UNITED STATES

SECURlTIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-KSB

(Mark One)

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

    EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000

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

    EXCHANGE ACT OF 1934 (No Fee Required)

For the Transition period from______ to_______

Commission file number 33-18582

ITRONICS INC.

(Name of small business issuer in its charter)

                        Texas                                       75-2198369

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

            incorporation or organization)

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

         (Address of Principal Executive Offices)                   Zip Code

Issuer's telephone number: (775) 689-7696

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

       Title of each class                              Name of each exchange on

                                                             which registered

             None                                                   None

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

None

(Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (x) No ( )

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

State issuer's revenues for its most recent fiscal year: $1,229,423.

The aggregate market value of the voting stock held by non-affiliates, computed by reference to the average of the bid and asked prices for such stock as of February 28, 2001, was $14,189,424.

As of February 28, 2001 there were issued and outstanding 76,622,761 shares of the Registrant's Common Stock.

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ITRONICS INC. AND SUBSIDIARIES

2000 FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS

PART I		PAGE
Item 1.	Description of Business	4
Item 2.	Description of Property	22
Item 3.	Legal Proceedings	23
Item 4.	Submission of Matters to a Vote of Security Holders	24
PART II
Item 5.	Market for Common Equity and Related Stockholder Matters	25
Item 6.	Management's Discussion and Analysis or Plan of Operation	26
Item 7.	Financial Statements	30
Item 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	30
PART III
Item 9.	Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act	31
Item 10.	Executive Compensation	33
Item 11.	Security Ownership of Certain Beneficial Owners and Management	35
Item 12.	Certain Relationships and Related Transactions	36
Item 13.	Financial Statements, Exhibits and Reports on Form 8K	37

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ITEM 1. DESCRIPTION OF BUSINESS.

Itronics Inc. (the Company), is a Texas corporation formed in 1987 and is now based in Reno, Nevada. Through its subsidiaries, the Company specializes in photobyproduct recycling and fertilizer manufacturing, precious metals recovery and refining, mineral economics, and mining technical services. The Company currently operates the following two business segments under separate wholly owned subsidiaries:

1. Photobyproduct Fertilizer: * This segment, known as Itronics Metallurgical, Inc.,operates a photobyproduct recycling plant and is developing new silver-gold refining technology. Parts of the photobyproduct process technology are patentable but are not yet patented. The silver-gold refining process is patented and has worldwide applicability. Revenues are generated by photobyproduct management services, sale of silver, and sale of Gold’n Gro liquid fertilizer products. Construction of a commercial scale photobyproduct processing and fertilizer manufacturing plant was completed in February 2000.

*In 1995 Itronics initiated a legal review of various segments of RCRA (Resource Recovery and Conservation Act)law that might pertain to Itronics and its customers. Itronics reached the conclusion that certain of its large scale customers are exempt from RCRA since the value of the customer's portion ofthe recovered silver exceeds the processing costs charged. Itronics also concluded that once the various photo solutions are 100% utilized in fertilizer or other products, then all Itronics customers will be exempt from RCRA requirements. Itronics believes it is the only organization in the U.S.with the ability to achieve this distinction. Consequently, when referring to the operations of other organizations, or to the general market, the term photowaste is used, and when referring to Itronics' operations the term photobyproduct is used.

          2. Mining Technical Services: This segment, known as Whitney & Whitney, Inc., provides mining and materials management,geology, engineering and economics consulting, and publishes specialized mineral economics and materials financial reports. It employs technical specialists with expertise in the areas of mining, geology, mining engineering, mineral economics, material processing, and technology development. Technical services 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. and foreign governments, and the United Nations and the World Bank.

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

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1. Itronics Metallurgical, Inc.:

IMI is a wholly owned subsidiary of the Company. IMI was established in 1981 to manage the metallurgical and materials processing operations being developed under W&W and American Hydromet research and development programs. IMI has been the main provider of management services to American Hydromet since 1986. IMI is now managing the photobyproduct fertilizer segment as discussed below. IMI is responsible for precious metal and other material product sales, and markets a five ounce silver bar bearing a unique hallmark, "Silver Nevada Miner".

2. Nevada Hydrometallurgical Project:

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

3. American Hydromet:

American Hydromet is a Nevada joint venture that was formed in 1985 to develop certain silver and gold refining/recovery technology and to create business based upon such technology. The photobyproduct fertilizer segment now being managed by IMI is owned by American Hydromet. The ownership interests in American Hydromet are: NHP for 76.5%, IMI for 1%, and American Gold & Silver Limited Partnership ("AG&S") for 22.5%. AG&S is a Nevada limited partnership, for which W&W serves as the general partner and owns a general and limited partnership interest totaling 10.907%. The Company owns a 32.99% limited partnership interest in AG&S. In total, the Company owns approximately 81.63% of American Hydromet.

4. Itronics California, Inc.:

Itronics California, Inc. (ICI) was acquired in March 1999 by Itronics Metallurgical, Inc. ICI, originally named PD West, Inc., was acquired for its phosphoric acid recycling technology. ICI had no business operations in 1999, but plans for the company are to utilize the phosphoric acid technology and it may eventually operate IMI's photobyproduct and fertilizer business in California.

5. Whitney & Whitney, Inc.:

W&W was incorporated in 1977 and is a wholly owned subsidiary of the Company. W&W is primarily a mineral consulting firm that provides technical services to the mining industry. The broad range of services provided by W&W includes mineral economics, geological studies, mining and cost engineering, and project management services. W&W has extensive experience with base metals, precious metals, such as gold and silver, specialty minerals, such as molybdenum and tungsten, coal, and industrial minerals. W&W has performed substantial services for small,

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medium, and large mining projects. W&W has performed services for many leading U.S. and foreign mining companies, various state agencies, for the United States and several foreign governments and the United Nations. W&W was under contract with the Country of Bolivia from 1986 through early 1992 to assist it in developing its mining industry.

SUMMARY HISTORY OF OPERATIONS

Whitney & Whitney, Inc. was incorporated in Nevada in 1977 to provide a wide range of technical services to the mining industry. During the 1980's, W&W completed several multi-client fertilizer marketing studies. Also during this time period, W&W was contacted by 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 highly cyclical, closely following the base and precious metals industries, and specifically, the price of copper, other base metals and gold. This condition pointed out the necessity of expanding the Company's business into new industries. When considering the fertilizer marketing studies previously performed, along with the growing national issue of sewer system contamination with toxic photowastes and silver toxicity to fish, it seemed to be a natural extension of W&W's existing expertise to expand into the photowaste recycling business. In 1987 the decision was made to move forward with research and development of a process to extract silver from photographic wastes and the necessary permits to establish an R&D facility under RCRA were obtained. In 1988 a patent and literature research project regarding the use of photowastes in fertilizer was begun. In 1989 experimentation with processed run of plant liquids as fertilizer was begun. It took until 1997 to develop and demonstrate a satisfactory product and to complete university testing to demonstrate its technical viability. A licensing and sales agreement was signed with a major fertilizer company in 1998, but it took another two years to obtain financing, complete permitting, install an operational plant and to demonstrate that the new technology would work on a commercial scale. By the first quarter of 2001 the Company is finally positioned to develop sales for 13 liquid fertilizer products with the objective of becoming profitable.

A description of some of the obstacles encountered and overcome over the intervening years, follows:

A. In 1988 the Company acquired W&W. The acquisition was structured to obtain approximately $1.7 million in equity financing to support the photobyproduct fertilizer R&D project. Due to a number of factors, including a change in federal and state laws regarding trading in penny stocks, only a small portion of this funding was received. Consequently, the Company was undercapitalized from the time of acquisition of W&W in 1988.

B. In the initial stages of the R&D project, it was believed that:(1) the primary research on the integrated system for recycling photowaste into fertilizer would take through 1992 to complete, and (2) the R&D effort would be self-supported by increasing photowaste volume at the established service pricing. The basic research for demetallizing photowaste solutions and for refining the silver were substantially complete by the end of 1992. The research on the third segment of the integrated system, converting the demetallized solutions to fertilizer, took

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four more years. Initially, it was believed that "run of plant" solution, with minimal major nutrient supplementation, would produce a quality fertilizer product. The early stages of research determined that the product was too dilute and would need to be concentrated by supplementation with the major nutrients, nitrogen, phosphate, and potassium, in order to produce the desired quality product. This factor, combined with the seasonal nature of field testing the products, resulted in the additional years required to perfect and field test the mix formulas in the quantities needed for large scale manufacturing.

Initially, it was believed that the R&D effort would be fully supported by photowaste service revenue. Two major factors prevented this. First, during 1992 and 1993, there was reduced enforcement of applicable regulations by various environmental agencies, and, second, during the same period, a competitor entered the Northern Nevada market by offering free service in exchange for the contained silver in photowaste solutions. To prevent loss of customers and to increase volume, the Company instituted three price reductions of approximately 40% each during the period of 1992 to 1994. The result is that 1997 volume was 159% greater than 1992 volume, but service revenue remained essentially the same throughout this time period, producing on-going losses.

During this same time period, the Company worked with environmental officials to obtain strengthened enforcement activity. Enforcement strengthened in 1996 and 1997, not only in Northern Nevada, but in California and most of the other 48 states in the U.S. In 1996 the Nevada regulatory authorities made changes in the Company's permit status that increased the number of used chemical solutions that the Company can process for utilization in fertilizer and other chemical concentrates. Tightening of regulatory enforcement also reduced competitive price pressures by making it more difficult for service companies with minimal compliance capability to continue to offer low cost services. The result was that beginning in 1996 selective increases in service pricing became feasible.

The second and probably the most important factor preventing the R&D project from being self-supporting is that in 1991, photowaste volume limitations were placed on the Company by state and local environmental agencies to prevent large quantities of photowaste being brought from out-of-state to be disposed at Nevada solid waste sites. Unlimited volumes of waste may be brought in as long as they are converted to commercial products and are sold into consumer markets. Photowaste volume reached the threshold of the limitations in 1994. The Company was unable to increase photowaste volume to offset the price reductions dictated by market conditions and the Company’s fertilizer products were not yet completed, so the Company’s losses continued.

In 1995, 1996, and 1997 the Company placed two of its fertilizer products in a fertilizer comparison program at University of California at Riverside. One product, Gold’n Gro 20-1-8 (precursor to Gold’n Gro 20-1-7) was rated number one at the end of two years. Since then the Company has developed and is marketing 15 products, 13 of which are for use by the general public. In 1999 the Company purchased a 3.5 acre site with 35,000 square foot of commercial buildings suited for conversion to a commercial fertilizer manufacturing plant. In 1999 and 2000 funding was acquired to make the conversion, the necessary permits were acquired, and the new plant was demonstrated to operate at the necessary commercial scale while completely meeting the environmental standards by the end of the third quarter of 2000. In 2001 for the first time the Company has an operational plant with the capacity to produce commercial

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quantities of high quality chelated liquid fertilizer products that are formulated using the demetallized photoliquids.

