to produce 7.2 million gallons of GOLD'n GRO per year, or about36,000 tons. GOLD'n GRO fertilizer production in 2005 utilized about 5 percent of plannedcapacity. Planned expansions to achieve the 36,000 ton volume include increasing both dryraw material and liquid storage, increasing tank truck loading capacity, and automation ofcertain manufacturing functions. Expansion can be achieved incrementally as fertilizersales continue to grow.

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

    1. Increase sales in the established marketsegments.

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

    3. Expand sales to new territories.

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

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

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

    7. Continue facilities expansion and technologydevelopment. 

    8. Acquire established companies and/or theirtechnologies.

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

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

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

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

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

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

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

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

New product applications are being developed for the dairy cow feedmarket including young oats, alfalfa, hay, and silage corn. Trials were conducted in 2005.The nutrient content of the alfalfa was improved, in some cases to the highest qualityratings. This benefits the dairy because less nutrient supplements are required forfeeding the cows, thus reducing dairy operating expenses. The amount of hay produced peracre increased up to 25 percent. Results of

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the corn crops are still being evaluated. The dairy cow feed market islarge with more than 23 million acres of alfalfa hay being grown in the United States. Weanticipate it will take another one to three years to complete development and launchthese product applications. 

In 2004, we began field trials in Idaho, Oregon, and Washington forapplications on onions, potatoes, and winter wheat. In the second quarter of 2005, webegan field trials in Rhode Island for lawn, landscape, and nursery application. Also inthe second quarter, we started several new trials in California for silage cornapplications. 

A new GOLD'n GRO base liquid nutrition program is now being marketed.The program is called the "Gallon and a Quart" or "4 to 1" program. Itcalls for one gallon of GOLD’n GRO base liquid for each quart of GOLD'n GRO chelatedmicro-nutrient used in soil applications. Field demonstrations have shown improvednutrition uptake and crop output under this cost effective program. Marketing of thisprogram over the next two to three years is expected to produce a very substantialincrease in the tonnage of GOLD'n GRO fertilizer sales. 

3. Expand sales to new territories.

The GOLD'n GRO products are being sold in Arizona, California,Colorado, Idaho, Nevada, Oregon, Rhode Island, and Washington, with the majority of oursales in central California. We completed registration of select GOLD’n GROfertilizers in Idaho, Oregon and Washington during the first quarter of 2005; salesdevelopment is now underway. Two GOLD'n GRO products are registered in seven northeasternstates and all of the products are registered in New York and in New Jersey with adistributor agreement signed for New Jersey. Based on our experience, commercial sales canbe generated approximately one year after introductory sales activities are initiated. Weare in the process of identifying distributors for New York and the other sevennortheastern states. Each new geographic area developed will require the same proceduralapproach.

The expansion into the Northwest states of Idaho, Oregon and Washingtonis being managed by one field agronomist, who was transferred from California in 2004.Based on our experience, the cost of maintaining that position ranges from $120,000 to$150,000 per year. The expansion into the Northeast states is being managed by one parttime person at an annual cost of approximately $30,000. That person is also the leadperson in seeking customers for our Photochemical Silver Concentrators. We plan toincrease these spending levels in 2006, depending on sales support requirements. 

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

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Our plan to expand sales in Urban Markets requires the consumer toutilize fertilizer injection equipment. This equipment provides economical, easy use ofliquid fertilizers for consumer lawns and gardens. We added two types of fertilizerinjectors to our "e" store in 2005, which is the first step into this market.Additionally, other fertilizer injectors are already available to consumers throughirrigation supply stores. 

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

We are developing two new specialty products, a calcium plus magnesiumfertilizer named GOLD’n GRO 11-0-0+5% Ca (Calcium) and a high magnesium contentfertilizer named GOLD’n GRO 8-0-0+3% Mg (Magnesium), both targeting foliar and soilapplication. We have registered GOLD’n GRO 11-0-0+5% Ca in Nevada and completedregistration in California in the first quarter of 2006. Sales development is expected tostart in the second quarter of 2006. The registration of GOLD’n GRO 8-0-0+3% Mg isbeing delayed to 2006 or 2007 to allow time to complete the introduction of GOLD’nGRO 11-0-0+5% Ca in California and to complete registration in Oregon and other stateswhere it will be sold. 

We are developing a new category of repellent fertilizers that areexpected to be sold at higher profit margins than our other products. The GOLD’n GROGuardian deer repellent fertilizer is an example of this type of specialty fertilizer. TheU.S. market for deer repellents is believed to exceed $50 million in annual sales.Products currently in the market have limited effectiveness so there is a real opportunityfor a line of systemic products that are effective for several weeks after eachapplication. GOLD'n GRO Guardian small plot tests have shown effectiveness for 8 to 12weeks as well as excellent wintertime effectiveness. 

In the second quarter of 2005 we acquired ownership interest in theGOLD’n GRO Guardian trademark, product rights, and the repelling product. We now own100% of all rights related to GOLD’n GRO Guardian. Results of the research of theGOLD’n GRO Guardian deer repellent fertilizer has provided a basis for a bird (goose)repellent fertilizer that will be perfected for small plot field trials and registrationafter the registration of GOLD’n GRO Guardian is underway. Currently, this productline is strictly for non-food plant applications.

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

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

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

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6. Develop and commercialize metal leaching reagents for recovery ofsilver, gold, and other metals.
In 2002 and 2003, we initiated efforts to apply our technology toextract silver from photoliquids to the mining sector. This work will be further expandedand a small pilot circuit will be established to chemically process certain categories ofsilver-bearing solid wastes. The gold mining sector currently uses cyanide and other toxicchemicals in their leaching process. We believe it may be possible to create and adapt newnon-toxic leaching reagents and leaching procedures for processing other secondarymaterials and certain types of mine generated products. The specific markets for leachingreagents in gold and silver mining is large and world wide, but has not yet been studiedin detail for market development. Our Technical Services Division maintains an extensivelibrary and database of mines and mining activities worldwide, which provides us readyaccess to market information as we need it. Much pilot plant work, including one or morefield pilot operations, must be completed before quantitative market studies can becompleted.

7. Continue facilities expansion and technology development.

As fertilizer sales volume increases, we will need to increase tanktruck loading capacity. With the introduction of additional bulk products and increaseddemand for our products, load out capacity for shipment of three more bulk products isneeded. We developed a preliminary construction budget and are seeking financing so thatconstruction can be scheduled. While we believe that we can handle expected growth in 2006with the existing load-out module, we hope to complete construction on the new load outequipment during the fourth quarter of 2006. 

8. Acquire established companies and/or their technologies.
To enhance our operations and market presence, we intend to acquiresmall established companies or their technologies. In 2005, we completed our acquisitionof the GOLD’n GRO Guardian technology. We have decided to delay any furtheracquisitions until additional financing is obtained.

Mining Technical Services Division (Whitney & Whitney, Inc.)

Historically, this division provided consulting services to the miningindustry. In August 2005, we launched an Information Portal in the Internet. This divisionhas a two-part approach to growth:

1. Continue to provide consulting services.

2. "e-commerce" Internet InformationPortal-"insidemetals.com".

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

1. Continue to provide consulting services
In early May 2005 the technical services satellite office was closeddue to the winding down of most of the technical service contracts and completion of themajority of the data gathering for the insidemetals.com project, but certain key staffmembers have been retained. We intend to continue a low level effort to solicit andperform technical services for mining companies and other businesses or governmentagencies that have mineral interests or minerals related responsibilities

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2. "e-commerce" Internet InformationPortal-"insidemetals.com". 
In August 2005, we launched the website "insidemetals.com,"an Information Portal targeting the companies and individuals interested in the mining andprecious metals industry. The website will generate revenue by charging a subscription feefor monthly access to the site. Currently, the site contains an array of information aboutgold and companies in the gold industry. We intend to add information on other mineralsectors gradually over time. 

