UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-KSB

(Mark One)

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

EXCHANGE ACT OF 1934

For the fiscal year ended **December 31, 2007**
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 

EXCHANGE ACT OF 1934 

For the Transition period from______to_______

Commission file number 33-18582

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

 

Texas75-2198369

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

incorporation or organization)

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

(Address of Principal Executive Offices) Zip Code

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

Title of each class Name of each exchange on

which registered

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

None

(Title of class)

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

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

Yes (x) No ( )

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

 

 

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

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

None

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ITRONICS INC. AND SUBSIDIARIES

2007 FORM 10-KSB ANNUAL REPORT

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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ITEM 1.DESCRIPTION OF BUSINESS.
 

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

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

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

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

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

Itronics Metallurgical, Inc.: 

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

Nevada Hydrometallurgical Project: 

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

American Hydromet: 

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

Itronics California, Inc.: 

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

Whitney & Whitney, Inc.: 

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

SUMMARY HISTORY OF OPERATIONS 

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

Over the years, the mining technical services business was highlycyclical, closely following the base and precious metals industries, and specifically, theprice of copper, other base metals and gold. This condition pointed out the necessity ofexpanding our business into new industries. When considering the fertilizer marketingstudies previously performed, along with the growing national issue of sewer systemcontamination from toxic photowastes and silver toxicity to fish, it seemed to be anatural extension of WWI's existing expertise to expand into the photowaste recyclingbusiness. In 1987 the decision was made to move forward with research and development of aprocess to extract silver from photographic liquid wastes. It took until 1997 to developand demonstrate a satisfactory fertilizer and to complete university testing todemonstrate its agronomic viability. 

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

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

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

We are developing a deer repellent/fertilizer that will be sold underthe trademark GOLD'n GRO Guardian. This product will use one of the GOLD'n GROmulti-nutrient liquid fertilizers as a base liquid, which has the property of being takeninto the plant as a fertilizer and imparting odor and taste characteristics that areoffensive to deer and other animals, such as rabbits, that eat plants. The GOLD'n GROGuardian product was field tested during 2003 and was subsequently approved for use by theNorth American Deer Management Network. GOLD'n GRO Guardian is a repellent fertilizer andmust be registered under both the pesticide regulations and the fertilizer regulations foreach state in which it will be sold. The product must also be registered with the U.S.Environmental Protection Agency (U.S EPA) as a biopesticide. Introduction of this productfor commercial sales will be delayed until the registrations are completed. In 2005 weacquired the interest in the GOLD’n GRO Guardian trademark, product rights, and therepelling product formula owned by Mr. Howland Green. We now own 100% of all rightsrelated to GOLD’n GRO Guardian. Mr. Green has become one of our directors and isNortheast Manager for GOLD’n GRO Sales Development. Substantial funding over the next24 months will be required to complete the U.S. EPA and California registration processand to begin manufacturing and sales.

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

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

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

GOLD’n GRO FERTILIZER 

Operations 

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

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

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

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

 

 

 

Growth Plans and Implementation

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

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

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

1. Increase sales in the established market segments.

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

3. Expand sales to new territories.

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

5. Complete development of and commercialize the new glass/tileproducts.

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

7. Continue facilities expansion and technology development. 

8. Acquire established companies and/or their technologies.

Plans and status of implementing each of the growth categories 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, cereal grains, corn, cotton,      and soybeans.

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

Our primary focus is to increase bulk GOLD’n GRO liquid 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. 

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

A GOLD'n GRO base liquid nutrition program is being marketed. Theprogram 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 is expected to produce substantial increases in the tonnage of GOLD'n GROfertilizer sales. 

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

3. Expand sales to new territories.

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

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

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

Our plan to expand sales in Urban Markets requires the consumer 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, 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 California. Theregistration of GOLD’n GRO 8-0-0+3% Mg is planned for the second quarter of 2008 atwhich time sales development will be started.

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 $200 million in annual sales.Products currently in the market have limited effectiveness so we believe that there is areal opportunity for a line of systemic products that are effective for several weeksafter each application. GOLD'n GRO Guardian small plot tests have shown effectiveness for8 to 12 weeks as well as excellent wintertime effectiveness. 

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

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

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.

 

6. Develop and commercialize metal leaching reagents for recovery ofsilver, gold, and other metals.
We are developing applications of our technology to extract silver fromphotoliquids to the mining sector. This work is being expanded and a small pilot circuitis being established to chemically process certain categories of silver-bearing solidwastes. The gold mining sector currently uses cyanide and other toxic chemicals in theirleaching process. We believe it may be possible to create and adapt new non-toxic leachingreagents and leaching procedures for processing other secondary materials and certaintypes of mine generated products. The specific markets for leaching reagents in gold andsilver mining is large and world wide, but has not yet been studied in detail for marketdevelopment. Our Technical Services Division maintains an extensive library and databaseof mines and mining activities worldwide, which provides us ready access to marketinformation as we need it. Much pilot plant work, including one or more field pilotoperations, must be completed before quantitative market studies can be completed.

7. Continue facilities expansion and technology development.

As fertilizer sales volume increases, we need to increase tank truckloading capacity. With the introduction of additional bulk products and increased demandfor our products, load out capacity for shipment of three more bulk products is needed.The first phase, construction of a containment area, was substantially completed in late2006. While we believe that we can handle expected growth in 2008 with the existingload-out module, we hope to complete construction on the new load out equipment during thesecond half of 2008, subject to the availability of financing. 