Now that the Company has a new operational plant in place, the Company is focusing on expanding sales with the objective of achieving output needed for profitable operations. The Company’s goal is to expand sales during 2001 to a level needed to operate profitably. While the fertilizer market is large relative to the level of sales needed by the Company to be profitable, the rate of growth during the 2001 growing season will largely determine whether the Company will achieve sufficient sales volumes to be profitable in the following year. The Company’s products are producing very positive growth responses in the field and the Company has a strong fertilizer marketing partner to introduce the products into the western regional markets, so market penetration will be maximized within the constraints of a mature market.

A more detailed discussion of the business of the Company contained in Item 1 of this report, based on the Company's two business segments which were briefly described above, follows. The operating results of the two segments are discussed in Note 11 to the Consolidated Financial Statements beginning on page 58 of this report.

PHOTOBYPRODUCT FERTILIZER

1. Research and Development

The photobyproduct fertilizer (the American Hydromet Project) segment of the Company has primarily been involved in research and development, with the objective of developing integrated technology that can be used to recycle photobyproduct materials, that recovers all of the silver and all other toxic metals from those materials, and which utilizes "heavy-metal-free" liquid photobyproducts in a chelated liquid multi-nutrient fertilizer product line for turf, ornamentals, and specialty agricultural applications. The status of development of the three integrated components is more fully described below:

The technology was developed in a semi-works plant in Reno. Development of the integrated technology represents a major technical innovation with global potential. There are three separate but integrated functions for handling the waste photoliquids. The first is the solution demetallization and conditioning process. This process is used to demetallize and recondition the metal-bearing photofixers and photodevelopers that are picked up from photousing businesses. This portion of the process is very efficient, recovering over 99.998% of all the contained toxic metals, and a very large percentage of contained iron. There are two products from this part of the operation: (1) a metal-bearing sludge, and (2) the conditioned, demetallized, liquids.

The metal-bearing sludge is dried and passed to the refining operation for separation of the contained silver. This operation is also very efficient. More than 99.5% of the silver contained in the sludge is recovered for sale. The refining was developed specifically to handle the sludges from the liquid demetallization and conditioning process. As such, the other heavy metals and iron contained in the sludge end up in a glass byproduct and are rendered completely inert. The Company has formulated the glass so that with minor additions of other compounds, it can be converted into usable products, such as wall and floor tile. The Company plans to pursue glass product development once the fertilizer is commercially operational.

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The integrated process, known as the "American Hydromet Silver-Gold Refining Process" is a technological discovery that has the potential to significantly alter the proprietary commercial gold-silver refining industry world-wide. This proprietary technology is presently being further developed with continuing research and development.

The major innovation in the technology consists of using wet chemistry (hydrometallurgy) to quantitatively separate gold and silver in very pure form, and to entirely eliminate the need for electrolytic refining. The process is used to treat (1) electro-sludges and electro-chips derived from photobyproducts such as developer solutions and scrap film, and (2) zinc precipitates and electrolytic sludges from gold and silver mines such as those found in Nevada and other locations. Based upon the technology, American Hydromet currently has two business activities which are being commercially developed:(1) photobyproduct recycling, and (2) silver/gold refining. The photobyproduct recycling is a spin-off concept and additional spin-off businesses are expected as the American Hydromet process and other technology associated with it are further developed.

The American Hydromet process is proprietary information. The U.S. Patent Office has issued a process patent on the gold/silver separation process (U.S. Patent No. 4,662,938, dated May 5, 1987). A patent on the same process was issued by South Africa in June, 1986 and patents were issued by Canada and Australia in September, 1989. The patents are owned by American Hydromet. Other portions of the American Hydromet process are believed to be patentable.

A priority objective of American Hydromet is to establish the complete capability for recovering all of the valuable components of photobyproducts for sale and reuse. As a result of the technology American Hydromet has and is developing, it has the potential of becoming a major recoverer and refiner of silver and at the same time it has the opportunity to become a major recycler of photobyproducts.

The reconditioned photoliquids are used as a component of turf and other fertilizers. The fertilizers are chelated liquid multi-nutrient NPK (Nitrogen–Phosphorous-Potassium) products containing micronutrients and produce excellent results in application. Development of the fertilizer took more than 9 years and involved a number of stages of development. Important steps in the development of the fertilizer were: (1) patent and applications literature research to determine if similar materials were being used in fertilizer products, (2) initial plot testing, and chemical analysis of "run of plant liquid" to determine the response of turf and different plants to the non-supplemented liquid, (3) an extended period of mix testing and then large-scale field testing of the mixes to determine the suitability for use on turf, (4) development of manufacturing procedures for the chosen mix, and (5) large scale field testing by different types of users to determine acceptability and to identify problems prior to implementing a commercial manufacturing and marketing program. A problem inherent in fertilizer product development is the seasonal nature of the business. Each series of plot tests requires essentially one year because of the seasonal nature of plant growth. This lengthy product development cycle will continue to apply to new fertilizer products that are being developed.

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After having made the commitment to this long-term development, Itronics believes it is the only company in the world that has successfully demonstrated the ability to manufacture an environmentally compatible fertilizer product line from liquid photobyproducts. As such, Itronics now has unique proprietary technology for completely recovering the silver and for converting the waste liquids into usable "heavy-metal-free" products, thereby achieving environmentally acceptable total recycle of the waste stream.

In 1995 the Company began participating in a fertilizer product application comparison program sponsored by the University of California at Riverside. For the second consecutive year, in 1996, Gold'n Gro 20-1-7 was rated Number 1 in the program, which compared "top of the line" multinutrient nitrogen fertilizers produced by leading U.S. fertilizer manufacturers. Gold'n Gro 20-1-7 is registered in California and Nevada. In early 1997, Gold'n Gro 10-0-0 Iron, a fully chelated liquid iron supplement fertilizer, was registered in California and Nevada. In mid 1997, development of Gold'n Gro 10-0-1 Manganese was completed. The manganese, iron and zinc included in this product are in a citrate chelated form supplemented with EDTA chelate, which makes the micro-nutrients readily available to plants. In August 1997, the Company received a national trademark for the name "Gold’n Gro".

In early 1998 development of several new Gold’n Gro fertilizer products was completed. These include Gold’n Gro 20-0-4 for use by nurseries and for vegetables, Gold’n Gro 8-12-9 for use as a plant starter for vegetables and field crops, and Gold’n Gro 6-3-9 for use by nurseries and for house plants, garden vegetables, grapes, and citrus. In early 1999 a decision was made to focus on just eight products in order to simplify and speed up the introduction into the marketplace. In 2000 this was expanded to 13 products.

In 2000, a small Gold’n Gro fertilizer application test began on citrus trees. Initial results were a 40% increase in weight and juice content and a 12% increase in size in Valencia oranges compared to the oranges on check trees. Also, lemon trees fertilized with Gold’n Gro produced 54% more lemons than unfertilized trees. Both tests were done by applying the fertilizer by foliar spray. Testing is now underway on a larger scale, and is being conducted in conjunction with the University of California, Riverside.

A test application of Gold’n Gro 4-2-10, a new product, on northern Nevada alfalfa fields has yielded dramatic results. On a northern Nevada farm, a 192 acre field went from a best ever on a third cut of 150 tons up to the new record of 220 tons, or a 33% increase over the second cut and a 48% increase over the best third cut to date. Also of significance, the alfalfa was tested and found to be of "supreme" quality, the highest grade. This is only one set of results from one set of fields under changing weather conditions, but it indicates that Gold’n Gro is effective in increasing yield and quality of alfalfa. The Company is currently performing more tests to validate the cost-effectiveness of Gold’n Gro fertilizer on alfalfa.

The grape nutrition study, initiated in 1999, was continued by the University of California at Davis, but the 2000 work was started late due to the illness of the professor. In addition, at the end of the growing season the grower picked the grapes so that U.C. Davis was not able to obtain measurements from the grapes. The grower’s vintner had stated that the grape quality was excellent. The test will be continued for another year. Both Gold’n Gro 10-0-0 Iron and Gold’n Gro 10-0-1 Manganese were used with good results on grapes on the California coast during the 2000 growing season. One grower has been using Gold’n Gro 10-0-0 Iron for three years with very acceptable results each year. This grower is a producer of very high quality wines.

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IMI was developing a fertilizer injector system for use by golf courses and professional growers to inject the Gold’n Gro fertilizers into drip and sprinkler irrigation systems. Completion of this product was deferred after IMI was introduced to a company that had developed a prototype injector system that was almost identical to the IMI system that was under development and that will now be sold by IMI.

The Company has identified potential applications for the specially conditioned liquids in the mining industry, and has begun to seek joint venture partners to invest in the needed research and development. This project is more fully discussed on page 22 of this report.

2. Operations

The Company now operates a commercial scale plant to receive photobyproduct materials, recover the silver and other metals, and convert the demetallized solutions to a line of liquid fertilizer products. A critical component of this system is to match, within a reasonable range, the incoming volume of photobyproduct solutions with the volume of utilization of those solutions in fertilizer or other manufactured products. At the outset of the technology development program, regulatory constraints were imposed to limit the amount of photobyproduct materials that the Company could handle until a commercial fertilizer was perfected, or some other commercial use for the material was developed. Now that testing of the basic products is complete, and a new recycling facility is in operation, the Company is actively seeking new photobyproduct solution business.

Photobyproduct management services is operating as a regional business with northern Nevada as the center of its activities. The Company is serving more than 200 customers in the northern Nevada market and believes that it has the dominant position in this market. A satellite service operation has been established in the San Francisco Bay Area. Now that a line of commercial fertilizer products has been perfected, and the Company's new recycling plant is operational, the Company is expanding its San Francisco Bay Area and Northern California service operations.

The San Francisco Bay Area is large, but there are at least three strong competitors in the market. Market conditions have changed over the past several years and pricing has adjusted upwards from the lows seen in late 1994. The Company is now able to compete effectively based upon pricing and service quality.

In late 1995, the Company sold a prototype installation of low temperature vacuum distillation equipment to a large manufacturing company in northern Nevada. This equipment separates the water from the photochemistry without destroying the basic chemical components, and produces a high value concentrate. The separated water is further purified and is usable in manufacturing operations. Nearly 100% of water reuse is achieved.

The distillation equipment began operations in March of 1996, and has performed effectively since then. The concentrate being produced is up to desired standards, and water quality is excellent. This same manufacturing company bought a second distillation unit in early 1997.

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The distillation concentrate has a high silver content and is dominantly composed of ammonium thiosulfate (ATS) and EDTA chelates, the basic chemicals used in photo fixer solutions. Itronics' fertilizer blending technology is designed to utilize the concentrate in fertilizer.

Itronics' plan is to seek companies that handle sufficient volumes of photographic liquids to justify purchase of the distillation equipment. The ATS concentrate can be shipped in interstate commerce as a commercial product, resulting in the opportunity to serve the national market. Successful introduction of this technology will increase the value per gallon of material handled by a factor of five to ten, and will increase the amount of silver handled per gallon of photoliquids received. As the supply of the ATS concentrate grows, so too will the silver refining operation. The transition from low silver content liquids to high silver content liquids will increase the importance of the silver refining operations and silver sales.