We anticipate that mining company professionals, all governmentagencies with minerals related responsibilities, financial industry investmentprofessionals, and individual investors who have an interest in investing in miningcompanies but who have limited mineral industry knowledge will benefit from thisInformation Portal. The market scope for this service is global and is accessible with a"click of a mouse" in all countries of the world through the Internet. Whitney& Whitney, Inc. has contacts throughout the world and expects that the good willgenerated over a period of more than 25 years will provide market support for thisservice. 

Competition 

Our GOLD’n GRO fertilizer products compete with well establishedfertilizer companies that have significantly more capital with which to market theirproducts. Our competitors include large companies such as Scotts Miracle-GRO, DowAgroSciences Company, Uniroyal Chemical Corporation, and smaller companies such as PursellTechnologies, Inc. We believe that our fertilizers compete primarily on the basis ofproduct quality and performance. 

Our photochemical recycling fees are generated primarily from removingused photochemicals from our customer’s sites. We compete for these customers withlarge national firms like Safety Kleen and Philips Environmental but our primarycompetitors are smaller regional firms like ECS Refining in Northern California. 

We sell our silver bullion to a commercial refiner under standardindustry terms. We are a very small producer of silver; consequently the refiner willpurchase all the silver we can presently produce. For several years, there has been aglobal shortage in the supply side of the silver market. Our ability to sell our silverbullion could only be impacted if there were a dramatic negative change in the silvermarket, and only then if we grow to be a much larger silver producer than we are now. 

Markets

Fertilizer 

The total fertilizer market consists of the "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 $5 billion segment making the total a $14 billion market.Substantially all of our present GOLD’n GRO fertilizer sales are in the"Specialty Ag" segment.

More than 50 million tons of fertilizer products are sold annually inthe United States. This includes almost 20 million tons of multi-nutrient fertilizers andalmost 3.5 million tons of secondary nutrient and micro-nutrient products. About 38percent of the total usage is as fluid fertilizers. Our 2004 sales represent less than0.0005 percent of the 2004 multi- and micro-nutrient market.

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

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

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

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

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

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

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

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

Photochemical Recycling

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

We are aware of digital imaging and its impact on usage of 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. Over the last several years, it became clear to us thatcontrary to popular belief, digital photography is creating a new source of photowastesfrom Internet companies that combine digital imaging services with the ability to printhigh quality photographs for their customers. Digital methods are being adopted in themedical industry, and although the medical sector is relatively high growth with the agingU.S. population, digital imaging has had the effect of slowing the growth of waste photoliquids being generated and may lead to a decline in future years. 

A larger impact on photo waste generation has been the pressure forcompanies to reduce the amount of waste generated at the operating sites. In photography,water was used in copious quantities for film rinsing and large quantities of low chemicalcontent waste liquids were

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generated. With the tightening of regulation of discharge ofcontaminated waters the equipment manufacturers have focused on reducing water usage. Thisattention to reduction of waste water has contributed to a reduction in the quantities ofwaste liquids being generated. It is expected that efficiency of use and associated wastereduction will continue, driven by increasing waste disposal costs. On-site photochemicalrecovery using a Photochemical Silver Concentrator and re-using the recovered water isexpected to continue to become more and more attractive to photochemical waste generators.

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

Silver

Nationally, more than 80 million ounces of silver are consumed inphotomaterials annually. Approximately 30% of this is lost through disposal. The SilverInstitute indicates that silver usage in photography is stable, but may decline modestlyover the next several years. 

Seasonality and Working Capital 

In analyzing the market and industry competitors, it is apparent thattwo factors significantly impact our ability to penetrate these markets in a meaningfulway. First, the seasonal aspect of fertilizer sales, which directly results in the secondfactor, the need for a much higher level of working capital when compared to otherindustries. Based on experience, we expect fertilizer sales to continue to have a strongseasonal component, with the primary sales season running from April through November eachyear, with an in-season low in July and August. In addition to the general seasonal natureof sales caused by normal weather patterns, unusual weather can further affect fertilizersales, especially in winter and spring. For example, unusually cold or wet spring seasonsmay delay the growing cycle of various crops for which our fertilizer products areutilized. To overcome weather related effects on fertilizer sales, we are evaluatingmarkets in the southern areas of the United States where growing seasons are longer and,in some cases, year round. 

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

Research, Development, and Technology 

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

We conduct field trials to gather agronomic data and to developknowledge of how the GOLD'n GRO products work on different crops. This field testing willcontinue as it is the most effective method for developing the field data needed tosupport claims of product effectiveness for

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specific crops. On-going field trials of GOLD’n GRO fertilizerproducts continue to show significant improvements in crop production and quality. Thetrials are providing agronomic data that is being used to develop GOLD’n GROnutrition programs for the crops being tested. 

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

A 3 year field trial on Valencia orange trees being carried out withoversight from a major university in southern California was completed in 2004. Two yearcumulative results have been analyzed and significant positive results were obtained.Fruit output per tree and fruit quality were both increased.

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

During 2005 we continued to be offered the opportunity to explore thefeasibility of recycling other non-photographic materials into fertilizer. We haveconcluded that certain acid waste streams generated by aerospace and electronicsmanufacturers may be able to be converted to a form that will fit "BeneficialUse" recycling into fertilizer in association with the processed photochemicalmaterials. 

Environment and Regulation 

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

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

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

In particular, the regulatory process requires firms in our 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. Weare not in a position at the present time to assess the extent of the impact of suchpotential changes in governmental policies and attitudes on the permitting process. 

For several years we have been studying the various regulatoryrequirements under RCRA and have been working with state and local environmental officialsregarding the extent to which hazardous waste regulations apply to our operations. Throughthis process, we reached the conclusion that due to use of photochemicals as a beneficialingredient in our fertilizer products, the photochemicals are not "hazardouswaste" as defined in the regulations, and therefore, beneficial materials that areotherwise regulated as hazardous waste, are exempt from most of such regulations. In early1996 we received concurrence from State of Nevada environmental officials that ourphotochemical fertilizer process meets the existing RCRA requirements for exemption fromall environmental regulation with the exception that certain presently conducted labanalyses of the photochemicals will continue to be required. Certain of our large scalecustomers presently meet the exemption requirements. Present levels of fertilizer salesutilize all the photochemicals received. Once sales of all the photochemical materials arewell established in the fertilizer or other commercial products, all our Nevada customerswill be exempt from the regulations, including hazardous material transport/manifestrules. We believe that this exemption applies nationwide. Therefore, we intend to pursuesimilar concurrence from environmental officials in all applicable states, so that all ourcustomers will be recognized as exempt from the RCRA regulations. 

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

 

Permits and Inspections 

To the best of our knowledge, we have obtained permits from allgovernmental agencies having jurisdiction, such as the EPA, Nevada Department ofEnvironmental Protection, Washoe County Health Department and the City of Reno, Nevada. Weare not required to obtain federal permits, but are required to have, and have obtained,local permits for our photochemical recycling facility under the provisions of the FederalEPA. Similar permits will be required of all facilities that we may construct. Ourrecycling facility is subject to frequent inspections and to regulations (includingcertain requirements pursuant to federal statutes) which may govern operating proceduresfor land, water and air pollution, among other matters. In particular, our operations aresubject to the Safe Drinking Water Act, TSCA (Toxic Substances Control

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Act-pursuant to which the EPA has promulgated regulations concerningthe disposal of PCBs), the Clean Water Act (which regulates the discharge of pollutantsinto surface waters and sewers by municipal, industrial and other sources) and the CleanAir Act (which regulates emissions into the air of certain potentially harmfulsubstances). Employee safety and health standards under the Occupational Safety and HealthAct are also applicable to our employees. 

 

MINING TECHNICAL SERVICES 

Services offered 

Our Mining Technical Services segment offers a wide range of technicalservices to the mining industry, including management support, mineral projectdevelopment, ore reserve and material balance reviews, expert assistance in contractdispute or litigation, and mineral economics and cost studies 

Operations

Our Mining Technical Services segment accounted for 4% of 2005consolidated revenue. Golden Phoenix Minerals, Inc. produced 27% of this revenue. Theclient is a junior mining company with three mineral properties in Nevada. WWI providedtechnical assistance in moving these properties into the development and operating stages.WWI also provided administrative support. The contract with this client expired on March1, 2005. 