 

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

 

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 fromprocessing used photochemicals from our customer’s sites. We are now providingservices to large national firms like Safety Kleen and Philips Environmental. We are alsoproviding these services to smaller regional firms. Our primary competition is smallregional firms. 

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 contraction in the demand forsilver, 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 2007 sales represent less than0.05 percent of the specialty ag segment of the fertilizer market.

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 operate in.

Liquid fertilizer technology is more complex than dry technology.Typically dry solids can be readily blended into dry mixtures that can then be bagged, 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 are specialized inmarketing liquid fertilizers and have the facilities and equipment required to sell,deliver, and apply the liquid fertilizers. Our licensed distributor is one of thosecompanies. 

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, and are an advancednutrient delivery technology. The photoliquids also have a natural content of sulfur, theother important secondary nutrient. These chelate enriched multinutrient fertilizersdistinguish the GOLD'n GRO liquids from other liquid fertilizers and are the main reasonwhy the GOLD'n GRO liquid fertilizers represent a new type of nutrient deliverytechnology.

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

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

Photochemical Recycling

We estimate that 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 $200 to $400 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. We are estimating that the volume of color photographywaste liquids has been reduced by up to 50%. Digital photography is creating a new sourceof photowastes from Internet companies that combine digital imaging services with theability to print high quality photographs for their customers. Digital methods are beingadopted in the medical industry, and although the medical sector is relatively high growthwith the aging U.S. population, digital imaging has had the effect of slowing the growthof waste photo liquids being generated and may lead to a decline in future years. 

A larger impact on photo waste generation has been the pressure 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 generated. With the tightening of regulation of discharge ofcontaminated waters the equipment manufacturers have focused on reducing water usage andthe volume of photochemicals that are used. This attention to reduction of waste water hascontributed to a reduction in the quantities of waste liquids being generated. It isexpected that efficiency of use and associated waste reduction will continue, driven byincreasing waste disposal costs. On-site photochemical recovery using a PhotochemicalSilver Concentrator and re-using the recovered water is expected to continue to becomemore and more attractive to large 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.

The Company believes that the volume of photochemical liquids beinggenerated in the United States continues to greatly exceed its needs for fertilizermanufacturing. 

Silver

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

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 fertilizers are utilized. Toovercome weather related effects on fertilizer sales, we are evaluating markets in thesouthern areas of the United States where growing seasons are longer and, in some cases,year round. 

Due to the seasonal nature of 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 specific crops. On-going field trials ofGOLD’n GRO fertilizer products continue to show significant improvements in cropproduction and quality. The trials are providing agronomic data that is being used todevelop GOLD’n GRO nutrition 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 was carried out withoversight from a major university in southern California was completed in 2004. Three yearcumulative results were analyzed and positive results were obtained. Fruit output per treeand fruit quality were both increased.

 

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

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

Environment and Regulation 

All chemistry has a "cradle to grave" regulatory life span.This term means under Federal law, the prime generator has the ultimate liability for 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 is eliminated. 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. 

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. 

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 U.S. 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 U.S.EPA. 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 Act-pursuant towhich the EPA has promulgated regulations concerning the disposal of PCBs), the CleanWater Act (which regulates the discharge of pollutants into surface waters and sewers bymunicipal, industrial and other sources) and the Clean Air Act (which regulates emissionsinto the air of certain potentially harmful substances). Employee safety and healthstandards under the Occupational Safety and Health Act are also applicable to ouremployees. 

 

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

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

We launched the insidemetals.com website in 2005, targeting thecompanies and individuals interested in the mining and precious metals industry. Thewebsite is generating revenue by charging a subscription fee for monthly access to thesite. Currently, the site contains an array of information about gold mining and goldmining stocks. We intend to add information on other mineral sectors gradually over time.A program to solicit advertising customers is being developed and is being offered to goldexploration companies. To assist with the sales development program of the website, wehired a manager of marketing and sales in October 2006. He was responsible for marketingefforts for both the insidemetals.com website and for technical consulting services to themining industry. As no revenue was generated from this work, the position was eliminatedin February 2008. We are presently evaluating the steps we need to take to improve therevenue growth from the website. 

New technical consulting contracts are now being generated from thiseffort. 

Expansion Plans 

In 1999 WWI initiated a long term R&D project to replace the use ofcyanide in the extraction of metals from silver/gold and gold/copper ores. The newthiosulfate leaching technology being developed under this program utilizes the sametechnology as our proprietary photochemical recycling process. The project, calledItronics Thiomet, may seek to establish operating joint ventures at specific mine sites toapply 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 producing goldcompany financial, production, and ore profiles. Initially, the companies to be profiledare in the Gold Company sector, which includes gold, silver, platinum, and palladiumproducers. The profiled companies are publicly traded on the New York and American StockExchanges and on NASDAQ. The publication was launched in August 2005 and the target marketincludes gold company employees, governmental agencies, both domestic and foreign, andindividual investors interested in the gold markets. In addition to providing subscriptionrevenue, it is anticipated that the publication will enhance our opportunity to obtain newsources for technical consulting work. This subscription based Internet Information Portalprovides an opportunity for relatively unrestricted growth by being available to a diverseglobal base of potential customers.

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. The site is now receiving visits from more than 170 countries world wide. 

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 andwill be used for manufacturing GOLD’n GRO Guardian. 