Achieving profitability for the photobyproduct fertilizer segment required expansion of the plant from the semi-works scale facility in Reno to a commercial scale. In January 1998 IMI entered into a lease/option agreement to acquire a 35,000 square foot manufacturing facility on three plus acres of land in the Reno-Stead, Nevada area.

The Reno/Stead manufacturing plant purchase was completed on March 31, 1999. Originally, it was planned to move the pilot plant equipment to the new facility in much the same configuration as the existing plant, with some additional equipment for increased production capacity. However, market acceptance of the Gold’n Gro fertilizer products and regulatory changes in California and Oregon that are tightening liquid photochemical waste disposal requirements have shown the need for significantly expanded production capacity. Consequently, the basic concept for the plant configuration was redesigned and significantly expanded.

In addition, the building and fire codes and federal hazardous material regulations all changed in 1999. Consequently, the permitting process was slowed while the regulatory agencies developed and implemented guidelines for the new rules.

In late October 1999, the final necessary building permits were received and regulatory approval was obtained to start up operations in the photochemical receiving and processing and silver refining areas. Construction of piping systems and set-up of the tanks and related equipment was completed in February 2000 and the City of Reno issued the certificate of occupancy at that time. A "shake-out" period was begun in which small batches of photobyproducts were processed and small batches of fertilizer were manufactured. The purpose of this period was to test all of the equipment to ensure it meets operating specifications and to train the appropriate personnel in plant operation. Minimal problems were encountered and the "shake-out" period was completed at the end of the first quarter of 2000.

By the end of September 2000 the new facility had demonstrated the ability to "demetallize" the received photo liquids to required EPA levels, thereby proving the technical viability of the new technology on a commercial scale.

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The Company's revenues in the photobyproduct management business are generated from three major sources: (1) the pick up and processing of photobyproduct solutions from customers for which they pay the Company a fee; (2) recovery of silver from photographic solutions and film and sale of the recovered silver; and (3) sale of the demetallized solutions in fertilizer or sale for other specialized commercial markets.

The photobyproduct management services are typically performed pursuant to an exclusive one year service agreement. The annual contract and service fee provisions are necessary for the Company to recover its substantial investment in technology, and to protect it under the regulatory and business framework in which it must operate.

The photobyproducts presently being handled by the Company are:

        Ammonium Thiosulfate Concentrate

        Aqueous Ammonia

        Developer

        E1ectro-flake

        Film

        Fixer

        Sodium meta-bisulfite concentrate

        Stabilizer

        Steel Wool/Metallic Ion Exchange Cartridges

        Scrap paper that accompanies film

The Company is evaluating the potential for use of acetic acid in fertilizer. If this proves to be technically feasible, then the Company will begin to accept used acetic acid solutions as well.

The photobyproducts are transported to the Company's new recycling facility at Reno/Stead, Nevada. All customer materials are logged and recorded. All liquid photobyproducts are tested for silver content and for contaminants, such as chrome. High chrome content wastes are specifically rejected. It has been the experience of the Company that new customers, with limited knowledge of the rules and procedures, may submit materials containing foreign substances. The Company achieves high contaminant control standards by working proactively with its regular customers.

Once testing is completed, the photographic solutions are processed in American Hydromet's proprietary system.

As part of the process, silver bearing sludges are separated from the photobyproduct solutions, filtered, and then dried. The Company refines this material into pure silver bars and ships them to a silver marketer for sale.

The final stage of the photobyproduct fertilizer process is to blend the "heavy-metal-free" solution with other nutrients to create liquid Gold’n Gro fertilizer products. Through 1995, the Company's primary focus was on field testing the products. In 1996 the Company began small scale commercial sales. During the third quarter of 1996, the Company initiated discussions with three large fertilizer distribution companies regarding potential distribution arrangements for the Company's fertilizer and chemical products. In March 1998 a manufacturing and marketing agreement was entered into with one of these companies. A more detailed discussion of the progress of the marketing program is on page 17 of this report.

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In 2000, the photobyproduct fertilizer segment produced 41% of the Company's revenue. Over the next several years, this segment is expected to grow significantly in relation to the mining technical services segment. Consequently a major shift in the Company's operations toward the photobyproduct fertilizer segment is being implemented.

3. Markets and Competition

I. Photobyproduct Recycling and Silver Refining

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

Nationally, more than 80 million ounces of silver are consumed in photomaterials annually. Approximately 30% of this is lost through disposal in sanitary sewers nationwide. Itronics' technology recovers 99.975% of the silver contained in these waste solutions. Thus, as the photobyproduct re-cycling operation expands, silver refining will become more significant to the Company. The Silver Institute indicates that silver usage in photography is increasing, and will continue to do so over the next several years.

The photowaste management industry is not systematically organized, but is fragmented with many small operators, or large waste haulers. The small operators typically specialize in one or more types of photowaste, but usually prefer film. The large waste haulers pick up all categories of waste, and may also handle film and paper. Photowaste management as a systematic business is not yet organized by any large company in the United States. This is a niche that the Company seeks to fill.

Silver recovery from black and white and x-ray chemistry is an established industry. Silver recovery is typically accomplished at a user's site by specialized recovery equipment. The equipment is normally installed and maintained by way of a service agreement with the vendor, or vendor representative. The service of silver recovery is particularly entrenched in the medical field where the service business supplies a silver recovery unit and also picks up film waste for sale to a waste film processor. Black and white and x-ray chemistry is typically monometallic with silver being the main EP-Toxic metal. The recovery units are only about 90% efficient in routine operation, so significant amounts of the silver are discharged into the sewerage systems. This compares to the Company's technology which routinely recovers 99.975% of the silver content.

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

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Waste film processing is an established competitive industry in the United States. It is highly segmented and characterized by many small processors, most of which are located in the eastern part of the United States. The number of processors in the West Coast is limited. There are believed to be three companies of consequence, one in California, one in Washington State and one in Utah. Some waste film is exported to Korea, Japan and China. Eastman Kodak is now the largest and dominant waste film processor in the eastern U.S. and may be the largest silver recycler in the United States. DuPont sold its silver recovery operations and is now out of the business. Kodak purchases scrap film from its large film processing customers.

The Company is aware of digital imaging and its potential impact on usage of conventional photography. The potential impact is different for each of the major segments; medical, color photography, and printing/microfiche. Digital imaging has made significant inroads into printing/microfiche processing with an almost 85% reduction in volume of photographic liquids over the past ten years. After several years of experience with digital imaging, it has been observed that after three or four years, there is significant degradation of the quality of digital images, requiring copying onto new disks, which is time consuming and costly. Consequently, microfiche is making a comeback. There has been little visible impact on color photography, although the new digital cameras are getting wider usage. In recent months, we have seen that contrary to popular belief, digital photography is creating a new source of photowastes from internet companies that combine digital imaging services with the ability to print high quality photographs for their customers. The Company has one such customer, and this customer’s photobyproduct volume has been increasing dramatically on a monthly basis. Digital methods are being adopted in the medical industry. The medical sector is relatively high growth with the aging U.S. population and therefore digital imaging has had the effect of slowing the growth of waste photo liquids being generated.

A larger impact on photo waste generation has been the pressure for companies to reduce the amount of waste generated at the operating sites. In photography, water was used in copious quantities for film rinsing and large quantities of low chemical content waste liquids were generated. With the tightening of regulation of discharge of contaminated waters to sanitary sewers, the equipment manufacturers have focused on reducing water usage. This attention to reduction of waste water has also contributed to a reduction in the quantities of waste liquids being generated. It is expected that efficiency of use and associated waste reduction will continue, driven by increasing waste disposal costs.

In April 1998 IMI entered into an exclusive sales agreement with Calfran International of Springfield, Massachusetts. The contract grants IMI the exclusive right to sell "Cold Vaporization" Vacuum Distillation equipment to its photowaste customers. Since the contract with Calfran was signed, other companies have developed acceptable distillation machines, so the Calfran contract was cancelled at year end 2000. Removal of the water from the photochemicals produces a relatively high value concentrate product that can be shipped cost effectively over long distances. Sale of distillers is an integral part of expanding the supply of photochemicals needed to support expanding fertilizer sales.

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The distillation equipment now being sold by the Company will contribute to the reduction of water usage in the photographic industry. When the distillation equipment is used, waste water can be virtually eliminated. The chemical product is purchased by Itronics, and so the generation of waste at the user site is completely eliminated. This technology represents an end point for the elimination of water waste in the photographic industry, and is expected to gain wider acceptance as the industry recognizes the benefits inherent in the technology when combined with Itronics’ service capabilities.

The Company believes that it has the following competitive advantages:

        * Leading position in developing "total" photobyproduct recycling technology and waste             management procedures.

        * Proprietary solution conditioning process and equipment with the possibility of             patent rights and licensing agreements.

        * Patented low cost silver refining process using wet chemistry (hydrometallurgy) to             quantitatively separate silver from photobyproduct materials.

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

        * Systematic pick up services for photobyproduct generators.

        * Quantitative material control procedures meeting all EPA reporting guidelines.

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

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

        * Line of proprietary chelated liquid fertilizer products that are formulated using the             "heavy-metal-free" photoliquids.

Environmental restrictions on disposal of chemicals to sewer plants are continuing to tighten throughout the United States so that now the rate of growth for the photobyproduct recycling business is dependent upon the rate and vigor of fertilizer sales growth.

II. Photobyproduct Fertilizer

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

The Urban market is divided into the "Home Lawn and Garden" segment and the "Professional Care" segment. Neither of these markets is statistically well defined, since both are relatively new as large commercial markets, both are highly fragmented with many small regional suppliers and are growing rapidly. One well known operator in the Home Lawn and Garden and the Professional Care segments is Scotts/Stern's Miracle-Gro. Several other large companies are also active in this market.

Itronics’ photobyproduct fertilizer Gold'n Gro 20-1-7 was developed for the Urban market as a "turf" product. Its principle customers will be home owners, professional lawn service

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companies, golf courses, turf farms, and large municipal and commercial facilities. Since early 1997, IMI has completed development of an additional 12 fertilizer products. These products cover most of the applications being targeted in the Turf, Ornamental and Professional Grower ("Specialty Ag") markets in the western U.S. In early 1999 the decision was made to focus marketing efforts on eight of these products. In 2000 this was expanded to 13 products.

Itronics estimates that more than 100 million gallons of photowaste liquids are generated annually in the United States. The ratio for converting one gallon of photobyproduct to Gold'n Gro 20-1-7 fertilizer is approximately 1 gallon of photobyproduct to 4 gallons of fertilizer. This means that there is enough supply of photobyproduct to support the manufacture of 400 million gallons of photobyproduct fertilizer annually, equivalent to approximately two million tons.