In August 2005, we launched the website "insidemetals.com,"an Information Portal targeting the companies and individuals interested in the mining andprecious metals industry. The website will generate revenue by charging a subscription feefor monthly access to the site. Currently, the site contains an array of information aboutgold and companies in the gold industry. We intend to add information on other mineralsectors gradually over time.

 

Expansion Plans 

In January 1999 WWI initiated a long term R&D project to replacethe use of cyanide in the extraction of metals from silver/gold and gold/copper ores. Thenew thiosulfate leaching technology being developed under this program utilizes the sametechnology as our proprietary photochemical recycling process. The project, calledItronics Thiomet, is seeking to establish operating joint ventures at specific mine sitesto apply the thiosulfate leaching technology. This project is on hold pending furthercommercial development of fertilizer sales. 

In 2004 a project to establish a subscription based gold industry andgold company Internet publication was begun. The web publication, called"insidemetals.com", provides the customer with gold industry and gold companyfinancial, production, and ore profiles on key gold producing companies. Initially, thecompanies to be profiled are in the Gold Company sector, which includes gold, silver,platinum, and palladium producers. The profiled companies are publicly traded on the NewYork and American Stock Exchanges and on NASDAQ. The publication was launched in August2005 and the target market includes gold company employees, governmental agencies, bothdomestic and foreign, and individual investors interested in the gold markets. In additionto providing subscription revenue, it is anticipated that the publication will enhance ouropportunity to obtain new sources for technical consulting work. This subscription basedInternet Information Portal provides an opportunity for relatively unrestricted growth bybeing available to a diverse global base of potential customers.

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Competition

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

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

 

 

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

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

 

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

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

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ITEM 3.LEGAL PROCEEDINGS.
As of December 31, 2005 total recorded liabilities of $797,418including accrued interest to December 31, 2005, were subject to various lawsuits andclaims for the collection of the funds due. These include 15 leases totaling $604,796(reflected in Current Maturities of Capital Lease Obligations) plus $70,324 in additionalinterest (reflected in Accrued Interest) and three trade payables totaling $107,758(reflected in Accounts Payable) plus $14,540 in additional interest (reflected in AccruedInterest). The leases are individually secured by specified equipment. 

The accrued interest noted above was recorded based on our assessmentof additional amounts we believe is probable and is related to four cases originallyseeking $423,375. The creditors have received judgments in three of these cases, but havetaken no further collection action. The Company will continue to accrue interest untilthese cases are settled or paid in full. In March 2006 the Company reached asettlement agreement on the fourth case by signing a stipulation to judgment and agreeingto pay $4,500 per month.

  We estimate an additional $10,600 interest may be reasonablypossible on one case; however, we have not accrued this amount because we do not believeit is probable to be incurred. This estimate is related to one case, seeking $35,210, thatwas filed in March 2003. No further contact has taken place since then. 

We have a total of nine cases, that originally sought $364,036, that wedeem to have a remote possibility of incurring an additional unrecorded loss. We havenegotiated payment agreements on these cases and, as of December 31, 2005, the recordedliability for these cases was $242,839. All of these cases are paid current under therespective settlement agreements. 

In addition to the above leases that are subject to litigation, thereare four leases, with a recorded liability of $188,270, that are in default. No paymentshave been made for an extended period of time, and no collection action or recent contactfrom the creditors has occurred. As required by U.S. Generally Accepted AccountingPrinciples, the principal balance of the leases that are in default have been classifiedas current liabilities. Subsequent to December 31, 2005 the Company began paying on one ofthese leases with a recorded liability of $46,341. It is reasonably possible thatadditional interest of less than $5,000 could be incurred, but this has not been recordedbecause the Company does not believe it is probable to be incurred

Successful settlement of the above claims is dependent on futurefinancing.

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

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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 commonshares are traded on the over-the-counter market under the symbol ITRO.OB, and quoted inthe National Quotation Bureau, Inc.'s "pink sheets" and on the NASD ElectronicBulletin Board. In 2003 the Company’s stock began trading on the Frankfurt, GermanyStock Exchange under the symbol ITG. In March 2004 the Company’s stock began tradingon the Berlin Bremen Stock Exchange (Germany) under the symbol ITG. 

The following table sets forth the high and low bid prices for theCompany's common stock for each quarter for 2004, 2005, and through March 31, 2006. 
High BidLow Bid3/31/04
$0.22
$0.146/30/04
$0.17
$0.109/30/04
$0.10
$0.0612/31/04
$0.08
$0.053/31/05
$0.13
$0.056/30/05
$0.08
$0.059/30/05
$0.09
$0.0612/31/05
$0.07
$0.043/31/06
$0.08
$0.04
These quotations reflect inter-dealer prices without retail markup,markdown, or commissions, and may not represent actual transactions.

    (b) On March 31, 2006 the number of record holdersof the Common Shares was approximately         1,100.

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

Recent Sales of Unregistered Securities:

In December 2005, we issued an aggregate of 2,500 shares of commonstock valued at $175 to John W. Whitney, our President, as compensation for servicesperformed on our behalf in his capacity as a director of our company for the third quarterof 2005. 

In December 2005, we issued an aggregate of 72,036 shares of commonstock valued at $6,000 to Duane H. Rasmussen, our Vice President, as compensation forservices performed on our behalf in his capacity as Vice President of our company for thethird quarter of 2004. 

We issued options to purchase an aggregate of 9,000 shares of commonstock to Michael C. Horsley, our Controller, on November 1, 2005. The options areexercisable at $0.15 per share and expire three years after grant. 

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We issued options to purchase an aggregate of 21,000 shares of commonstock to four of our employees in November 1, 2005. The options are exercisable at $0.15per share and expire in three years from grant. 

During the three months ended December 31, 2005, the accrued intereston the 2000 Series Convertible Promissory Notes resulted in the granting of additionaloptions to purchase an aggregate of 601,968 shares of common stock. The options areexercisable at prices ranging from $0.125 to $1.18. 

All of the above offerings and sales were deemed to be exempt underrule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. Noadvertising or general solicitation was employed in offering the securities. The offeringsand sales were made to a limited number of persons, all of whom were accredited investors,business associates of Itronics Inc. or executive officers of Itronics Inc., and transferwas restricted by Itronics Inc. in accordance with the requirements of the Securities Actof 1933. In addition to representations by the above-referenced persons, we have madeindependent determinations that all of the above-referenced persons were accredited orsophisticated investors, and that they were capable of analyzing the merits and risks oftheir investment, and that they understood the speculative nature of their investment.Furthermore, all of the above-referenced persons were provided with access to ourSecurities and Exchange Commission filings.

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

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

- discuss our future expectations; 

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

     - state other "forward-looking"    information. 

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

We are a process technology company that has developed what we believeis a unique technology for photochemical recycling. We, through our subsidiary, ItronicsMetallurgical, Inc., extract more than 99% of the silver and virtually all of the othertoxic heavy metals from used photoliquids and use this "Beneficial Use Photochemical,Silver and Water Recycling" technology to produce environmentally beneficial chelatedmultinutrient liquid fertilizer products sold under the trademark GOLD’n GRO, animalrepellent/fertilizer products to be sold under the

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trademark GOLD’n GRO Guardian, and silver bullion. We also provideprocess planning and technical services to the mining industry and are operating andcontinuing to develop an internet website to provide gold mining company profiles toparties interested in the gold mining and precious metals industry.

Our fertilizer is sold primarily through Western Farm Service, Inc.(WFS), a wholly owned subsidiary of Agrium, Inc. (a NYSE company). Our distributionagreement with WFS gives them exclusive rights to sell our fertilizer products in Arizona,California, Hawaii, Idaho, Oregon, and Washington, which represented 96% of our fertilizersales in 2005 and 97% of such sales in 2004. This agreement is discussed in more detail inthe Business section. Our plans to increase GOLD’n GRO fertilizer sales, includingplans to expand the product line, expand to more geographical regions in the U.S., enternew market segments, and add new distributors, are also discussed in more detail in theBusiness section.