IMI owns a 35,000 square foot manufacturing facility in Reno-Stead,Nevada. The building contains all the equipment used for treating the used photochemicals,preparing the recovered silver for sale, and manufacturing the GOLD’n GRO 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, solidsdrying, and a melting section. The equipment arrangements are proprietary, but the mainitems are pumps, tanks, filtration equipment, drying ovens, and the melting furnaces. 

 

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

in Accrued Interest). The leases are individually secured by specifiedequipment. 

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

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

In addition to the above leases that are subject to litigation, thereare four leases, with a recorded liability of $189,110, that are in default. As requiredby U.S. Generally Accepted Accounting Principles, the principal balance of the leases thatare in default have been classified as current liabilities. 

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.

 

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

 

PART II

ITEM 5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALLBUSINESS ISSUER PURCHASES OF EQUITY 
(a). Market Information. The Company’s common shares are traded onthe over-the-counter market under the symbol ITRO.OB, and quoted in the National QuotationBureau, Inc.'s "pink sheets" and on the NASD Electronic Bulletin Board. In 2003the Company’s stock began trading on the Frankfurt, Germany Stock Exchange under thesymbol ITG. In 2004 the Company’s stock began trading on the Berlin Bremen StockExchange (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 2006, 2007, and through March 31, 2008. 
High BidLow Bid3/31/06
$0.08
$0.046/30/06
$0.05
$0.029/30/06
$0.04
$0.0112/31/06
$0.02
$0.013/31/07
$0.03
$0.016/30/07
$0.03
$0.019/30/07
$0.02
$0.00412/31/07
$0.005
$0.0023/31/08
$0.02
$0.003
These quotations reflect inter-dealer prices without retail markup,markdown, or commissions, and may not represent actual transactions.

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

 

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

Recent Sales of Unregistered Securities:

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

In October 2007, we issued an aggregate of 214,286 shares of commonstock valued at $1,500 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 2007. 

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

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

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

During the fourth quarter of 2007 we issued an aggregate of 382,925,910common shares to four accredited investors upon theconversion of $387,545 in callable secured convertible notes.
On October 23, 2007, the Company entered into a Securities PurchaseAgreement with three accredited investors (the "Investors") for an aggregateamount of (i) $275,000 in secured convertible notes, and (ii) warrants to purchase15,000,000 shares of the Company’s common stock (the "Financing"). TheCompany anticipates that the proceeds of the Financing will be used to advance its eightpart business plan which was summarized in its press release issued by the Company on June3, 2005. The Financing will provide working capital to expand GOLD’n GRO fertilizersales, EPA registration of the GOLD’n GRO Guardian deer repellant fertilizer, certaincapital improvements to expand production capacity, and payment of existing debtobligations.

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

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

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

The Investors received seven year warrants to purchase a total of15,000,000 common shares of the Company at a purchase price of $0.004 per share. 

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

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

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

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

On December 27, 2007, the Company entered into a Securities PurchaseAgreement with three accredited investors (the "Investors") for an aggregateamount of (i) $200,000 in secured convertible notes, and (ii) warrants to purchase15,000,000 shares of the Company’s common stock (the "Financing"). TheCompany anticipates that the proceeds of the Financing will be used to advance its eightpart business plan which was summarized in its press release issued by the Company on June3, 2005. The Financing will provide working capital to expand GOLD’n GRO fertilizersales, EPA registration of the GOLD’n GRO Guardian deer repellant fertilizer, certaincapital improvements to expand production capacity, and payment of existing debtobligations.

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

The Investors received three year convertible notes (the"Notes") bearing simple interest at 8% per annum. The Notes are convertible intothe Company’s common stock at a price equal to the lesser of (i) $0.10 or (ii) 35% ofthe average of the lowest 3 trading prices during the 20 trading day period ending onetrading day before the conversion date. In addition, we granted the Investors a furthersecurity interest in substantially all of our assets, including the assets of our whollyowned subsidiaries, and intellectual property. 

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

The Investors received seven year warrants to purchase a total of15,000,000 common shares of the Company at a purchase price of $0.001 per share. 

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

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

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

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

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

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

All of the above offerings and sales were deemed to be exempt 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, deerrepellent/fertilizer products to be sold under the trademark GOLD’n GRO Guardian, andsilver bullion. We also provide process planning and technical services to the miningindustry and are operating and continuing to develop an internet website to provide goldmining company profiles to parties interested in the gold mining and precious metalsindustry.

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 99% of our fertilizersales in 2007 and 95% of such sales in 2006. 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, 30 to 45 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 through 2007. We regularly compareour weighted average cost of silver per ounce to current market prices; historically wehave not had impairment losses. The average London spot price of silver per ounce is shownas follows:

Year __________

Year 2001200220032004200520062007
Silver $4.36 $4.60 $4.88 $6.67 $7.32 $11.55 $13.38 

 