Itronics estimates that on a commercial scale, the combined revenue of photobyproduct services, silver and fertilizer will exceed $10.00 per gallon of photobyproducts received. Consequently, the potential market for these products and services exceeds $1 billion.

Initially, small volume sales were made intermittently to two turf farm operations, to a regional lawn service company, and to two golf courses in northern Nevada. Making these sales and working with the customers allowed the Company to learn the specific requirements for each market. It also made it possible to assess the feasibility of direct marketing the product as compared to selling to distribution companies who would do the direct marketing. Experience to date indicates that selling to fertilizer distribution companies will be a more efficient method of achieving large scale sales in a reasonable period of time.

The Company's plan was to initially focus on regional fertilizer sales. Options for distribution were reviewed, and discussions were initiated with fertilizer distribution companies and with potential large users such as golf courses. These activities were conducted as part of an ongoing market development plan for the fertilizer side of the business. The ability to sell the fertilizer efficiently at a relatively large scale is an important determinant of the Company's ability to grow. The business development efforts now underway have the specific objective of achieving this goal by identifying large acreage markets for individual Gold'n Gro products.

Discussions regarding fertilizer distribution were completed with Western Farm Services, Inc. (WFS), a wholly owned subsidiary of Agrium, Inc. Agrium is the largest nitrogen fertilizer producer in North America and the second largest retailer of agricultural fertilizer products. In April 1997 WFS initiated a test marketing program for the Company's Gold'n Gro 10-0-0 Iron fertilizer and purchased a bulk quantity of the product. The WFS customer field tests were successful. WFS has committed to marketing all of the Gold’n Gro products. Another Agrium subsidiary, Source 1, has also committed to marketing all of the Company's commercial products.

In March 1998 IMI signed a definitive manufacturing and distribution agreement with WFS. The five year agreement, with optional five year renewal periods, grants WFS an exclusive license and right to manufacture and market IMI’s Gold’n Gro line of fertilizer products in the Turf & Ornamental, and Specialty Ag markets in the states of Arizona, California, Hawaii, Idaho, Oregon and Washington. IMI will manufacture its base products for shipment to various WFS

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manufacturing and distribution facilities in those six states. In April 1998 IMI began the introduction of the Gold’n Gro line of fertilizer products to WFS store managers and sales staff. WFS has 45 stores in California, with one to three sales people each. Most of these people are being briefed about the product line. Substantial company resources were devoted to this process during 1998 through 2000, and the process continues into 2001. The result of these efforts is that now more than 100 golf courses are using or testing the Gold’n Gro fertilizer products.

WFS has a manufacturing plant in south central California. The other activity related to implementing the manufacturing and sales agreement with WFS was establishing the logistics for movement of materials between Reno and the WFS manufacturing plant. The logistics and warehousing locations for delivery of manufactured goods from both the IMI Reno manufacturing plant and the WFS manufacturing plant are also being established. The WFS Alpaugh plant is now set up to manufacture the 11 multi-nutrient products being offered. The two other micro-nutrient products, Gold’n Gro 10-0-0 Iron and Gold’n Gro 10-0-1 Manganese, are manufactured in Reno. It is now possible for product to flow from the two manufacturing plants to customer locations as customer demand requires.

The Company is developing branded products that have the Gold'n Gro trademark. The Company is implementing a plan for consumer sales through its web page and retail outlets. Significant capital, in the form of advertising budgets and the ability to carry large inventories of finished goods, is required to achieve meaningful retail sales. However, the Company is presently providing photobyproduct recycling services to several large chain stores. Because of this, the Company believes it is positioned well to be able to sell branded fertilizer products through the chain store outlets. Implementing and growing the retail sales program is expected to take several years.

4. Seasonality and Working Capital

In analyzing the market and industry competitors, it is apparent that two factors significantly impact the Company's ability to penetrate these markets in a meaningful way. First, the seasonal aspect of photobyproduct and fertilizer sales, which directly results in the second factor, the need for a much higher level of working capital when compared to other industries.

Based on experience, the Company's photobyproduct hauling volume starts each year at comparatively low levels in the first quarter, steadily increases during the second quarter, peaking in June or July, declining during the third quarter, and reaching levels similar to that of the first quarter by year end. Consequently, revenues from both photobyproduct services and silver sales are significantly reduced during six months of each year. The cause of this cyclical pattern is the tourism based economy in Northern Nevada, which has a comparable seasonal pattern. The volume of visitors directly affects photobyproduct volume from consumer photoprocessing companies. To mitigate the seasonal effect on this segment of operations, the Company is focusing its marketing efforts on larger volume customers in the medical, military, printing and industrial photo fields. The seasonality factor for photobyproduct and silver revenues should also be reduced as the Company expands into California and other regional markets that are not as heavily dependent on tourism.

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The Company expects fertilizer sales to have a seasonal component, with the primary sales season running from April through October each year, with tapering off beginning in September. In addition to the general seasonal nature of sales caused by normal weather patterns, unusual weather can further affect fertilizer sales. For example, unusually cold or wet spring seasons may delay the growth cycle of various crops for which the Company's fertilizer products are utilized. To overcome weather related effects on fertilizer sales, the Company is evaluating opportunities for markets in the southern areas of the United States where growing seasons are longer and, in some cases, year round.

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

5. Environment and Regulation

I. Liability

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

However, once the spent chemistry reaches the Company's facility and has been processed, the generator's hazardous waste liability has been removed. Using the Company's process, virtually all metals, including most of the iron, are removed. The end result leaves the Company with a non-hazardous "heavy-metal-free" solution which is legal for discharge into the environment. As discussed above, the demetallized liquids are being used in commercial fertilizer products, entirely safe for the environment.

II. Increased Regulation

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

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

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III. Permits and Inspections

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

IV. Regulatory Direction

For several years the Company has been studying the various regulatory requirements under RCRA and has been working with state and local environmental officials regarding the extent to which hazardous waste regulations apply to the Company's operations. Through this process, the Company reached the conclusion that due to use of photobyproducts as a beneficial ingredient in its fertilizer products, the photobyproducts are not "hazardous waste" as defined in the regulations, and therefore, beneficial materials that are otherwise regulated as hazardous waste, are exempt from most of such regulations. In early 1996 the Company received concurrence from State of Nevada environmental officials that the Company's photobyproduct fertilizer process meets the existing RCRA requirements for exemption from all environmental regulation with the exception that certain presently conducted lab analyses of the photobyproducts will continue to be required. Certain of the Company's large scale customers presently meet the exemption requirements. Present levels of fertilizer sales utilize all the photobyproducts received. Once sales of all the photobyproduct materials are well established in the fertilizer or other commercial products, all the Company's Nevada customers will be exempt from the regulations, including hazardous material transport/manifest rules. The Company believes that this exemption applies nationwide. Therefore, the Company intends to pursue similar concurrence from environmental officials in all applicable states, so that all its customers will be recognized as exempt from the RCRA regulations.

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

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MINING TECHNICAL SERVICES

1. Services offered

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

    Management Support:

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

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

- Complete project development plans.

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

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

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

Other Specialized Technical Services:

- Mineral economics and cost studies.

- Metallurgical process development.

- Open pit and underground mine planning.

- Ore reserve development.

2. Operations

The Mining Technical Services segment accounted for 59% of the Company's 2000 consolidated revenue. Two major clients produced 91% of this revenue. At present one of these clients has two ongoing projects. The first involves project management of a Nevada mine property, including sampling, mapping and data compilation and property acquisition services. The purpose of these services is to acquire and organize the land and information necessary to prepare the property for presentation to major mining companies for potential investment for exploration and development activities. The second project involves locating water resources in Southern California. The Company has provided technical services for this client for many years and expects such services to be ongoing.

The second client is a junior mining company with two mineral properties in Nevada. W&W is providing technical assistance in moving these properties into the development and operating stages. W&W is also providing administrative support.

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W&W also completed two small projects in industries unrelated to mining. One was for a photo finishing company and the other was a chemical analysis project. In the fourth quarter, W&W signed a Pilot Program Contract to evaluate a potential new raw material source for the Company’s photobyproduct fertilizer segment. The Contract reimburses W&W for expenses, and if successful, the parties have agreed to work together to market any resulting fertilizer products.

The primary source of new business for the Mining Technical Services segment is the reputation of W&W and its key employees. In addition, W&W expands its network of contacts by attendance at various mining association conventions.

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

3. Expansion Plans

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

In December 1998 a new Manager of Mining Technical Services was appointed to lead W&W’s efforts to expand its operations on several fronts. First, it had been previously identified that in order to compete for technical services projects, W&W needed mine planning computer software and the appropriate hardware and personnel to operate it. With completion of the first and second tranche of the 1998 Private Placement, W&W acquired the needed software and equipment and hired an experienced computer specialist to assist in marketing the new services. Second, in January 1999 W&W initiated a long term R&D project to replace the use of cyanide in the extraction of metals from silver/gold and gold/copper ores. The new thiosulfate leaching technology being developed under this program utilizes the same technology as the Company’s proprietary photochemical recycling process. The project, called Itronics Thiomet, is seeking to establish operating joint ventures at specific mine sites to apply the thiosulfate leaching technology. Third, in March 1999 W&W signed a consulting agreement with Golden Phoenix Minerals, Inc. (GPXM). Under the agreement, W&W will provide management, merger and property acquisition, and technical services to GPXM.

ITEM 2. DESCRIPTION OF PROPERTY.

I. FACILITIES.

Itronics leases approximately 3,000 square feet of office space at 6490 South McCarran Blvd., Building C-23, Reno, Nevada. The Company shares offices with W&W and IMI. W&W has the office

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equipment and furniture and technical library typically found in a consulting business. IMI leases approximately 2,000 square feet of warehouse space in Reno, Nevada. This space is being used for supply storage.

As previously discussed, IMI has acquired a 35,000 square foot manufacturing facility in Reno-Stead, Nevada. Construction was completed in February 2000 and the Certificate of Occupancy was received at that time. The plant is now in operation.

W&W leases approximately 2,500 square feet of office space in Reno, Nevada. The W&W technical services group was relocated to this space in April 1999.

II. EQUIPMENT.

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

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

Capacity at the new facility is now capable of processing up to 100,000 gallons of used photochemicals per month and to manufacture up to 200,000 gallons per month of liquid fertilizer. Refinery capacity is now expanded to produce up to 50,000 ounces of silver per month.

ITEM 3. LEGAL PROCEEDINGS.

1. The former president of Seahawk, Inc.(Seahawk) filed suit in June 1995 in the Superior Court of California, County of Orange, against the Company, W&W, and several W&W employees, alleging libel and slander resulting from consulting work W&W had done for Seahawk. The suit sought unspecified damages to be proven at trial, plus punitive or exemplary damages. W&W's liability insurance carrier defended against the suit, and in March 1997, the suit was dismissed. The individual has filed an appeal of the dismissal.