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

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

The majority of our raw material inventory is comprised of silver inphotochemical solutions. The table below indicates that silver prices were relativelystable in 2001 to 2003, then rose dramatically in 2004 and 2005. We regularly compare ourweighted average cost of silver per ounce to current market prices; historically we havenot had impairment losses. The average London spot price of silver is shown as follows:

                           

Year          2001    2002   2003   2004   2005
Silver       $4.36   $4.60  $4.88  $6.67  $7.32 

 

We also provide consulting services to the mining industry. Tosupplement this business line, we recently launched an internet website which we plan tomaintain with existing professional staff. Our plans with regard to the website arediscussed more fully in the Growth Plan and Implementation section below.

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**Critical Accounting Policies and Estimates.**
The preparation of financial statements in accordance with accountingprinciples generally accepted in the United States requires that management make a numberof assumptions and estimates that affect the reported amounts of assets, liabilities,revenues and expenses in our consolidated financial statements and accompanying notes.Management bases its estimates on historical information and assumptions believed to bereasonable. Although these estimates are based on management’s best knowledge ofcurrent events and circumstances that may impact the Company in the future, actual resultsmay differ from these estimates.

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

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

Within the technical services division, revenue is derived fromconsulting services. Revenue is recognized in income as services are rendered. When theCompany is responsible for subcontractor services and related expenses, such pass-throughcosts are included in both revenue and cost of revenues. Markups, if any, are included inrevenues.

Inventory. 

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

Convertible Debt Derivative 

The Company estimates the fair value of its convertible debt derivativeand other related derivative instruments using the Black-Scholes option pricing model.This model requires management to use significant assumptions in applying the model toestimate the fair value. As the Company’s stock price is highly volatile, and theunderlying debt amounts are relatively large, the valuation of the derivatives is subjectto material gains and losses from period to period. 

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**Recent Accounting Pronouncements**
On December 16, 2004 the FASB issued SFAS No. 123R,"Share-Based Payment," which is an amendment to SFAS No. 123,"Accounting for Stock-Based Compensation." This new standard eliminates theability to account for share-based compensation transactions using Accounting PrinciplesBoard, or APB, Opinion No. 25, "Accounting for Stock Issued to Employees,"and generally requires such transactions be accounted for using a fair-value-based methodand the resulting cost recognized in our financial statements. This new standard iseffective for awards that are granted, modified or settled in cash in interim and annualperiods beginning after June 15, 2005, December 15, 2005 for small businessissuers. In addition, this statement will apply to unvested options granted prior to theeffective date. The Company will adopt this new standard effective for the first fiscalquarter of 2006 and it has not yet determined what impact this standard will have on itsfinancial position or results of operations. 

  In June 2005 the Derivative Implementation Group issuedDIG’s B38 and B39 to specify the accounting treatment of put or call options embeddedin hybrid debt instruments. Both DIG’s become effective for the first fiscal quarterbeginning after December 15, 2005. These new standards will require us to treat theprepayment option included in the terms of our callable secured convertible debt financingas an embedded derivative. Under the guidance of FAS 133 and EITF 00-19, if there is morethan one embedded derivative in a hybrid debt instrument, the embedded derivatives must bevalued as a whole. Consequently, our present method of estimating the fair value of thebeneficial conversion feature of the debt, using the Black-Scholes option pricing model,will no longer be applicable. We will need to determine the estimated fair value undersome other method, which has not yet been determined. The Company will adopt this newstandard effective for the first fiscal quarter of 2006 and it has not yet determined whatimpact this standard will have on its financial position or results of operations. 
**Results of Operations**
The primary factors affecting our revenue fluctuation between periodsin fertilizer sales are seasonality and weather conditions. Sales are greater during thegrowing season, and are negatively affected by cold winter weather and rainy weather. Inmost of our markets there are two primary fertilization seasons, spring and fall, withspring being the stronger of the two. The spring season generally starts in March and goesthrough June and the fall season generally starts in September and runs into December.Adverse weather conditions delay the start of, or can significantly shorten, a growingseason. Farmers do not fertilize their crops in rainy or cold weather; therefore they donot buy fertilizer; consequently, our distributor does not buy fertilizer from us.Additionally, we have experienced varying lengths of time for acceptance in the market ofour new fertilizer products; farmers are inherently very slow to accept new products somarket penetration time can be lengthy. Our short history in the fertilizer marketdemonstrates that new products, if successful, obtain meaningful sales typically betweentwo and four years after product launch. 

The primary factors affecting the revenue fluctuation between periodsin photochemical recycling revenue are our need to acquire this material for use infertilizer production and our ability to store this material until it is needed. We havean unusual business model in that we need to sell our photowaste management services inorder to acquire a raw material necessary for the production of our fertilizer products,as opposed to purchasing it from suppliers as most businesses do. Our management goal isto combine the incoming volume of

26

photowastes with existing stored photowastes to meet the peaks indemand for fertilizer products. In the liquid fertilizer industry, the practice of bothour distributor and the ultimate consumer, the farmer, is to purchase fertilizer on a justin time basis, to minimize their storage requirements and related costs. For this samereason, we process our photowastes as needed for fertilizer production. Because of this,the need to seek new customers to expand the service side of our business is driven byfertilizer sales. There is also a seasonal factor in the consumer photography portion ofour photowaste management services business, with the Christmas holiday season being thebusiest, followed by the early summer, school graduation period. At present volumes ofphotowaste, this is not a significant factor, but it could become one as we grow. 

The primary factor affecting the revenue fluctuation between periods insales of silver bullion is our dependence on the timing of processing used photochemicalwastes, which is primarily dependent on fertilizer manufacturing and related sales. Oursilver in solution is separated from the photowaste materials during processing of thephotowastes for use in fertilizer manufacturing. As described above, the timing ofprocessing of photowastes is dependent on fertilizer sales, therefore sales of silverbullion is also dependent on the level of fertilizer sales. Market price changes will alsocontribute to silver revenue fluctuations by increasing or decreasing revenues dependingon whether the silver price increases or decreases.
**Comparison of the Year Ended December 31, 2005 with the Year EndedDecember 31, 2004.

We reported consolidated revenues of $1,360,987 for the year endedDecember 31, 2005, compared to $1,620,351 for the prior year, a decrease of 16%. Revenuesfor the Photochemical Fertilizer segment decreased by $117,800, or 8%. Revenues from theMining Technical Services segment declined $141,600, or 72%. We reported a gross loss of$130,000 for the year ended December 31, 2005 compared to a gross profit of $32,300 forthe year ended December 31, 2004, a decrease of $162,300. The consolidated net loss for2005 was $4,906,600 or $0.026 per share compared to a 2004 loss of $2,839,872 or $0.020per share. 

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

PHOTOCHEMICAL FERTILIZER 
Year Ended    December 31, 
2005
2004Revenue Fertilizer
$    1,034,515
$    1,019,789Photochemical    recycling
$ 123,657
$ 301,609Silver
$ 146,972
$ 101,531Total Segment    Revenue
$    1,305,144
$    1,422,929Gross profit    (loss) 
$    (116,682)
$ (34,687)    Operating    income (loss) 
$(2,107,863)
$(1,985,519)    Net income    (loss) before taxes 
$(4,389,168)
$(2,628,964)    
Revenues for the Photochemical Fertilizer segment totaled $1,305,100 in2005, compared to $1,422,900 in 2004, a decrease of $117,800, or 8%. 

27

Fertilizer sales were $1,034,500 (1,749 tons) and $1,019,800 (1,829tons) for 2005 and 2004, respectively. This represents an increase of 1% in dollars and adecrease of 4% in tonnage. Our fertilizer product sales are presently grouped into twoprimary categories, Chelated Liquid Micro-nutrients and Chelated Liquid Multi-nutrients.The Micro-nutrient category includes five products, which includes the two zinc products,GOLD’n GRO 9-0-1+7% Zinc and GOLD’n GRO 9-0-2+3% Zinc. These zinc products wereintroduced in 2001 and 2004, respectively. The Multi-nutrient category has a total of sixproducts, which includes the GOLD’n GRO 4-0-9+6.6% Sulphur Base Liquid, which wasintroduced in 2003. Sales of bulk Micro-nutrients were $863,400 (1,245 tons) and $873,600(1,399 tons) for 2005 and 2004, respectively, a decrease of 1% in dollars and 11% intonnage. Sales of bulk Multi-nutrients were $156,800 (504 tons) and $125,700 (430 tons)for 2005 and 2004, respectively, an increase of 25% in dollars and an increase of 17% intonnage. The dollar and tonnage increases in bulk Multi-nutrients are primarilyattributable to increased bulk sales of the GOLD’n GRO 4-0-9+6.6% Sulphur. Theincrease in total sales dollars, despite a decline in volume, was achieved by sales priceincreases during 2005. 