We also provide consulting services to the mining industry. Tosupplement this business line, we launched an internet website. Our plans with regard tothe website are discussed more fully in the Growth Plan and Implementation section below.
**Critical Accounting Policies and Estimates.**
The preparation of financial statements in accordance with 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. Fertilizer and retail silver sales are recognized when goods are shipped to ourcustomers. We pay 1% of invoice amount to our primary fertilizer distributor in order toreceive accelerated payment terms. The fee is netted against fertilizer sales. Sales ofsilver bullion and silver in film are recorded when the silver content and the sales priceare determined, which is approximately two weeks after shipment for silver bullion and 30to 45 days after shipment for film. Returns since inception have been nominal; therefore,the Company has not established a returns allowance. Photochemical recycling fees arerecognized in income after the used photochemical solution is removed from our customersites 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 fair value of the conversion feature and the prepayment penalty areestimated using the Black-Scholes option pricing model and taking a weighted average valuebased on various probabilities that the debt would be paid off prior to maturity atspecified dates and therefore incurring the prepayment penalty. This model requiresmanagement to use significant assumptions in applying the model to estimate the fairvalue. As the Company’s stock price is highly volatile, and the underlying debtamounts are relatively large, the valuation of the derivatives is subject to materialgains and losses from period to period. 
** 

 

Recent Accounting Pronouncements**
In December 2006 the FASB staff issued *FSP EITF 00-19-2* "*Accountingfor Registration Payment Arrangements*" to specify the accounting treatment ofcontingent obligations to make future payments or otherwise transfer consideration under aregistration payment arrangement. Our callable secured convertible debt includes anobligation for us to file registration statements with the Securities and ExchangeCommission (SEC) to register sufficient common shares for the note holders to convert thedebt into common stock frames and also obligates us to have the registration statementsdeclared effective by the SEC. This new standard requires us to evaluate the contingentfuture payments under the criteria of a probable loss under FAS 5. The Company adoptedthis new standard effective for the first fiscal quarter of 2007. The new standard has nothad a significant impact on the Company’s financial position or results ofoperations. 

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

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

 
**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 photowastes with existing stored photowastes to meet thepeaks in demand for fertilizer products. In the liquid fertilizer industry, the practiceof both our distributor and the ultimate consumer, the farmer, is to purchase fertilizeron a just in time basis, to minimize their storage requirements and related costs. Forthis same reason, we process our photowastes as needed for fertilizer production. Becauseof this, the need to seek new customers to expand the service side of our business isdriven by fertilizer sales. There is also a seasonal factor in the consumer photographyportion of our photowaste management services business, with the Christmas holiday seasonbeing the busiest, followed by the early summer, school graduation period. At presentvolumes of photowaste, this is not a significant factor, but it could become one as wegrow. 

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, 2007 with the Year EndedDecember 31, 2006.

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

To provide a more complete understanding of the factors contributing 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,
2007
2006Revenue Fertilizer
$    1,663,361
$    1,297,282Photochemical    recycling
$ 334,965
$ 128,033Silver
$ 316,815
$ 418,265Total Segment    Revenue
$    2,315,141
$    1,843,580Gross profit    (loss) 
$ 130,998
$ 83,462Operating    income (loss) 
$(2,199,386)
$(1,682,464)Net income    (loss) before taxes 
$(9,881,206)
$(3,370,803)
Revenues for the Photochemical Fertilizer segment totaled $2,315,100 in2007, compared to $1,843,600 in 2006, an increase of $471,600, or 26%. 

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

Photochemical recycling revenue was $335,000 and $128,000 in 2007 and2006, respectively, an increase of 162%. Excluding the current year sale of aPhotochemical Silver Concentrator for $163,500, photochemical recycling revenue increased34% on increased volume of 186%. In October and November 2006 we obtained two new largescale wholesale customers and in April 2007 we added a third wholesale customer. Theaddition of these customers is expected to increase photochemical raw material (on anunconcentrated basis) to a level about 50% greater than the volume at the end of 2004 whenour contract with Shutterfly was ended (Shutterfly supplied 65% of our 2004 photochemicalraw materials). 

We previously developed statistical information that more than 50million 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 100 million gallons of liquidfertilizer products, or about 500,000 tons, so we believe the raw material is available inthe market to meet future manufacturing needs. Based on 2007 production usage, we estimatethat current supplies of photochemical raw material in storage at our manufacturing plant,combined with ongoing receipts of material from other existing customers, is sufficient tomeet fertilizer production needs through 2008, depending on fertilizer sales volumes. Weanticipate that with continuing sales growth, we will need to obtain new large scalephotochemical recycling customers to meet the demand. 

We are in contact with both small and large photochemical generators,and are actively marketing Photochemical Silver Concentrators. The concentrators allow 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. By using a third party manufacturerto produce the Concentrators, we are outsourcing the fixed and variable costs that areassociated with assembling them. Primarily, these are the facilities space needed toassemble the various parts and the specialized equipment and labor required for theassembly. Generally, we have self financed the production of Concentrators sold in thepast. In the future, we anticipate that non-governmental customers will advance the fundsnecessary to acquire the parts and labor needed to produce the Concentrators. For our mostrecent governmental customer, we borrowed the funds needed to fulfill the contract from anunrelated individual. We anticipate using similar arrangements for future Concentratorssold to governmental customers. 

Silver revenue was $316,800 and $418,300 for 2007 and 2006,respectively, a decrease of $101,500, or 24%. Sales of all silver or silver bearingproducts were $293,900 (21,818 ounces) for 2007, compared to $399,200 (33,690 ounces) for2006. This is a decrease of 26% in dollars and 35% in ounces. The decrease is primarilyfrom decreased sales of processed silver bullion due to a combination of closing therefinery during the first quarter for installation of a scrubber for air quality purposesand to problems with our power supply in to the refinery. The power supply issue has beenreduced in recent months, but not eliminated. We are continuing to work with the localpower company to solve the problem. 