In February 1997, this individual served a second suit that includes the Company, W&W, and a key employee as codefendants, along with several unrelated parties. The suit alleges breach of contract and other causes of action and seeks in excess of $5 million plus punitive damages. The Company's liability insurance carrier has agreed to assume the defense of this action with a reservation of rights, including the right to disclaim insurance coverage. In May 1998 agreement was reached with the plaintiff that if the appeal of the first suit fails, the second suit will be dropped.

In February 2001 the appeal was heard before the Court of Appeal of the State of California and on March 12, 2001, the Court affirmed the lower court judgment to dismiss the case. The individual has the right to appeal the decision to the Supreme Court of California, however, most such petitions are denied.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF ITS SECURITY HOLDERS.

The Company held its annual meeting on November 9, 2000. At that time, the shareholders elected the present directors as a group. Following is a summary of the voting:

Directors as a Group:

    John W. Whitney

    Paul H. Durckel

    Alan C. Lewin

Votes:	For	44,038,700
	Against	162,627
	Abstain	690,296

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a). Market Information. The securities of the Company are traded on the over-the-counter market, and quoted in the National Quotation Bureau, Inc.'s "pink sheets" and on the NASD Electronic Bulletin Board.

The following table sets forth the high and low bid prices for the Company's common stock for each quarter for 1999, 2000, and the first quarter of 2001, through February 28, 2001.

	High Bid	Low Bid
3/31/99	$0.94	$0.17
6/30/99	$0.72	$0.42
9/30/99	$0.68	$0.36
12/31/99	$0.81	$0.46
3/31/00	$2.00	$0.64
6/30/00	$1.45	$0.65
9/30/00	$0.80	$0.44
12/31/00	$0.50	$0.28
2/29/01	$0.37	$0.24

These quotations reflect inter-dealer prices without retail markup, markdown, or commissions, and may not represent actual transactions.

(b) On December 31, 2000 the number of record holders of the Common Shares was approximately 980 and the number of beneficial holders was approximately 4,500.

(c) Dividends.

The Company has paid no dividends.

Recent Sales of Unregistered Securities:

Following is a summary of sales of unregistered securities for the fourth quarter of 2000. These securities were issued as restricted common shares which are subject to Rule 144 of the Securities and Exchange Commission. Generally, Rule 144 requires shareholders to hold the shares for a minimum of one year before sale. In addition, officers, directors and more than 10% shareholders are further restricted in their ability to sell such shares. There have been no underwriters of these securities and no underwriting commissions or discounts have been paid.

	Shares	Value
Transaction Description	Issued	Received
Exercise of warrants and options	322,500	$129,000
Labor services of management, directors and consultants	22,500	8,835
Operating expenses	369	225
	345,369	$138,060

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The above transactions qualified for exemption from registration under Sections 3(b) or 4(2) of the Securities Act of 1933. Private placements for

cash were non-public transactions. The Company believes that all such investors are either accredited or, either alone or with their purchaser representative, have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the prospective investment.

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

I. Results of Operations

The Company reported a 2000 consolidated net loss of $4,131,722 or $0.0563 per share compared to a 1999 loss of $1,901,479 or $0.0290 per share. The primary causes for the increased loss are increased operating costs associated with the delay in obtaining the building permits needed for construction for the new manufacturing facility, expanded corporate marketing, expansion of sales and marketing departments for photobyproduct services and fertilizer sales, and the addition of management personnel in the finance function. The purpose of the substantial change in cost structure is to convert the photobyproduct fertilizer segment from a small scale semi-works operation to full commercial scale operation. Management focus has been on implementing the fertilizer manufacturing and distribution agreement with Western Farm Services, Inc.

Consolidated sales increased approximately $323,500, or 36%, in 2000 compared to 1999. Consolidated cost of sales and operating expenses increased approximately $2,032,000, or 72%, in 2000 compared to 1999. Other income (expense) declined from a net income of $8,600 in 1999 to a net expense of $513,300 in 2000. The primary reasons for the increased other expenses are an increase of $364,700 in interest expense and the write off of W&W’s investment in Verdant Brands (Verdant) of $198,400. The increased interest expense is due to the borrowing of $2.67 million in 9% convertible notes in early 2000 and interest on equipment lease financing for the new manufacturing facility. In the fourth quarter of 2000, Verdant had sold most of its operating units, resulting in a decline in its stock price to less than $0.07 per share. The Company was negotiating to acquire one of its product lines, but was unable to reach an agreement. Subsequent to December 31, 2000, Verdant announced it was unable to negotiate a stand still agreement with its primary secured creditor, and consequently, it would proceed to liquidate its remaining assets and close the business. As a result of these developments, management has written off the investment in Verdant. To provide a more complete understanding of the factors contributing to the changes in sales, operating expenses and the resultant operating loss, the discussion presented below is separated into the Company's two operating segments.

PHOTOBYPRODUCT FERTILIZER

	Year Ended December 31,
	2000	1999
Sales revenue	$ 502,724	$ 299,304
Operating income (loss)	(3,247,002)	(1,630,026)

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Revenues for the photobyproduct fertilizer segment totaled $502,724 in 2000, compared to $299,304 in 1999, an increase of 68%. Fertilizer sales were $119,634 and $61,026 for 2000 and 1999, respectively, an increase of 96%. Although the increase in fertilizer sales was less than expected, a number of important developments did occur in 2000. First, sales were made to an alfalfa grower, several turf growers, and a tree farm in Northern Nevada that grows 16 different varieties of trees. Results from using Gold’n Gro fertilizers was successful in these markets, and the Company is now working with WFS to enter these markets in California on a larger scale. Second, entering the market in California has proven to be more difficult than expected. Accordingly, the Company added two veteran fertilizer salesmen to coordinate California sales with WFS. In addition, a series of meetings with WFS regional management and sales personnel have been held with Company management. These meetings began in the third quarter and are ongoing. Also, there is increasing pressure in California for fertilizer users to use environmentally sound products, both from a heavy metal standpoint and from using clean water, as opposed to sewer effluent, etc. Distilled water, heavy metal free reconditioned photoliquids, and the cleanest raw materials available are utilized in the manufacture of all Gold’n Gro fertilizers. As a result of these developments, there is increasing enthusiasm on the part of WFS management and sales managers for the Gold’n Gro line of fertilizers, as evidenced by a feature article on Gold’n Gro in WFS’s recent newsletter, which is mailed to over 17,000 WFS customers and employees.

Photobyproduct volume for photobyproduct recycling services in 2000 increased 40% from 1999 and photobyproduct recycling revenue increased 54%. Silver/gold sales were $190,322 and $112,725 for 2000 and 1999, respectively. The 69% sales increase reflects the implementation of a purchase and refining agreement with Golden Phoenix Minerals, Inc. (Golden) to process and resell Golden’s gold production from its mining operations. IMI processes the gold and sells it to an independent third party. Gold sales under this agreement were $49,100 for 2000. Sales of the "Silver Nevada Miner" bars totaled $41,100 in 2000. In addition, approximately $24,400 in silver sales resulted from melting down poor quality "Silver Nevada Miner" bars and combining them with silver from processed photoliquids for sale to the Company’s marketer. Sales were not as strong as expected and many of the bars had manufacturing blemishes, so management decided to reduce the silver bar inventory. Also affecting silver sales during 2000 was the bankruptcy of Handy & Harman Refining, Inc., the Company’s silver refiner. No sales of internally generated silver occurred until late in the third quarter, after a new refiner/marketer was found and after improvements to the Company’s refinery were made to have the ability to produce pure silver bars.

Combined cost of sales and operating expenses for the segment amounted to $3,749,726 in 2000, compared to $1,929,330 in 1999, a 94% increase. Cost of sales increased approximately $214,200, which includes increases of $128,000 in materials and direct costs due to increased sales, $70,100 in payroll costs related to additional production personnel to handle increased photobyproduct volume and higher hourly rates caused by the tight labor market, and increases totaling $58,500 in such operating costs as utilities, insurance, truck fuel and maintenance, and repairs and maintenance related to operating a larger facility for almost a full year and to increasing the number of trucks to provide expanded photobyproduct pickup services in Northern California. Operating costs increased by $1,606,200. Depreciation increased $138,900 due to the start of depreciation of the investment in the Reno/Stead manufacturing facility. Sales and marketing increased $913,000, reflecting the allocable share of increased corporate marketing, expansion of sales departments for photobyproduct services and fertilizer sales and

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the costs associated with implementing the WFS fertilizer sales and manufacturing agreement. Sales and marketing expenses for 2000 also include costs for Gold’n Gro brand and label development, including costs of creating an ad campaign, development of new product labels, and placement of magazine ads in turf and golf course trade publications. The increase in general and administrative costs of $414,800 includes an increase of $207,400 in payroll costs related to a combination of additional management and administrative personnel, higher salaries for management personnel who had forgone salary increases for several years, and the prior year capitalization of a portion of management salaries in the design/construction of the new manufacturing facility. The increase in G&A also includes approximately $107,800 in costs related to establishing and maintaining a computer network, detailing business processes in order to manage operations when full production is reached, and planning and implementation of Enterprise Resource Planning (ERP) software.

These changes in revenues and operating expenses resulted in a segment operating loss of $3,247,002 in 2000, compared to $1,630,026 in 1999.

MINING TECHNICAL SERVICES

	Year Ended December 31,
	2000	1999
Sales revenue	$ 726,699	$ 606,580
Operating income (Loss)	(371,457)	(280,009)

Mining technical services revenue totaled $726,699 for 2000 compared to $606,580 for 1999, an increase of 20%. Included in these revenue figures are pass-through expenses of $353,339 and $366,421 for 2000 and 1999, respectively. Excluding these amounts, revenues amounted to $373,360 and $240,159 for 2000 and 1999, respectively, an increase of 55%. The increase is due to increased technical services provided to Golden Phoenix minerals, Inc. and to other new smaller projects. The Company’s plans to expand the technical services segment are more fully discussed on page 22 of this report.

Combined cost of sales and operating expenses totaled $1,098,156 for 2000, compared to $886,589 for 1999, an increase of 24%. Included in these operating expense figures are pass-through expenses of $353,339 and $366,421 for 2000 and 1999, respectively. Excluding these amounts, combined cost of sales and operating expenses amounted to $744,817 and $520,168 for 2000 and 1999, respectively, an increase of 43%. The increased costs are attributable primarily to increased corporate and technical services marketing efforts and to increased payroll, insurance, and legal and accounting costs.

The above changes in revenues and operating expenses resulted in a segment operating loss of $371,457 for 2000, compared to $280,009 for 1999.

SUMMARY

On a consolidated basis, the various changes in revenues and operating expenses resulted in an improved gross profit (loss) of $(206,022) for 2000 compared to $(250,599) for 1999 and an operating loss of $3,618,459 for 2000 compared to $1,910,035 for 1999.