Photochemical recycling revenue was $123,700 and $301,600 in 2005 and2004, respectively, a decrease of 59%. The decrease is due to the December 2004 mutualtermination of recycling services for Shutterfly, Inc., a significant photochemicalrecycling customer. Shutterfly accounted for $201,300 or 59% of 2004 photochemicalrecycling revenue. This decrease was partially offset by $42,000 in sales of twophotochemical Silver Concentrators, compared to one sold for $20,000 in 2004.Photochemical Silver Concentrators have widely varying prices, depending on the needs ofthe customer. Consequently, sales volumes and amounts are not consistent from period toperiod. 

In December 2004, photochemical recycling services provided toShutterfly, Inc. were discontinued by mutual agreement; the photochemical volume from thiscustomer had been growing so rapidly that the supply was exceeding our need for thechemicals in fertilizer manufacturing, resulting in storage costs and plantinefficiencies. Due to the nature of our business, our photochemical recycling customerssupply the used photochemical raw material needed for fertilizer manufacturing. Shutterflysupplied 65% of this raw material received in 2004. Based on 2004 usage of usedphotochemicals to manufacture fertilizer, our other customers supplied an overall 56% ofthe photochemicals needed to produce the fertilizer manufactured in 2004; so if we areunable to find new photowaste customers to replace Shutterfly, future fertilizer saleswould be limited to approximately that level of 2004 fertilizer sales once our inventoryof used photochemicals is depleted. It should be noted that this is only a rough estimateof future fertilizer production levels as we receive different types of photochemical rawmaterials from different customers, which are used in varying amounts in the fertilizerproducts, each fertilizer product uses a varying proportion of used photochemicals, and aswe continue to improve our fertilizer products, the proportion of used photochemical ineach product may change.

We previously developed statistical information that more than 100million gallons of used liquid silver-bearing photochemicals are generated in the UnitedStates annually. Using conversion ratios developed for the GOLD'n GRO fertilizers, this isenough volume to support manufacture and sale of more than 200 million gallons of liquidfertilizer products, or about 1 million tons, so we believe the raw material is availablein the market to meet future manufacturing needs. Based on 2005 production usage, weestimate that current supplies of photochemical raw material in storage at ourmanufacturing plant, combined with ongoing receipts of material from other existingcustomers, is sufficient to meet fertilizer production needs through 2006, depending onfertilizer sales volumes. We anticipate that with continuing sales growth, we will need toobtain new large scale photochemical recycling customers to meet the demand. 

28

We are in contact with both small and large photochemical generators,and are actively marketing Photochemical Silver Concentrators. The concentrators allow usto receive the raw materials needed to manufacture our fertilizer in much smaller volume,resulting in a higher content of chemicals desirable for fertilizer manufacturing,reducing the storage problems we were facing. The Photochemical Silver Concentrators aremanufactured under contract by a third party to meet the specifications of each customer.Concentrators typically sell for $20,000 to $200,000, so part of the loss in photochemicalrecycling service revenues is expected to be offset by growth in Photochemical SilverConcentrator sales in future years. By using a third party manufacturer to produce theConcentrators, we are outsourcing the fixed and variable costs that are associated withassembling them. Primarily, these are the facilities space needed to assemble the variousparts and the specialized equipment and labor required for the assembly. Generally, wehave self financed the production of Concentrators sold in the past. In the future, weanticipate that non-governmental customers will advance the funds necessary to acquire theparts and labor needed to produce the Concentrators. For our most recent governmentalcustomer, we borrowed the funds needed to fulfill the contract from an unrelatedindividual. We anticipate using similar arrangements for future Concentrators sold togovernmental customers. 

Silver revenue was $147,000 and $101,500 for 2005 and 2004,respectively, an increase of $45,400, or 45%. Sales of all silver or silver bearingproducts were $141,700 (18,149 ounces) for the 2005, compared to $63,500 (7,530 ounces)for 2004. This is an increase of 123% in dollars and 141% in ounces. The increase isprimarily from increased sales of processed silver bullion due to a combination ofincreased sales of Chelated Liquid Multi-nutrient liquid fertilizers, which use a higherpercentage of photochemical base liquid compared to our other liquid fertilizers, and toprogress in making adjustments to our refining process needed to accommodate changingconditions in the recycling process. Theincreased sales of silver bearing products was partially offset by a decrease of $32,800in refining service fees charged to photochemical recycling customers due primarily to thetermination of the Shutterfly contract.
Combined cost of sales and operating expenses for the segment amountedto $3,413,000 in 2005, compared to $3,408,400 in 2004, a nominal increase. Cost of salesdecreased approximately $35,800 due primarily to a $58,200 decrease in payroll and relatedcosts. The changes in revenues and cost of sales resulted in a gross loss of $116,700compared to $34,700 in 2004, a decrease of $82,000. Operating costs increased $40,300 dueprimarily to an increase of $50,700 in general and administrative costs. General andadministrative expenses increased due to increases of $39,600 in stock option compensationand $41,700 in legal and other outside services. These costs are primarily related toservices for strategic planning, raising expansion capital, and other corporate businessmatters.

These changes in revenues and operating expenses resulted in a segmentoperating loss of $2,107,900 in 2005, compared to $1,985,500 in 2004, an increased loss of$122,300 or 6%. 

29

Other income (expense) increased to a net expense of $2,281,300 for2005, compared to a net expense of $643,400 in 2004, an increased net expense of$1,637,900. The primary reason for the increased expense is the loss on derivatives of$1,450,000, which is related to the $3.25 million callable secured convertible debtfinancing obtained in July 2005. Other gains decreased by $162,100 due to the prior yearwrite off of long term leases. 

The changes in operating loss and other expenses resulted in a segmentnet loss before taxes of $4,389,200 for 2005 compared to $2,629,000 for 2004, an increasedloss of $1,760,200 or 67%. 

 

MINING TECHNICAL SERVICES 
Year Ended    December 31, 
2005
2004 Revenue 
$ 55,843
$ 197,422 Gross profit (loss) 
$ (13,324)
$ 66,983 Operating income (Loss) 
$(507,831)
$(379,875)    Net income (loss) before    taxes 
$(517,444)
$(210,908)    
Mining technical services revenue totaled $55,800 for 2005 compared to$197,400 for 2004, a decrease of 72%. Included in these revenue figures are pass-throughexpenses of $4,900 and $8,600 for 2005 and 2004, respectively. Excluding these amounts,revenues amounted to $50,900 and $188,800 for 2005 and 2004, respectively, a decrease of73%. The number of clients we serve and the amount of work needed by those clients variesfrom period to period.

On March 1, 2005 the technical services contract with Golden PhoenixMinerals, Inc. expired and was not renewed. Revenue from this client was $124,300 for 2004and $15,000 for the two months ended February 2005. 

Combined cost of sales and operating expenses totaled $563,700 for 2005compared to $577,300 for 2004, a decrease of 2%. Research and development expenseincreased $112,000. This expense is related to the development of the insidemetals.comwebsite. The majority of this expense is an allocation of personnel costs, which waspartially offset by decreases in payroll and related costs that were included in cost ofsales and sales and marketing expenses in 2004. 