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

A significant portion of our silver inventory is contained inbyproducts from our refining process. We have developed new procedures to more costeffectively obtain this silver and initial plans were to install the necessary equipmentin 2006 and recover the majority of it during 2006. The project was delayed by thenecessity of installing air purification equipment in the refinery. The air purificationsystem was substantially completed in March 2007. Plans were developed to determine thespecifications of the equipment needed to process the byproducts and obtain the silver. Weestimate there will be a two stage process of equipment installation. The equipment forthe first stage was received in early 2008 and a temporary installation has beencompleted. Silver recovery is expected to begin during the second quarter of 2008.Planning is underway for the second stage, and, subject to funding, is expected to becompleted in the third quarter of 2008. In order to determine the amount of the silvercontained in these materials, we developed an estimate of recoverable silver ounces.Accordingly, we recorded a recoverability reserve of $70,200 based on our estimate ofrecoverable silver at December 31, 2006. The portion of silver that we estimate will berecovered in 2008 was deemed to be slow moving inventory, and accordingly, we recorded areserve of $34,000. Our review of these reserves determined that the reserves wereadequate as of December 31, 2007. 

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

Other income (expense) increased to a net expense of $7,681,800 for2007, compared to a net expense of $1,688,300 in 2006, an increased net expense of$5,993,500. The primary reason for the increased expense is an increase of the loss onderivatives of $6,256,700, which is related to the callable secured convertible debtfinancing obtained in July 2005 and subsequent dates. This increase was partially offsetby a decrease in interest expense of $87,100 related to the convertible debt financing andother income of $205,900 from the sale of a membership interest in our worker’scompensation mutual insurance company. 

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

 

MINING TECHNICAL SERVICES 
Year Ended    December 31, 
2007
2006 Revenue 
$27,155
$ 28,338Gross profit (loss) 
$(6,838)
$ (8,269)Operating income (Loss) 
$(744,042)
$(542,042)Net income (loss) before    taxes 
$(601,318)
$(439,082)
 

Mining technical services revenue totaled $27,200 for 2007 compared to$28,300 for 2006, a decrease of 4%. Included in these revenue figures are pass-throughexpenses of $1,500 and $2,500 for 2007 and 2006, respectively. Excluding these amounts,revenues amounted to $25,600 and $25,800 for 2007 and 2006, respectively, a nominaldecrease. The number of clients we serve and the amount of work needed by those clientsvaries from period to period.

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

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 information portalalso better utilizes the Whitney & Whitney, Inc. library and information resourcesthat are already in existence. For the years ended December 31, 2006 and 2005 we allocatedcosts of approximately $248,500 and $206,900, respectively, to the development of the website. The site was launched in mid-August 2005 and we are now fine-tuning the generalpresentation and functionality of the site, as well as improving the profiled miningcompany information. We expect this level of spending to decline beginning in the firstquarter of 2008. As improvements to the site are completed and information maintenancebecomes routine, we will adjust or redirect staff resources as needed. A program tosolicit advertising customers was developed and is being offered to gold explorationcompanies beginning in the first quarter of 2007. We hired a manager of marketing andsales in October 2006. He was responsible for marketing efforts for both theinsidemetals.com website and for technical consulting services to the mining industry.As no revenue was generatedfrom this work, the position was eliminated in February 2008. We are presently evaluatingthe steps we need to take to improve the revenue growth from the website. 
The above changes in revenues and operating expenses resulted in asegment operating loss of $744,000 for 2007, compared to $542,000 for 2006, an increasedoperating loss of $202,000 or 37%. 

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

The changes in operating loss and other income resulted in a segmentnet loss before taxes of $601,300 for 2007, compared to $439,100 for 2006, an increasedloss of $162,200, or 37%. 
**Changes in Financial Condition; Capitalization**
We had a cash balance of $93,000 as of December 31, 2007 compared to acash overdraft of $13,800 as of December 31, 2006. Net cash used by operations was$1,890,900 in 2007 compared to $1,698,200 in 2006. Operating resources utilized to financethe 2007 operations include approximately $859,400 in expenses paid with our common stock,$151,000 in increased accounts payable, and $225,900 in deferred management salaries. Cashamounting to approximately $61,400 was invested in property and equipment in 2007,primarily for equipment in the manufacturing plant. Sale of our interests in ourworkers’ compensation mutual insurance company provided $348,000 in cash frominvesting activities. The primary financing source of cash in 2007 was $1,960,000 inproceeds from callable secured convertible debt, less $140,100 in debt issuance costs. 

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

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

Total liabilities increased from $11,695,000 at December 31, 2006 to$20,019,800 at December 31, 2007, an increase of $8,324,800. Of this amount, currentliabilities increased $8,896,300 and long term liabilities decreased $571,500. The primaryincrease in liabilities was due to the change in estimated fair value of our callablesecured convertible Notes. The Notes must be accounted for as derivative liabilities andrecorded at estimated fair value at each reporting date, which was $13,003,800 at December31, 2007 and $4,876,200 at December 31, 2006. The increase in the estimated fair value ofconvertible debt derivatives of $8,127,600 in 2007 was primarily due to the addition of$2.06 million in Notes, offset by the conversion of $1.021 million in Notes, a reductionin our stock market price as of December 31, 2007 compared to previous periods, and anincrease of the discount to market upon conversion of Notes from 45% at December 31, 2006to 65% at December 31, 2007. In addition, all outstanding warrants and options arerequired to be recorded as derivative liabilities at estimated fair value, which was$231,200 at December 31, 2007 and $380,100 at December 31, 2006. The value of the warrantsand options decreased primarily due to the decrease in our stock market price compared toprevious periods. A more detailed discussion of the factors affecting the estimated fairvalue of our derivatives follows:

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

The factors affecting the valuation of the convertible debt derivativesare more complex. As the stock price goes up, that would tend to increase the value of thederivative and therefore increase the loss. However, an increased stock price also resultsin fewer shares needed to convert the debt, which tends to lower the value and reduce theloss. The reverse is true as the stock price goes down. Another factor that affects thevaluation model is the length of time it takes to convert the debt. We estimate thatlength by first determining the number of shares it takes to convert the debt based on thestock price on the balance sheet date. We then estimate how many shares will be issued toconvert debt on a monthly basis based on recent conversion history from our investors. Ingeneral, the investors have increased the frequency of conversions and the number ofshares converted as the stock price has gone down. Also affecting the conversion practiceof the investors is recent changes in interpretation of the securities laws by the SEC asto the frequency of filing registration statements. It was originally contemplated underthe general concept of this type of financing that registration statements could be filedas frequently as needed and with as many shares being registered as needed to meet theterms of the agreements. In recent months, the SEC has determined to restrict registrationfilings for the same investor group to once every six months and to restrict the number ofshares being registered to approximately one third of the outstanding shares held bynon-affiliates. This factor has tended to lengthen the estimated time it will take toconvert the debt which increases the value of the debt derivatives, and thereforeincreases the loss on derivatives. However, beginning in the third quarter of 2007, someof our Notes have been outstanding over two years. At that point the investors can convertthe debt into stock under Rule 144 without limitation, except for the 4.99% of outstandingshares under the terms of the agreements. Consequently, there has been a substantialincrease in the frequency of conversions and in the number of shares being issued for eachconversion. This would tend to shorten the time period necessary to convert the Notes intocommon stock. In the Black-Scholes option pricing model, this decreases the value of thederivatives, and therefore, increases the gain on derivatives. Conversely, at December 31,2007 the lowered market price, combined with the increase in the market price discountfrom 45% to 65%, the number of shares needed to convert the debt is over 6 billion shares,which has substantially increased the length of time needed to convert all of the debt. AtDecember 31, 2006 we had estimated a period of 16 months to convert the debt, while atDecember 31, 2007 the estimated period was 35 months. These factors resulted in a loss onconvertible debt derivatives of $6,954,400 for the year ended December 31, 2007.

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

In connection with the callable secured convertible debt discussedabove, we registered 50 million shares in February 2006 and increased the authorizedshares in March 2006 to 1 billion shares. We also completed registrations of 75 millionshares each in October 2006 and June 2007. 
**Working Capital/Liquidity**
During the year ended December 31, 2007, the working capital deficitwas increased by $8,702,500 to a deficit balance of $18,842,100. The primary changes inworking capital are the increase in callable secured convertible debt financing 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 primarilybecause fertilizer sales in 2007 and prior years did not expand to the extent anticipated,so operating losses were not reduced as expected. Second, the $15 million equity line ofcredit agreement with Swartz Private Equities, LLC (Swartz) was not able to function tomeet the Company’s ongoing working capital needs and was allowed to expire onFebruary 27, 2004. As a result, various private placements of stock with attached threeyear warrants were undertaken beginning in the fourth quarter of 2002 into 2005. Inaddition, the Company sold GPXM and other shares for net proceeds of $229,400 during theyear ended December 31, 2006. We obtained callable secured convertible debt financingbeginning in 2005 and received proceeds of $1,960,000, less debt issuance costs of$140,100 in 2007 and proceeds of $1,941,200, less debt issuance costs of $247,600 in 2006.Subsequent to December 31, 2007, we received net proceeds of $300,000 in additionalcallable secured convertible debt financing. We anticipate these proceeds will provide forthe Company’s working capital needs to April 2008.

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

 

 

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

 

 

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

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

Disclosure controls and procedures refer to controls and otherprocedures designed to ensure that information required to be disclosed in the reports wefile or submit under the Securities Exchange Act is recorded, processed, summarized andreported within the time periods specified in the rules and forms of the SEC and that suchinformation is accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure. In designing and evaluating our disclosure controls andprocedures, management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and management is required to apply its judgment in evaluating andimplementing possible controls and procedures.

 

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

 
*Management’s Report on Internal Control over Financial Reporting*
Our management is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)under the Securities Exchange Act.  Our management is also required to assessand report on the effectiveness of our internal control over financial reporting inaccordance with Section 404 of the Sarbanes-Oxley Act of 2002 ("Section404").  Management assessed the effectiveness of our internal control overfinancial reporting as of December 31, 2007.  In making this assessment, weused the criteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO) in Internal Control – Integrated Framework.  Duringour assessment of the effectiveness of internal control over financial reporting as ofDecember 31, 2007, management identified material weaknesses related to thefollowing:
* Accounting and Reporting Oversight – Becauseof our size, we have ineffective segregation of duties relative to key financial reportingfunctions. However, one person in our company, our Principle Accounting Officer/Controllerhas extensive US GAAP accounting and SEC reporting experience. However, we do not haveanyone else on staff with sufficient knowledge to review his work for completeness andaccuracy. We do not have anyone with financial expertise on our Board so we have beenunable to form an audit committee to perform oversight of this function.