28

II. Changes in Financial Condition; Capitalization

Cash amounted to $17,990 as of December 31, 2000 compared to $142,287 as of December 31, 1999. Net cash used by operations was $2,595,276 in 2000 compared to $1,604,814 in 1999. Operating resources utilized to finance the 2000 loss of $4,131,722 include approximately $888,600 in expenses paid with the Company's common stock and a net increase in accounts payable and accrued expenses of approximately $209,300. These sources of cash were partially utilized by an increases in inventory of $213,700 and prepaid expenses of $61,100. The inventory was increased in preparation for expanded sales. Cash amounting to approximately $818,600 was invested in property and equipment in 2000, primarily for the completion of the manufacturing plant and for installation of computer systems and related software. $345,200 was invested in marketable securities, with $198,400 for Verdant Brands, with the balance for Golden Phoenix Minerals, Inc. stock. Financing sources of cash in 2000 included $2,568,000 in convertible promissory notes, $739,700 in warrant and option exercises, and $578,600 in equipment financing.

Total assets increased from $3,677,342 at December 31, 1999 to $4,609,506 at December 31, 2000. Current assets increased $97,100, net property and equipment increased $698,000, and other assets increased $137,000. The increase in property and equipment is due to the completion of the new manufacturing plant and the installation of a computer network system and related software. Other assets increased due to accepting available for sale marketable securities as payment for services on a mining technical services contract. The stock had a market value of $228,800 at December 31, 2000, with a cost of $219,600. In addition, other assets increased by $54,600 due to deferred lease costs from lease financing contracts.

Total liabilities increased from $1,668,897 at December 31, 1999, to $5,030,707 at December 31, 2000, an increase of approximately $3,361,800. Of this amount, current liabilities increased $307,400 and long-term liabilities increased $3,054,400. The increase in liabilities reflects the Private Placement of $2.57 million in Convertible Promissory Notes, a net increase of $344,700 in capital lease obligations, and an increase in accounts payable of $155,500.

III. Working Capital/Liquidity

As discussed in Note 13 to the Consolidated Financial Statements on page 63 of this report, the Company has implemented a plan to improve its working capital and liquidity through private placements of common shares, conversion of debt to common shares, and payment of consulting and labor services with common shares. Following is a summary of the steps taken to improve the Company's working capital and liquidity during the year ended December 31, 2000:

1. A total of $3,146,600 was received in convertible promissory notes and lease financing.

2. A total of $739,700 was received from the sale of common stock through warrant and option exercises.

3. Various expenses including salaries, director fees, and outside services, totaling $888,600, were paid with common stock.

29

The result of these steps was to change from a working capital deficit of $55,065, to a working capital deficit of $265,351 at December 31, 2000, a decrease in working capital of approximately of $210,300. The current asset component of working capital increased from approximately $672,200 at December 31, 1999 to $769,300 at December 31, 2000. The primary changes in the components of current assets were decreases in cash of $124,300 and account receivable from equipment financing of $130,900, and increases of $213,700 in inventory, $68,400 in stock subscription receivable, and $59,500 in prepaid expenses. The current liability component of working capital increased from $727,300 at December 31, 1999 to $1,034,700 at December 31, 2000. Significant increases in the components of current liabilities include $155,500 in accounts payable, $38,100 in accrued expenses, and $105,000 in current maturities of capital lease obligations. Significant decreases in the components of current liabilities include $30,600 in the current portion of advances and leases due stockholders.

In October 2000 the Company completed the registration of 10 million common shares in connection with its agreement with Swartz Private Equity, LLC (Swartz). The agreement provides for Swartz to acquire up to $15 million in common shares over three years. The amount to be paid is limited based on trading volume and price. Subsequent to December 31, 2000 through March 29, 2001, the Company has received $154,700 under the agreement.

Subsequent to December 31, 2000 the Company began a convertible debt Private Placement to raise $750,000 in working capital. A total of $110,000 was received through March 29, 2001.

For details of other steps to improve the Company's working capital and liquidity taken subsequent to December 31, 2000, see the discussion in Notes 13 and 15 to the Consolidated Financial Statements on pages 63 and 66 of this report.

IV.     Forward-Looking Statements

The statements in this Form 10-KSB that are not historical facts or statements of current status are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties. Actual results may differ materially.

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.

No change was made in the Company's auditors from the prior year.

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

30

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL

PERSONS: Compliance with Section 16(a) of the Exchange Act

I. Summary Information.

The following are the directors and executive officers of the Company:

	Age as of
Name	12/31/00	Position	Position Held Since
Dr. John W. Whitney	54	President/Treasurer	May 1988
		Director
Paul H. Durckel	83	Director	September 1995
Alan C. Lewin	54	Director	September 1997
Gregory S. Skinner	46	Secretary	December 1990
Duane H. Rasmussen	70	Vice President;	November 1997
		Vice President and	May 1994
		General Manager-IMI

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

II. Narrative Information Concerning the Directors and Executive

    Officers of the Company.

John W. Whitney:

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

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

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

31

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

Paul H. Durckel:

Mr. Durckel has served as a director of the Company since September 1995. He received a pre-legal degree from Stanford University in 1940. He has served various companies involved in fertilizer manufacturing and sales for approximately 30 years. He is presently an Independent Real Estate Salesman for Prudential Nevada Realty, the successor company to Myers Realty, Inc. He served Myers Realty, Inc. in varying capacities, including Broker-Salesman, Consultant, Manager, Vice President of Operations, and Director, since 1987. His experience in the fertilizer industry includes Vice President and General Manager and Vice President- Operations for American Plant Food Corp., Executive Assistant to the Chairman for Best Fertilizers Co., Vice President and General Manager for Best Fertilizer of Texas, and Vice President and General Manager for Farm Services Co.

Alan C. Lewin:

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

Gregory S. Skinner, Esq.:

Mr. Skinner has served as secretary and general counsel of the Company and its subsidiaries since December 1990. He obtained his B.A. degree in Economics from the University of California at Berkeley in 1976. He obtained his J.D. degree from Hastings College of the Law, University of California at San Francisco in 1979. He is licensed to practice law in the states of California and Nevada. He is a shareholder in the Law Offices of Skinner, Sutton & Watson, a Professional Corporation, which has offices located in Reno and Incline Village, Nevada. Prior to becoming Secretary of Itronics Inc., Mr. Skinner has provided legal services and advice to Whitney & Whitney, Inc. since 1980.

32

Duane H. Rasmussen:

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

ITEM 10. EXECUTIVE COMPENSATION.

Summary of Cash and Certain Other Compensation

The following table sets forth information as to the compensation of the Chief Executive Officer and the four most highly compensated officers whose compensation for the year ended December 31, 2000 exceeded $100,000:

				Long Term
				Compensation
Name and		Annual		Securities
Principal	Calendar	Compensation		Underlying
Position	Year	Salary	Bonus	Options (#)
Dr. John W. Whitney:	2000	$133,300	$-0-	-0-
President, Treasurer	1999	$129,534	$-0-	1,000,000
and Director (1) (2)	1998	$111,709	$-0-	-0-
Duane H. Rasmussen	2000	$104,000	$-0-	-0-
Vice President, VP	1999	$84,000	$-0-	-0-
and General Manager	1998	$40,950	$-0-	-0-
IMI (3)

(1) Prior to 1998 Dr. Whitney had total options of 3,800,000, of which the remaining 1,207,620 were exercised in January 1998. In September  1998 Dr. Whitney converted $50,000 of unpaid salary by acquiring five units of the Company’s 1998 Private Placement, Tranche One. Dr. exercised 77,500 shares in 1999 and 2000. The remaining 122,500 warrants were assigned to other individuals and were exercised in 2000. Effective January 1, 1999, Dr. Whitney was granted an option for 1,000,000 common shares at $0.25 per share. The option is exercisable at any time until one year after Dr. Whitney leaves the employment of the Company.

(2) The salary amounts listed above include $8,300, $4,534, and $1,709, for 2000, 1999, and 1998, respectively, that represent compensation paid in common stock for service as a director of the Company. The compensation plan for all directors was 2,500 shares per quarter for 2000.

(3) Mr. Rasmussen was employed on a part time basis prior to November 1998.

33

Option Grants in Last Fiscal Year:

	Number of	% of Total
	Securities	Options to
	Underlying	Employees	Exercise
	Options	in Fiscal	or Base	Expiration
Name	Granted	Year	Price	Date
None	None	-0-

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

Values

Options Exercised:

	Shares Acquired on
Name	Exercise (#)	Value Realized(1)
Dr. John W. Whitney	40,000	$-0-

1. The warrants exercised were at $0.40 per share. If value realized was based on the average of the closing bid and ask prices on the exercise date, the value realized would have been $35,700. However, the common stock received is restricted under Rule 144 and thus are not tradable within one year of exercise. In addition, as a greater than 10% shareholder of the Company, Dr. Whitney is further restricted by SEC regulations as to the sale of the Company’s securities. The actual value realized, if and when the securities are sold, may be more or less than the value listed above. Consequently, the value realized is reported at $-0-.

Options Unexercised:

	Number of Securities		Value of Unexercised
	Underlying Unexercised		In-the-Money Options
	Options at 12/31/00		At 12/31/00
Name	Exercisable	Unexerciseable	Exercisable	Unexerciseable
Dr. John W. Whitney	1,000,000	-0-	$ -0- (1)	$ -0-

(1) If value realized was based on the average of the closing bid and ask prices on December 31, 2000, the value realized would have been $45,000. The securities under option, common stock of the Company, are restricted under Rule 144 and thus are not tradable within one year of exercise. In addition, as a greater than 10% shareholder of the Company, Dr. Whitney is further restricted by SEC regulations as to the sale of the Company’s securities. The actual value realized, if and when the securities are sold, may be more or less than the value listed above. Consequently, the value of the unexercised options is reported at $-0-.

34

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

a) Security Ownership of Certain Beneficial Owners.

The following table sets forth certain data with respect to those persons known to the Company, as of February 28, 2001, to be the beneficial owners of more than 5% of the outstanding shares of common stock of the Company:

	Amount and Nature of Beneficial Ownership
		Common Shares
Name and		Which May Be		Percent
Address of	Common Shares	Acquired Within		of
Beneficial Owner	Presently Held	60 days	Total	Class
John W. Whitney
P.O. Box 10725
Reno, NV 89510	13,890,676(3)	1,000,000	14,890,676	19.17
(1)(2)
Richard J. Cavell
1013 No. Marshall Dr.
Camano Island, WA	5,046,457(4)	-	5,046,457	6.58

(1) Director

(2) Officer

(3) Includes 100,136 shares owned by John B. Whitney, Dr. John W. Whitney's minor son, and 72,768 shares owned by Maureen E. Whitney, Dr. Whitney's wife. Options for 1,000,000 shares are at $0.25 per share.

(4) Includes 21,375 shares owned by Bonnie Cavell, Richard Cavell's wife.

b) Security Ownership of Management.