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

The redirection of Whitney & Whitney, Inc. to reduce emphasis ontechnical consulting services and to launch an internet information portal is broughtabout by the fact that Dr. Whitney, our President, has often been the lead person ingenerating new consulting contracts. Our President’s increased responsibilities formanaging the expanding photochemical recycling segment and overall corporate activitieshas reduced his time availability to actively participate in the consulting segment. Partof our objective in shifting the focus of the technical services segment is to retain ourcore professional staff that can provide assistance on possible future technical servicecontracts as well as perform administrative duties for the photochemical recyclingsegment, while at the same time adding a potential source of revenue that is not dependentupon labor sales and which can be managed by a professional staff. The

30

information portal also better utilizes the Whitney & Whitney, Inc.library and information resources that are already in existence. For the years endedDecember 31, 2005 and 2004 we allocated costs of approximately $186,100 and $74,200,respectively, to the development of the web site. The site was launched in mid-August 2005and we are now fine-tuning the general presentation of the site, as well as improving theprofiled mining company information. We expect this level of spending to continue throughthe second quarter of 2006. As improvements to the site are completed and informationmaintenance becomes routine, we will reduce or redirect staff resources as needed. 

The above changes in revenues and operating expenses resulted in asegment operating loss of $507,800 for 2005, compared to $379,900 for 2004, an increasedoperating loss of $128,000 or 34%. 

Other income (expense) is a net expense of $9,600 for 2005, compared toa net gain of $169,000 in 2004, a decline of $178,600. The decline is due to decreasedgain on sale of GPXM shares and other marketable securities. 

The changes in operating loss and other income resulted in a segmentnet loss before taxes of $517,400 for 2005, compared to $210,900 for 2004, an increasedloss of $306,500. 
**Changes in Financial Condition; Capitalization**
Cash amounted to $24,300 as of December 31, 2005 compared to $5,200 asof December 31, 2004. Net cash used by operations was $2,148,500 in 2005 compared to$1,417,900 in 2004. Operating resources utilized to finance the 2005 loss of $4,906,600include approximately $485,900 in expenses paid with our common stock. Cash amounting toapproximately $98,000 was invested in property and equipment in 2005, primarily forequipment in the manufacturing plant. Sales of Golden Phoenix Minerals, Inc. stock andother marketable securities provided $10,200 in cash from investing activities. Financingsources of cash in 2005 were $570,000 in proceeds from the private placement of restrictedcommon stock, $2,025,000 in proceeds from short and long term debt, less $217,700 in debtissuance costs, and $95,000 from short term loans from an officer/stockholder. 

Total assets increased from $4,147,900 at December 31, 2004 to$4,229,600 at December 31, 2005. Current assets decreased $110,700. The primary changes incurrent assets were decreases in accounts receivable of $167,600, due to the collection ofthe final billings due from GPXM during 2005, and $48,100 in prepaid expenses due to fewercorporate marketing programs that straddled the end of the year in 2005 compared to 2004.These decreases were partially offset by an increase in marketable securities of $65,600due to receipt of the final billings from GPXM in their common stock. 

Property and equipment decreased by $124,000 due to investment inequipment totaling $108,800, which was offset by an increase in accumulated depreciationand amortization of $232,900. Other assets increased $316,400 due to an increase indeferred loan fees of $262,700 related to the callable secured convertible debt financingobtained in July 2005.

Total liabilities increased from $6,712,200 at December 31, 2004 to$9,703,200 at December 31, 2005, an increase of $2,991,000. Of this amount, currentliabilities increased $5,001,500 and long term liabilities decreased $2,010,500. Theoverall increase in liabilities is due

31

primarily to the borrowing of $2.25 million in callable securedconvertible debt (Notes). Due to the terms of the Notes, the loan must be accounted for asa derivative and recorded at estimated fair value, which was $3,621,200 at December 31,2005. In addition, all outstanding non-employee warrants and options are required to berecorded as liabilities at estimated fair value, which was $134,200 at December 31, 2005.This increase in total debt was partially offset by the conversion of $867,100 inconvertible promissory notes and accrued interest into restricted common stock. Currentliabilities increased primarily due to the Notes discussed above and to thereclassification of a net $1,897,600 in convertible promissory notes from long term debtas all of those notes are due within one year of December 31, 2005. Other significantchanges in current liabilities include an increase in accrued management salaries of$210,800 and decreases in accounts payable of $172,700, accrued expenses of $159,600,current maturities of long term debt of $465,400, and current maturities of capital leaseobligations of $77,300. 

 
**Working Capital/Liquidity**
During the year ended December 31, 2005, the working capital deficitwas increased by $5,112,100 to a deficit balance of $8,341,600. The primary changes inworking capital are the callable secured convertible debt financing and thereclassification from long term debt of convertible notes and accrued interest asdiscussed above. The Company has had limited cash liquidity since the third quarter of2000. The Company has sought and obtained the funding described above, which has not beensufficient to maintain all obligations on a current basis. The cash shortage is a resultof two factors. First, fertilizer sales in 2005 and prior years did not expand to theextent anticipated, so operating losses were not reduced as expected. Second, the $15million equity line of credit agreement with Swartz Private Equities, LLC (Swartz) was notable to function to meet the Company’s ongoing working capital needs and was allowedto expire on February 27, 2004. As a result, various private placements of stock withattached three year warrants were undertaken beginning in the fourth quarter of 2002.$570,000 and $843,500 was raised from private placements during 2005 and 2004,respectively. In addition, the Company sold GPXM and other shares for net proceeds of$10,200 and $356,100 during the years ended December 31, 2005 and 2004, respectively,advances from an officer/stockholder were $95,000 and $150,000 in 2005 and 2004,respectively, and $235,000 was received from the exercise of warrants in 2004. In July2005 the Company obtained a $3.25 million callable secured convertible debt financing andreceived net proceeds of $1,906,200 less debt issuance costs of $217,700. Subsequent toDecember 31, 2005, the registration statement filed in connection with the financingbecame effective and the Company received the remaining net proceeds of $942,500. It isanticipated that this funding will provide for our capital needs through April to May2006, depending on fertilizer sales growth. 

The Company is actively working to establish a longer term financingplan that will identify capital sources for the Company’s financing needs over athree to five year period. Once this plan is established, needs for financing will beadjusted and the plan will be extended annually.

32

 

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

 

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

 

ITEM 8A CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of the end of theperiod covered by this report, we conducted an evaluation, under the supervision and withthe participation of our chief executive officer and chief financial officer of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of theExchange Act). Based upon this evaluation, our chief executive officer and chief financialofficer concluded that our disclosure controls and procedures are effective to ensure thatinformation required to be disclosed by us in the reports that we file or submit under theExchange Act is recorded, processed, summarized and reported, within the time periodsspecified in the Commission's rules and forms. 

 

ITEM 8BOTHER INFORMATION 
Changes in internal controls. There was no change in our internal controls or in otherfactors that could affect these controls during our last fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, our internal controlover financial reporting. 

 

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
12/31/05PositionPosition Held SinceDr. John W. Whitney
59President/Treasurer May 1988DirectorPaul H. Durckel 
88DirectorSeptember 1995Howland S. Green
52Northeast Manager April 2005of GOLD’n GRO salesDirectorGregory S. Skinner 
51SecretaryDecember 1990Duane H. Rasmussen
75Vice President; November 1997Vice President and May 1994General Manager-IMI
 

33

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

 

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

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

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

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

Dr. Whitney is an internationally recognized consultant in the field ofMetal and Material Resource Economics. Dr. Whitney has presented seminars for variousclients on Mining Economics, and has taught a three-credit graduate course onInternational Metal Economics for the University of Arizona's College of Mines. Dr.Whitney is an Honorary Faculty Member of the Academy for Metals and Materials under theseal of the American Society for Metals. Dr. Whitney has made numerous presentations andwritten a number of publications on various technical subjects within his broad area ofexpertise. Dr. Whitney is coinventor of the American Hydromet process technology and holdsfour patents. Dr Whitney was selected as Nevada’s Inventor of the Year for 2000 andbecame a member of the 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 September1995. 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 Vice President and General Manager and Vice President-Operations for American Plant Food Corp., Executive Assistant to the Chairman for BestFertilizers Co., Vice President and General Manager for Best Fertilizer of Texas, and VicePresident and General Manager for Farm Services Co.

34

Howland S. Green

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

Gregory S. Skinner, Esq.