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

 

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

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

 

 

 

 

 

 

 

 

PART III

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

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

Age as ofName
12/31/07PositionPosition Held SinceDr. John W. Whitney
61President/Treasurer May 1988DirectorHowland S. Green
54Northeast Manager April 2005of GOLD’n GRO salesDirectorGregory S. Skinner 
53SecretaryDecember 1990Duane H. Rasmussen
77Vice President; November 1997Vice President and May 1994General Manager-IMI
1) For directors, the term of office is until the next annual 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.

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 two members, none of whom are 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. 

 

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, 2007 exceeded $100,000:
Summary    Compensation Table: 
NonqualifiedName and
DeferredPrincipalCalendar
Compensation
All OtherPosition
Year
Salary
Earnings
Compensation
TotalDr. John W.    Whitney:President,    Treasurer 
2007
$131,000
$33,006
$ 3,138
$167,144and Director    (1) (2) 
2006
$126,788
$28,310
$ 3,138
$158,236Duane H.    RasmussenVice President,    VPand General    Manager IMI (3)
2007
$132,000
$25,420
-
$157,420
2006
$132,000
$21,731
-
$153,731
(1) The 2007 and 2006 salary amounts include $98,566 and $74,600,respectively, that were not paid currently. 

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

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

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

Mr. Rasmussen has $559,500 in unpaid salary as of December 31, 2007, ofwhich $154,000 is committed to be converted into 1,925,000 common shares. The shares willbe issued when sufficient cash is available to pay required payroll tax withholdings. Thisunpaid salary has accumulated since July 2001 and interest at 12% per annum accrues on theunpaid balance. The interest rate is based on the rate accruing to investors onconvertible debt private placements in effect in 2001. Interest earned was $61,130 and$52,260 for 2007 and 2006, respectively. Of the 2006 and 2007 amounts, $63,845 remainedunpaid at December 31, 2007. An additional total of $37,430 in interest earned from July2004 to June 2005 remains unpaid and will be paid by issuing 500,703 restricted commonshares. The Nonqualified Deferred Compensation Earnings amounts in the above tablerepresent accrued interest in excess of a defined interest rate using 120% of the July2001 federal long term applicable rate.

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

Underlying Unexercised   
Options    at
Option
Option 
12/31/07
Exercise
ExpirationName 
Exercisable
Price 
DateDr. John W. Whitney 
1,000,000
$0.25One year after employment    ends 
3,000,000
$0.30
One year    after employment ends  
550,000
$0.15
One year    after employment ends Total
4,550,000      Duane H. Rasmussen
425,000
$0.15
One year    after employment ends
 

 
Director Compensation:
StockName
Awards
TotalDr. John W. Whitney 
$ 6,000
$ 6,000Howland S. Green
$ 6,000
$ 6,000
The compensation plan for all directors was $1,500 per quarter incommon stock beginning with the fourth quarter of 2006. 

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
6,264,000
$0.240
2,393,583    
Total
6,264,000
$0.240
2,393,583
 

b) Security Ownership of Certain Beneficial Owners.
The following table sets forth certain data with respect to thosepersons known to the Company, as of March 31, 2008, to be the beneficial owners of morethan 5% of the outstanding shares of common stock of the Company:

 

Amount and Nature of Beneficial Ownership
Common    SharesName and
Which May    Be
PercentAddress of
Common    Shares
Acquired    Within
ofBeneficial Owner
Presently    Held
60    days
Total
ClassJohn W. WhitneyP.O. Box 10725Reno, NV 89510(1)(2)(3)(4)
33,081,313
20,300,000
53,381,313
5.2
(1) Director

(2) Officer

(3) Includes 72,768 shares owned by Maureen E. Whitney, Dr. Whitney'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,and 550,000 common shares at $0.15 per share. The options are exercisable at any timeuntil one year after Dr. Whitney leaves the employment of the Company. The Common SharesWhich May Be Acquired Within 60 Days also includes 15,250,000 shares that are to be issuedto Dr. Whitney when sufficient cash is available to pay payroll tax withholdings and500,000 common shares to be issued in connection with his service on the Board ofDirectors.

c) Security Ownership of Management.
The following table sets forth as of March 31, 2008, 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) 
33,081,313
20,300,000
53,381,313
5.2Howland S. Green895 Liberty LaneWest Kingston, RI 02892
1,899,483
1,500,000
3,399,483
0.3Duane H. RasmussenP.O. Box 10725Reno, NV 89510 (4)
2,202,973
2,850,703
5,053,676
.5All directors andexecutive officers asa group (4 persons) 
37,836,088
24,650,703
62,486,791
6.1
(1) Dr. Whitney’s options include compensatory options of1,000,000 common shares at $0.25 per share, 3,000,000 common shares at $0.30 per share,and 550,000 common shares at $0.15 per share. The options are exercisable at any timeuntil one year after Dr. Whitney leaves the employment of the Company. The Common SharesWhich May Be Acquired Within 60 Days also includes 15,250,000 shares that are to be issuedto Dr. Whitney when sufficient cash is available to pay payroll tax withholdings and500,000 common shares to be issued in connection with his service on the Board ofDirectors.