The following table sets forth as of February 28, 2001, certain information, with respect to director and executive officer ownership of common stock in the Company:

	Amount and Nature of Beneficial Ownership
		Common Shares		Percent
Name and		Which May Be		of
Address of	Common Shares	Acquired Within		Class
Beneficial Owner	Presently Held	60 days(1)	Total	(2)
Dr. John W. Whitney
P.O. Box 10725
Reno, NV 89510	13,890,676(5)	1,000,000	14,890,676	19.17
(3)(4)
Paul H. Durckel
1511 Hwy. 395
Gardnerville, NV. 89410	221,000	-	221,000	0.29
(3)
Alan C. Lewin
P.O. Box 10725
Reno, NV 89510 (3)	240,000	-	240,000	0.31
Duane H. Rasmussen
P.O. Box 10725
Reno, NV 89510 (4)	1,033,823	-	1,033,823	1.35
All directors and
executive officers as
a group (5 persons)	16,440,495	1,000,000	17,440,495	22.46

  35

(1) The above options for 1,000,000 shares is at $0.25 per share.

(2) The percent of class is based on the sum of 76,662,761 shares outstanding or to be issued as of February 28, 2001 plus, for each individual, the number of common shares as to which the named individual has the right to acquire beneficial ownership within 60 days of February 28, 2001.

(3) Director

(4) Officer

(5) Includes 100,136 shares owned by John B. Whitney, Dr. John W. Whitney's minor son, and 72,768 shares owned by Maureen B. Whitney, Dr. Whitney's wife.

c) Changes in Control

The Company is not aware of any arrangement which at some later date results in changes in control of the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

During the Company's two most recent fiscal years, including those of its subsidiaries and affiliates, the Company engaged in no transactions or series of transactions with any director, officer, security holder or family thereof in which the amount involved exceeded $60,000 except as follows:

1. After approval from the Company's Board of Directors, in March 1999 the Company's subsidiary, WWI, agreed to provide technical services to Golden Phoenix Minerals, Inc. (Golden), a junior mine exploration and development company whose common shares trade on the OTC Bulletin Board. Services are billed monthly and WWI receives a combination of Golden common stock, SEC Rule 144 restricted common stock, and cash. Separately, Dr. Whitney personally agreed to acquire up to 10,000,000 common shares of Golden at $0.10 per share, making him beneficial owner of more than ten percent of Golden. Any unexercised options under this arrangement can be assigned to WWI. Dr.'s Whitney and Cavell are principals in a group that controls the mining claims underlying one of Golden's two principal exploration and development properties. At December 31, 2000 and 1999 WWI owned 200,000 unrestricted Golden shares, and 1,594,366 and 536,267, respectively, of Rule 144 restricted Golden shares. The

36

initial Rule 144 one year period for resale began April, 2000, and continues monthly thereafter. Total amount billed for 2000 and 1999 was $301,483 and $95,546, respectively. A total of $101,163 and $23,793 is included in accounts receivable at December 31, 2000 and 1999, respectively. At December 31, 2000, the average bid/asked price for Golden common was $0.1275, resulting in a value of shares held on that date of $228,782.

In the fourth quarter of 2000, the Company’s subsidiary, IMI, entered into a purchase and refining agreement with Golden to process and resell Golden’s gold production from its mining operations. IMI processes the gold and sells it to an independent third party. Gold sales under this agreement were $49,144 for 2000.

ITEM 13. FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K.

I. List of Financial Statements and Exhibits

1. List of Financial Statements:

(a) Consolidated Balance Sheets as of December 31, 2000 and 1999.

(b)Consolidated Statements of Operations and Comprehensive Income for the Years ended December 31, 2000 and 1999.

(c)Consolidated Statements of Stockholders' Equity (Deficit)for the Years ended December 31, 2000 and 1999.

(d) Consolidated Statements of Cash Flows for the Years ended December 31, 2000 and 1999.

(e) Notes to Consolidated Financial Statements.

2. List of Exhibits:

21 List of significant subsidiaries.

II. Reports on Form 8-K.

     None

37

INDEX TO FINANCIAL STATEMENTS

AND SUPPLEMENTAL DATA

DECEMBER 31, 2000

INDEPENDENT AUDITOR'S REPORT ON	PAGE
THE FlNANCIAL STATEMENTS	39
FINANCIAL STATEMENTS
Consolidated Balance Sheets	40
Consolidated Statements of Operations and Comprehensive Income	42
Consolidated Statements of Stockholders' Equity (Deficit)	43
Consolidated Statements of Cash Flows	44
Notes to Consolidated Financial Statements	46
EXHIBITS:
21 Significant subsidiaries	68

STATEMENTS AND SCHEDULES

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

38

KAFOURY, ARMSTRONG & CO.

A PROFESSIONAL CORPORATION

CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Itronics Inc.

We have audited the accompanying consolidated balance sheets of Itronics Inc. (a Texas corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations and comprehensive income, stockholders' equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the consolidated financial position of Itronics Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company and its subsidiaries have reported recurring losses from operations, including a net loss of $4,131,722 during the year ended December 31, 2000, a negative working capital of $265,351, and a stockholders’ deficit balance of $421,201 as of December 31, 2000. The ability to continue as a going concern is contingent primarily upon (a) future profitable operations, and (b) the ability to generate sufficient cash from operations and additional operating capital raised from other sources to meet obligations as they become due. This condition raises substantial doubt about the ability to continue as a going concern. Management's plans regarding this matter are described in Note 13. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

                                     /S/ KAFOURY, ARMSTRONG & CO.

Reno, Nevada

March 14, 2001

39

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2000 AND 1999

ASSETS

	2000	1999
CURRENT ASSETS
Cash	$ 17,990	$ 142,287
Accounts receivable, less allowance for
doubtful accounts, 2000, $7,400;
1999, $3,900	217,719	225,089
Account receivable, lease equipment financing	2,809	133,669
Stock subscription receivable	82,000	13,591
Inventories	268,719	54,981
Prepaid expenses	154,191	94,669
Current portion of deferred loan fees	25,910	7,923
Total Current Assets	769,338	672,209
PROPERTY AND EQUIPMENT
Land	215,000	215,000
Building and improvements	1,046,298	787,526
Design and construction in progress,
manufacturing facility	48,506	681,225
Leasehold improvements	900	14,212
Equipment and furniture	1,546,477	433,316
Vehicles	133,028	69,155
Equipment under capital lease	896,562	803,555
	3,886,771	3,003,989
Less: Accumulated depreciation and amortization	521,076	336,326
	3,365,695	2,667,663
OTHER ASSETS
Patents, trademarks, and other, less accumulated
amortization 2000, $23,219; 1999, $22,163	11,227	12,283
Stock placement and organization costs, less
accumulated amortization 2000, $57,638; 1999, $40,826	77,812	58,936
Marketable securities, available for sale	228,782	165,660
Investment in non-public company	30,000	30,000
Deferred loan fees, less current portion, less accumulated
amortization 2000, $16,137; 1999, $-0-	86,335	31,694
Investment in American Gold & Silver Ltd.	9,250	9,250
Deposits	31,067	29,647
	474,473	337,470
	$4,609,506	$3,677,342

40

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

	2000	1999
CURRENT LIABILITIES
Accounts payable	$ 538,333	$ 382,882
Accrued management salaries	27,942	15,513
Accrued expenses	126,632	88,491
Insurance contracts payable	24,943	16,127
Interest payable	18,064	12,490
Current maturities of long-term debt	16,077	4,740
Current maturities of capital lease obligations	263,145	158,115
Current maturities of advances from stockholders	5,222	28,179
Current maturities of capital lease obligations
due stockholders	-	7,606
Other	14,331	13,131
Total Current Liabilities	1,034,689	727,274
LONG-TERM LIABILITIES
Long-term debt, less current maturities	59,498	17,054
Convertible promissory notes	2,668,000	100,000
Accrued interest, convertible notes	221,855	-
Capital lease obligations, less current maturities	1,000,529	760,906
Accrued salary due stockholder	22,254	29,454
Deferred gain, less current maturities	23,882	34,209
Total Long-Term Liabilities	3,996,018	941,623
Contingency	-	-
	5,030,707	1,668,897
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.001 per share;
authorized 999,500 shares, issued and outstanding
2000, 0 shares; 1999, 0 shares	-	-
Common stock, par value $0.001 per share;
authorized 250,000,000 shares, issued and
outstanding 2000, 75,017,412; 1999, 70,828,231	75,017	70,828
Additional paid-in capital	9,761,976	8,013,746
Accumulated deficit	(10,408,484)	(6,276,762)
Common stock to be issued	117,151	104,061
Accumulated other comprehensive income	9,141	92,799
Common stock options outstanding, net	23,998	3,773
	(421,201)	2,008,445
	$4,609,506	$3,677,342

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

41

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

	2000	1999
REVENUES
Fertilizer	$ 119,634	$ 61,026
Photobyproduct recycling	192,768	125,553
Silver and gold	190,322	112,725
Mining technical services	726,699	606,580
Total Revenues	1,229,423	905,884
COST OF SALES	1,435,445	1,156,483
Gross Profit (Loss)	(206,022)	(250,599)
OPERATING EXPENSES
Depreciation and amortization	224,262	66,656
Research and development	41,496	49,120
Sales and marketing	1,897,013	922,926
Plant start-up costs	174,979	27,878
General and administrative	1,074,687	592,856
	3,412,437	1,659,436
Operating (Loss)	(3,618,459)	(1,910,035)
OTHER INCOME (EXPENSE)
Interest expense	(373,596)	(8,877)
Interest income	58,053	17,433
Other	712	-
Gain (loss) on investments	(198,432)	-
Total Other Income (Expense)	(513,263)	8,556
(Loss) before provision for income tax	(4,131,722)	(1,901,479)
Provision for income tax	-	-
Net Income(Loss)	(4,131,722)	(1,901,479)
Other comprehensive income (loss)
Unrealized gains (losses) on securities	(83,658)	92,799
Comprehensive Income (Loss)	$(4,215,380)	$ (1,808,680)
Weighted average number of shares outstanding	73,324,348	65,585,785
Earnings (Loss) per share	$ (0.0563)	$ (0.0290)

The accompanying notes are an integral part of these financial statements

42

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

	COMMON STOCK		ADDITIONAL
	NUMBER OF		PAID-IN	ACCUMULATED	COMMON STOCK
	SHARES	AMOUNT	CAPITAL	DEFICIT	TO BE ISSUED	OTHER	TOTAL
Balance, December 31, 1998	56,059,727	$ 56,060	$4,625,194	$(4,375,283)	$123,611	$-	$ 429,582
Sale/issue of common stock	14,768,504	14,768	3,388,552	-	(19,550)	-	3,383,770
Net (loss) for the year ended
December 31, 1999	-	-	-	(1,901,479)	-	-	(1,901,479)
Other comprehensive income for
the year ended December 31, 1999	-	-	-	-	-	92,799	92,799
Common stock options outstanding	-	-	-	-	-	3,773	3,773
Balance, December 31, 1999	70,828,231	70,828	8,013,746	(6,276,762)	104,061	96,572	2,008,445
Sale/issue of common stock	4,189,181	4,189	1,748,230	-	13,090	-	1,765,509
Net (loss) for the year ended
December 31, 2000	-	-	-	(4,131,722)	-	-	(4,131,722)
Other comprehensive (loss) for
the year ended December 31, 2000	-	-	-	-	-	(83,658)	(83,658)
Common stock options outstanding	-	-	-	-	-	20,225	20,225
Balance, December 31, 2000	75,017,412	$ 75,017	$9,761,976	$(10,408,484)	$117,151	$33,139	$(421,201)