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

Duane H. Rasmussen:
Mr. Rasmussen has served as Vice President and General Manager of IMIsince May 1994. He became Vice President of the Company in November 1997. He initiallyjoined the Company in 1991 as Assistant Manager and Business Consultant for W&W. Hereceived his B.S. degree in Chemical Engineering from the University of Wisconsin in 1953and his M.B.A. in Industrial Management in 1955 from the same University. He served asPresident of Screen Printing Systems, Inc. from 1987 to 1990 and from 1995 to October1998. Other business experience includes approximately 20 years with Jacobs EngineeringGroup, Inc. in varying capacities, including Project Manager, Regional Sales Manager,Regional Vice President, and Group Vice President.

B. AUDIT COMMITTEE

At present the Company does not have an audit committee andconsequently the entire Board serves as the audit committee. The Board presently consistsof three members, one of whom is independent. The Company has interviewed severalqualified individuals for the position of Audit Committee Financial Expert on the Board ofDirectors. All have declined to serve, with the primary reason being personal liabilityissues, especially the perceived view that being the "financial expert"increases the individual’s personal exposure over that of being a regular Boardmember. 

35

C. CODE OF ETHICS
The Board of Directors has adopted a Code of Business Conduct andEthics (Code) that is applicable to the Company’s directors, principal executive andfinancial officer, principal accounting officer or controller, and persons performingsimilar functions. A copy of the Code is included in this report as Exhibit 14. A copy ofthe Code may be obtained by anyone, without charge, by requesting a copy either bytelephoning (775) 689-7696 and asking for investor relations or by e-mailing the Companyat www.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 ofthe Chief Executive Officer and the four most highly compensated officers whosecompensation for the year ended December 31, 2005 exceeded $100,000:

Long Term
CompensationName and
SecuritiesPrincipalCalendarAnnual    Compensation
UnderlyingPositionYear
Salary
Bonus
Options    (#)Dr. John W. Whitney:
2005
$125,700
$-0-
-0-President, Treasurer 
2004
$126,150
$-0-
550,000and Director (1) (2) 
2003
$126,375
$-0-
-0-Duane H. Rasmussen
2005
$132,000
$-0-
-0-Vice President, VP
2004
$132,000
$-0-
425,000and General Manager 
2003
$132,000
$-0-
-0-IMI (3)
(1) The 2005 salary amount includes $91,400 that was not paidcurrently. The 2004 and 2003 salary amounts include $125,000 in each year that were notpaid currently. In 2003 Dr. Whitney converted $260,000 of 2003 and previous years unpaidsalary 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 for1,000,000 restricted common shares at $0.25 per share, effective July 1, 2002 he wasgranted an option for 3,000,000 restricted common shares at $0.30 per share, and effectiveMay 7, 2004 he was granted an option for 550,000 restricted common shares at $0.15 pershare. These options are exercisable at any time until one year after Dr. Whitney leavesthe employment of the Company. Effective October 2, 2002 Dr. Whitney was granted a fiveyear option for 250,000 restricted common shares at $0.20 per share. 

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(2) The salary amounts listed above include $700, $1,150, and $1,375for 2005, 2004, and 2003, respectively, that represent compensation paid in common stockfor service as a director of the Company. The compensation plan for all directors was2,500 common shares per quarter for 2005 and previous years.

(3) The 2005 salary amount includes $90,000 that was not paidcurrently. The 2004 and 2003 salary amounts include $55,000 and $77,000, respectively,that were not paid currently. In 2003 Mr. Rasmussen converted $170,000 of 2003 and prioryears unpaid salary into the then existing private placement at $0.08 per share for atotal of 2,125,000 shares plus an equal number of three year warrants. This transaction isunder the same terms and conditions as for other investors in the current privateplacement, consequently, the warrants are treated as non-compensatory. These shares havenot yet been issued, pending accumulation of sufficient cash to pay required withheldpayroll taxes.

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

Option Grants in Last Fiscal Year:

Number of
% of    Total
Securities
Options    to
Underlying
Employees
Exercise
Options
in Fiscal
or BaseExpirationName
Granted    
Year
PriceDateDr. John W. Whitney 
None
-0-Duane H. Rasmussen
None
-0-
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)
1,200,000
$ -0-
 

(1) Dr. Whitney exercised non-compensatory warrants for 1,200,000shares by converting short term debt totaling $90,000. Since the warrants werenon-compensatory, no realized value is listed above.

Options Unexercised:

Number of Securities
Value of Unexercised
Underlying Unexercised
In-the-Money Options
Options at 12/31/05
At 12/31/05Name 
Exercisable
Unexerciseable
Exercisable
UnexerciseableDr. John W. Whitney Compensatory
4,800,000
-0-
$ -0- (1)
$ -0-Non-compensatory 
-0-
-0-
$ -0- (1)
$ -0-Duane H. RasmussenCompensatory
425,000
-0-
$ -0- (2)
$ -0-Non-compensatory
2,125,000
-0-
$ -0- (2)
$ -0-
 

37

(1)If value realized was based on the average of the closing bid andask prices on December 31, 2005, the value realized would have been $-0- for thecompensatory options and $-0- for the non-compensatory warrants. The securities underoption, common stock of the Company, are restricted under Rule 144 and thus are nottradable within one year of exercise. In addition, as an officer and a greater than 10%shareholder of the Company, Dr. Whitney is further restricted by SEC regulations as to thesale of the Company’s securities. The actual value realized, if and when thesecurities are sold, may be more or less than the value listed above. Consequently, thevalue of the unexercised options is reported at $-0-.

(2)If value realized was based on the average of the closing bid andask prices on December 31, 2005, the value realized would have been $-0- for thecompensatory and non-compensatory warrants. The securities under option, common stock ofthe Company, are restricted under Rule 144 and thus are not tradable within one year ofexercise. In addition, as an officer of the Company, Mr. Rasmussen is further restrictedby SEC regulations as to the sale of the Company’s securities. The actual valuerealized, if and when the securities are sold, may be more or less than the value listedabove. Consequently, the value of the unexercised options is reported at $-0-.

 

ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS
a) Equity Compensation Plan Information  
Number    of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average    exercise price of outstanding options, warrants and rights
Number of    securities remaining available for future issuance under equity compensation plans    (excluding securities reflected in column (a)
Plan    Category
(a)
(b)
(c)Equity compensation plans    approved by security holders
-0-
$-0-
-0-Equity compensation plans    not approved by security holders
6,108,000
$0.244
979,000
Total
6,108,000
$0.244
979,000
 

 

b) Security Ownership of Certain Beneficial Owners.
The following table sets forth certain data with respect to thosepersons known to the Company, as of March 31, 2006, to be the beneficial owners of morethan 5% of the outstanding shares of common stock of the Company:

38

 

 

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)
27,586,830
8,052,500
35,639,330
16,75
(1) Director

(2) Officer

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

(4) Dr. Whitney’s options include compensatory options of1,000,000 common shares at $0.25 per share, 3,000,000 common shares at $0.30 per share,250,000 common shares at $0.20 per share, and 550,000 common shares at $0.15 per share.The option for 250,000 common shares is exercisable at any time until October 2007 and theother options are exercisable at any time until one year after Dr. Whitney leaves theemployment of the Company. The Common Shares Which May Be Acquired Within 60 Days alsoincludes 3,250,000 shares that are to be issued to Dr. Whitney when sufficient cash isavailable to pay payroll tax withholdings.

c) Security Ownership of Management.
The following table sets forth as of March 31, 2006, certaininformation, with respect to director and executive officer ownership of common stock inthe Company:

Amount and Nature of Beneficial Ownership
Common    Shares
PercentName and 
Which May    Be
ofAddress of 
Common    Shares
Acquired    Within
ClassBeneficial    Owner 
Presently Held
60 days(1)
Total
(2)Dr. John W. WhitneyP.O. Box 10725Reno, NV 89510 (3)(4)(5) 
27,586,830
8,052,500
35,639,330
16.75Paul H. DurckelP.O. Box 10725Reno, NV 89510 (3)
582,168
65,000
647,168
.32Howland S. Green895 Liberty LaneWest Kingston, RI 02892
1,257,500
2,500
1,260,000
.62Duane H. RasmussenP.O. Box 10725Reno, NV 89510 (4)
1,846,404
5,332,272
7,178,676
3.42All directors andexecutive officers asa group (5 persons) 
31,925,221
13,452,272
45,377,493
20.80
 

39

(1) Dr. Whitney’s options include compensatory options of1,000,000 common shares at $0.25 per share, 3,000,000 common shares at $0.30 per share,250,000 common shares at $0.20 per share, and 550,000 common shares at $0.15 per share.The option for 250,000 common shares is exercisable at any time until October 2007 and theother options are exercisable at any time until one year after Dr. Whitney leaves theemployment of the Company. The Common Shares Which May Be Acquired Within 60 Days alsoincludes 3,250,000 shares that are to be issued to Dr. Whitney when sufficient cash isavailable to pay payroll tax withholdings. 