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 subject to the option became exercisable when the Federal EPA accepted theregistration application for the GOLD’n GRO Guardian and the second 500,000 sharessubject to the option became exercisable when the Federal EPA issued the registration forthe GOLD’n GRO Guardian. The entire option is exercisable for two years after the EPAregistration was received in March 2008. The Common Shares Which May Be Acquired Within 60Days includes 500,000 common shares to be issued in connection with his service on theBoard of Directors. 

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

(2) The percent of class is based on the sum of 999,996,999 sharesoutstanding as of March 31, 2008 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, 2008

.

(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.

 

ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORINDEPENDENCE.
Advances from an officer/stockholdertotaled $143,025 and $161,525 at December 31, 2007 and 2006, respectively. 
$779,073 and $796,200 of the accrued management salaries as of December31, 2007 and 2006, respectively, is for salary in arrears due to severalofficer/stockholders and employee/stockholders. In addition, salary in arrears of $746,800and $514,800 for 2007 and 2006, 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 and have relinquished their right to receive cash. When the stock iseventually issued, it will be issued at the market price on the date of the respectiveagreements. The number of shares to be issued is 18,173,958 and 6,348,958 for 2007 and2006, respectively. Issuance of the stock is pending sufficient cash available to pay therelated federal withholding taxes. Interest expense at 12% per annum on salaries dueofficer and employee/stockholders amounted to $168,146 and $143,478, respectively, in 2007and 2006. 

Interest expense on related party loans amounted to $18,851 and $19,383for the years ended December 31, 2007 and 2006, respectively. Accrued interest on relatedparty loans and accrued salaries totaled $157,181 and $87,211 at December 31, 2007 and2006, respectively. 

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 acquired ownership of the vehicle when the loan was paid off in 2007. 

 

 

Director Independence

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

 

 

ITEM 13.FINANCIAL STATEMENTS AND EXHIBITS 
I. Index of Financial Statements and Exhibits1. Index of Financial    Statements:
Page    No.REPORT OF INDEPENDENT    REGISTERED PUBLIC ACCOUNTING FIRM
45Consolidated Balance Sheets    as of December 31, 2007 and 2006
47Consolidated Statements of    Operations for the Years endedDecember 31, 2007 and 2006
49Consolidated Statements of    Stockholders' Equity (Deficit)for the Years ended    December 31, 2007 and 2006
50Consolidated Statements of    Cash Flows for the Years endedDecember 31, 2007 and 2006
51Notes to Consolidated    Financial Statements
532. Index of Exhibits:14 Code of Business Conduct    and Ethics
8421 List of significant    subsidiaries 
8531 Rule 15d-14(a)    Certification
8632 Section 1350    Certification
88
 

 

STATEMENTS AND SCHEDULES

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

applicable or not required.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 

To the Board of Directors and Shareholdersof Itronics, Inc

 

We have audited the accompanying consolidated balance sheet of ItronicsInc. and subsidiaries (the "Company") as of December 31, 2007, and the relatedconsolidated statements of operations, stockholders’ equity (deficit) and cash flowsfor the year then ended. These consolidated financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audit. The consolidated financialstatements of the Company as of December 31, 2006, were audited by other auditors whosereport dated April 11, 2007, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards of thePublic Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement. The Company has determined that itis not required to have, nor were we engaged to perform, an audit of its internal controlover financial reporting. Accordingly, we express no such opinion. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in theconsolidated financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audit provides a reasonablebasis for our opinion.

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of the Company as ofDecember 31, 2007, and the results of its operations and cash flows for the year thenended in conformity with accounting principles generally accepted in the United States ofAmerica.

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

/s/ Moore Stephens Wurth Frazer and Torbet, LLP

Walnut, California

April 14, 2008

 

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, 2006, and therelated consolidated statements of operations, stockholders' deficit and cash flows forthe year the ended. These financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these consolidated financialstatements based on our audits.

We conducted our audit 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, 2006, and the results of its consolidated operations and cashflows for the year then ended., in conformity with accounting principles generallyaccepted 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, 2006, theCompany has an accumulated deficit of $31,661,456, a negative working capital of$10,139,616, and a stockholders’ deficit balance of $7,429,505, and is in default 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 11, 2007

 

 

 

 

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2007 AND 2006

 

ASSETS
 
2007 
2006CURRENT ASSETS    Cash 
$ 92,987 
$ -Accounts receivable, less    allowance for   doubtful accounts, 2007,    $4,600; 2006, $4,600
17,561 
36,493Inventories
889,996 
548,399Prepaid expenses
94,952 
316,872    Total Current Assets
1,095,496 
901,764    PROPERTY AND EQUIPMENT    Land 
215,000 
215,000Building and improvements
1,312,409 
1,167,315Design and construction in    progress,    manufacturing facility
97,110 
234,347
Equipment and furniture 

2,879,938

  

2,543,682

Vehicles 

222,298

200,557

Equipment under capital lease-equipment and furniture

466,571
 
692,438

Equipment under capital lease-vehicles

-

21,741
     
5,193,326 
5,075,080Less: Accumulated    depreciation and amortization
2,341,004 
2,131,542    Total Property and    Equipment 
2,852,322 
2,943,538    OTHER ASSETS    Intangibles 
76,500 
76,500Deferred loan fees, less    accumulated amortization 2007,   $580,849; 2006, $328,120 
323,042 
335,629Deposits
8,508 
8,108    Total Other Assets 
408,050 
420,237     *****