Mr. Durckel has three year warrants to acquire 62,500 common sharesrelated to his cash investment in the 2003 Equity Private Placements, which areconvertible at $0.08, $0.16, and $0.24 per share for the first through third years of theoption period. 

In April 2005 Mr. Green was granted a compensatory option to acquire1,000,000 of the Company’s restricted common shares at $0.10 per share. The first500,000 shares of the option will become exercisable when the Federal EPA accepts theregistration application for the GOLD’n GRO Guardian and the second 500,000 shares ofthe option will become exercisable when the Federal EPA issues the registration for theGOLD’n GRO Guardian. The entire option is exercisable for two years after the EPAregistration is received. This option is not included in the above table as it is notexercisable within 60 days.

Mr. Rasmussen has a three year non-compensatory warrant to acquire2,125,000 common shares at $0.08, $0.16, and $0.24 per share for the first through thirdyears of the option period. He acquired this warrant by investing $170,000 of his backsalary in the existing private placement in 2003. Mr. Rasmussen also was granted acompensatory option to acquire 425,000 restricted common shares at $0.15 per share. Thisoption is exercisable at any time until one year after Mr. Rasmussen leaves the employmentof the Company. The Common Shares Which May Be Acquired Within 60 Days also includes2,782,272 shares that are to be issued to Mr. Rasmussen when sufficient cash is availableto pay payroll tax withholdings.

(2) The percent of class is based on the sum of 204,671,731 sharesoutstanding as of March 31, 2006 plus, for each individual, the number of common shares asto which the named individual has the right to acquire beneficial ownership within 60 daysof March 31, 2006.

(3) Director

(4) Officer

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

 

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

40

ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Advances from an officer/stockholdertotaled $161,525 at December 31, 2005 and 2004. 
$599,900 and $389,127 of the accrued management salaries as of December31, 2005 and 2004, respectively, is for salary in arrears due to severalofficer/stockholders and employee/stockholders. In addition, salary in arrears of $534,800and $523,800 for 2005 and 2004, respectively, are included in stock to be issued at therespective year ends. These amounts represent the portion of salaries earned but unpaidthat the officers/employees/stockholders have agreed to accept in the Company’scommon stock. The number of shares to be issued is 6,620,900 and 6,488,021 for 2005 and2004, respectively. Issuance of the stock is pending sufficient cash available to pay therelated federal withholding taxes. Interest accrued at 12% per annum on salaries dueofficer and employee/stockholders amounted to $123,345 and $94,299, respectively, in 2005and 2004. Of these amounts, $58,272 and $94,299 for 2005 and 2004, respectively, were paid(or will be paid) by issuance of 765,857 and 990,187 shares of restricted common stock. 

Interest expense on related party loans amounted to $23,948 and $31,396for the years ended December 31, 2005 and 2004, respectively. Accrued interest on relatedparty loans and accrued salaries totaled $13,276 and $6,307 at December 31, 2005 and 2004,respectively. 

In March 1999 Dr. Whitney personally agreed to acquire up to 10,000,000common shares of GPXM at $0.10 per share, making him beneficial owner of more than tenpercent of GPXM at that time. In March 1999, the Company’s Board of Directorsapproved a consulting project for WWI to provide technical services to GPXM; payment wasto be made in common stock, and cash. WWI completed the project in early 2005. The Companyowned 556,107 shares with a market value of $91,758 at December 31, 2005 and 123,198shares with a market value of $26,180 at December 31, 2004. Total revenue from GPXM for2005 and 2004 was $15,000 and $124,341, respectively. A total of $101,281 is included inaccounts receivable at December 31, 2004; no amounts were due at December 31, 2005.

During 2004 Dr. Whitney loaned WWI 103,765 shares of GPXM stock at avalue of $28,276. The loaned shares were sold by WWI for $25,097, for a realized loss of$3,179. The loan was repaid in 2004 by conversion into the Company’s restrictedcommon stock when Dr. Whitney exercised warrants he acquired in 2003. 

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

41
ITEM 13.FINANCIAL STATEMENTS AND EXHIBITS 
I. Index of Financial Statements and Exhibits1. Index of Financial    Statements:
Page    No.REPORT OF INDEPENDENT    REGISTERED PUBLIC ACCOUNTING FIRM
43Consolidated Balance Sheets    as of December 31, 2005 and 2004
44Consolidated Statements of    Operations for the Years endedDecember 31, 2005 and 2004
46Consolidated Statements of    Stockholders' Equity (Deficit)for the Years ended    December 31, 2005 and 2004
47Consolidated Statements of    Cash Flows for the Years endedDecember 31, 2005 and 2004
48Notes to Consolidated    Financial Statements
502. Index of Exhibits:14 Code of Business Conduct    and Ethics
7921 List of significant    subsidiaries 
8031 Rule 15d-14(a)    Certification
8132 Section 1350    Certification
85
 

STATEMENTS AND SCHEDULES

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

applicable or not required.

42

 

Report of Independent Registered Public Accounting Firm

 

The Board of Directors and Shareholders

Itronics, Inc.

We have audited the accompanying consolidated balance sheets ofItronics, Inc. and subsidiaries (the "Company") as of December 31, 2005 and2004, and the related consolidated statements of operations, stockholders' deficit andcash flows for each of the years in the two year period ended December 31, 2005. Thesefinancial statements are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these consolidated financial statements basedon our audits.

We conducted our audits in accordance with standards of the PublicCompany Accounting Oversight Board (United States). Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. The Company has determined that it is notrequired to have, nor were we engaged to perform, an audit of its internal control overfinancial reporting. Our audit included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe Company’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes, on a test basis, examination of evidence supportingthe amounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the consolidated financial position of theCompany as of December 31, 2005 and 2004, and the results of its consolidated operationsand cash flows for each of the years in the two year period ended December 31, 2005, inconformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been preparedassuming that the Company will continue as a going concern. As of December 31, 2005, theCompany has an accumulated deficit of $27,851,571, a negative working capital of$8,341,563, and a stockholders’ deficit balance of $5,473,599, and is default onvarious leases and loans. The Company’s ability to continue as a going concern iscontingent upon (a) future profitable operations and (b) the ability to generatesufficient cash to meet obligations as they become due. These conditions raise substantialdoubt about the Company’s ability to continue as a going concern. Management's plansregarding this matter are described in Note 14. The financial statements do not includeany adjustments that might result from the outcome of this uncertainty. 

 

/s/CACCIAMATTA ACCOUNTANCY CORPORATION

Irvine, California

April 10, 2006

43

 

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2005 AND 2004

 

ASSETS

2005
2004CURRENT ASSETS Cash 
$ 24,260
$ 5,180Accounts    receivable, less allowance for  doubtful    accounts, 2005, $7,600; 2004, $5,700
21,164
188,805Marketable    securities, available for sale
91,758
26,180Inventories
592,098
571,704Prepaid    expenses
94,447
142,509Total Current    Assets
823,727
934,378PROPERTY AND    EQUIPMENT Land 
215,000
215,000Building and    improvements
1,167,315
1,167,315Design and    construction in progress,      manufacturing facility
153,896
121,171Equipment and    furniture 
2,302,984
2,071,998Vehicles 
200,557**