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

43

ITRONICS INC, AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

	2000	1999
Cash flows from operating activities
Net income (loss)	$(4,131,722)	$(1,901,479)
Adjustments to reconcile net loss to   cash used by operating activities:
Depreciation and amortization	224,262	66,656
Interest on convertible notes	221,855	-
Loss on investments	198,432	-
Bad debts	11,275	2,494
Stock option compensation	55,278	3,773
Other	4,516	-
Expenses paid with issuance of common stock:
Interest expense	-	4,383
Consulting expenses	737,297	111,926
Directors fees	24,900	13,601
Operating expenses	1,425	10,000
Salaries	124,934	91,181
(Increase) decrease in:
Trade accounts receivable	(3,905)	(110,186)
Other receivables	(2,427)	621
Inventories	(213,738)	(13,874)
Prepaid expenses and deposits	(62,531)	(25,942)
Increase (decrease) in:
Accounts payable	155,913	230,199
Accrued expenses and contracts payable	58,960	(88,167)
Net cash used by operating activities	(2,595,276)	(1,604,814)
Cash flows from investing activities:
Acquisition of property and equipment	(818,565)	(1,123,472)
Acquisition of marketable securities	(345,212)	(72,861)
Acquisition of intangibles and investments	(3,413)	(37,695)
Net cash used by investing activities	(1,167,190)	(1,234,028)
Cash flows from financing activities:
Proceeds from sale of stock	739,748	2,457,378
Proceeds from long-term debt, unrelated	3,146,572	377,852
Payments on long-term debt, stockholders	(30,563)	(126,693)
Payments on long-term debt, unrelated parties	(217,588)	(76,237)
Net cash provided by financing activities	3,638,169	2,632,300
Net increase (decrease) in cash	(124,297)	(206,542)
Cash, beginning of year	142,287	348,829
Cash, end of year	$ 17,990	$ 142,287

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

44

ITRONICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(continued)

	2000	1999
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for interest	$ 187,151	$ 98,242
Schedule of non-cash financing transactions:
Settlement of debt/accruals for
issuance of common stock:
Accrued liabilities	-	3,500
Notes payable	-	10,000
Accrued interest payable	-	1,871
Stock subscription receivable	82,000	-
Equipment financed with long-term debt	62,190	-
Equipment financed with capital leases	20,164	601,210
Deferred loan fees on capital leases	88,765	39,617
Acquisition of assets by issuance of
common stock:
Building and improvements	-	700,000
Equipment	2,675	4,900
Investments in stock	-	25,667

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

45

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

NOTE 1 - Summary of Significant Accounting Policies:

Company's Activities:

The Company, a Texas corporation, was incorporated on October 29, 1987. The Company was to seek out and obtain through an acquisition and/or merger transactions, assets which could benefit its shareholders. In May of 1988, the Company acquired Whitney & Whitney, Inc. and its related entities through the issuance of its common stock. This acquisition was accounted for using the pooling of interests method. The Company, through its subsidiaries, is involved in mining technical services, photobyproduct recycling and related silver recovery, and liquid fertilizer manufacturing.

Financial Statement Estimates and Assumptions:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation:

The consolidated financial statements include the accounts of Itronics Inc. and its subsidiaries owned and/or controlled by the Company as follows:

	2000	1999
	PERCENTAGE	PERCENTAGE
Whitney & Whitney, Inc.	100.00	100.00
Itronics Metallurgical, Inc.	100.00	100.00
Itronics California, Inc.	100.00	100.00
Nevada Hydrometallurgical Project (A Partnership)	92.50	92.50
American Hydromet (A Joint Venture)	81.63	81.63
American Gold & Silver (A Limited Partnership)	43.84	43.84

Whitney & Whitney, Inc. is the general partner for American Gold & Silver. As such, the Company has control over American Gold & Silver and has included it in its consolidation.

American Gold & Silver and Nevada Hydrometallurgical Project possess no material tangible assets or liabilities.

46

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

No amount for minority interests is reflected in the consolidated balance sheets as the equity of minority interests in the net losses exceed the carrying value of the minority interests.

No amount for minority interests is reflected in the consolidated statement of operations since losses applicable to the minority interest in each subsidiary exceed the minority interest in the equity capital of each subsidiary. As a result, losses applicable to the minority interest are charged against the majority interest. When future earnings materialize, the majority interest will be credited to the extent of such losses previously absorbed.

All significant intercompany accounts and transactions have been eliminated in the consolidation.

Revenue Accounting for Contracts:

When the mining technical services segment of the Company is responsible for the procurement of materials and equipment, property, or subcontracts in its consulting business, it includes such amounts in both revenues and cost of sales. The amount of such pass-through costs included in both mining consulting revenues and cost of sales for the year ended December 31, 2000 and 1999 were $353,339 and $366,421, respectively.

Accounts Receivable Allowance Account:

The Company uses the allowance method to account for uncollectible accounts receivable.

Inventories:

Inventory is determined utilizing the lower of cost or market value determined on the average cost valuation method and consists primarily of unprocessed silver bearing photobyproducts, fertilizer raw materials and saleable fertilizer.

Following is a summary of finished goods and raw materials inventories as of December 31, 2000 and 1999:

	2000	1999
Finished goods	$118,460	$ 8,900
Raw materials	150,259	46,081
	$268,719	$54,981

Cost of the silver in solution inventory is either the actual cost, or 80% of the fair market value of the silver content of the photobyproducts as determined by laboratory assays (See Note 14).

47

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

Property and Equipment:

Property and equipment are stated at cost. Depreciation is computed by accelerated and straight-line methods over five to forty years.

Repairs and maintenance are charged to operations as incurred.

Amortization:

Intangible assets are amortized by the straight-line method over the following lives:

	YEARS
Patents	17
Stock placement and organization costs	5
Deferred lease costs	3-5

Research and Development:

The Company's fertilizer production process was previously in the research and development stage. Wages, benefits, rent, and other costs associated with ongoing research are expensed as research and development

expenses when incurred.

Advertising:

The Company advertises its products in various trade publications and general newspaper supplements. It also promotes the Company in various business publications, television, and internet media. Such advertising costs include the creative process, costs of production, and placement costs of the ads themselves. All advertising costs are expensed as incurred. Total advertising expense was $266,430 and $ 146,038 for the years ended December 31, 2000 and 1999, respectively.

Income Taxes:

The Company has accounted for income taxes to conform to the requirements of Statements of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under the provisions of SFAS 109, an entity recognizes deferred tax assets and liabilities for future tax consequences of events that have already been recognized in the Company's financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Loss per Common Share:

Loss per common share is calculated based on the consolidated net loss for the period divided by the weighted average number of common shares outstanding during 2000 and 1999. Common stock equivalents are not included, as their effect would be antidilutive.

48

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

Loss per common share for the period is $0.0563 and $0.0290 for 2000 and 1999, respectively. Loss per common share assuming all shares issued for the settlement of services and liabilities during 2000 and 1999 were outstanding as of the beginning of each year (or issuance/accrual date, if later) is $0.0563 and $0.0288, respectively.

Common Stock:

The Company’s common shares have, subject to the provisions of any series of Preferred Stock, certain rights, including one vote per share, on a non-cumulative basis, and a ratable portion of any dividends that may be declared by the Board of Directors. The Company may from time to time issue common shares that are restricted under Rule 144 of the Securities and Exchange Commission. Such restrictions require the shareholder to hold the shares for a minimum of one year before sale. In addition, officers, directors and more than 10% shareholders are further restricted in their ability to sell such shares.

NOTE 2 - Reclassification:

The prior year's financial statements have been reclassified, where necessary, to conform with the current year presentation.

NOTE 3 - Long-Term Debt:

Long-term debt at December 31, 2000 and 1999 is comprised of the following (all debt payments are applied to outstanding interest owed at date of payment prior to being applied to the principal balance). The carrying amount approximates fair value. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities.

	DECEMBER 31,
	2000	1999
Notes due to unrelated parties:
Notes payable secured by vehicles. The monthly
payments total $1,920, including interest
at 10.5% to 11.0% per annum.	$75,575	$21,794
Less current portion due within one year	(16,077)	(4,740)
Total long-term liabilities due to unrelated parties	$59,498	$17,054

49

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

	DECEMBER 31,
	2000	1999
Convertible Promissory Notes:
Notes payable due November 18, 2002 through
February 16,2003, including interest at 12% per
annum. The notes and accrued interest are
convertible into the Company's restricted common
stock at $0.50 per share at any time through
November 18, 2002 and February 16, 2003.	$ 47,000	$ 20,000
Three year convertible promissory notes due at
varying dates through February 2003, including
interest at 9% per annum. The notes and accrued
interest are convertible into the Company’s
restricted common stock at prices ranging from
$0.65 to $1.18 per share at any time through
dates ranging from January to February 2003.	2,621,000	80,000
Total long-term convertible promissory notes	$2,668,000	$100,000

Loans from Stockholders/Related Transactions:
Unsecured note payable to a stockholder dated
March 1, 1996, with a fixed interest rate of 12%
per annum. Payments are interest only at $500 per
month through March 1997 and $1,500 in principal
and interest per month to March 2000, at which
time the unpaid balance will be due and payable.
On November 10, 1998 the note was amended to
increase monthly payments to $2,500, with the
balance due on September 1, 2000.	$ -	$ 21,287
Unsecured note payable to a stockholder in the
amount of $10,000, dated December 28, 1994.
Monthly payments of $220, including interest at
11.5%, began January 1998 and are to continue to
December 2000. No demand has been made for
Payment.	5,222	6,892
	5,222	28,179
Less current portion due within one year	(5,222)	(28,179)
Total long-term liabilities due to stockholders	$ -	$ -

50

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

Long-term debt matures as follows:
	UNRELATED	CONVERTIBLE
YEAR	PARTIES	NOTES	STOCKHOLDERS
2001	$ 16,077	$ -	$ 5,222
2002	17,506	20,000	-
2003	19,269	2,648,000	-
2004	14,374
2005	8,349
	$ 75,575	$2,668,000	$ 5,222

NOTE 4 - Major Customers:

Fertilizer sales for the years ended December 31, 2000 and 1999 include $40,740 and $44,768, respectively, from one major customer. The customer is one of the largest fertilizer distribution companies in the country.

Silver and gold sales for the year ended December 31, 2000 includes $49,144 and $45,991 from two major customers. Silver sales for the year ended December 31, 1999 includes $73,709 from one major customer.

Technical services revenue (including pass through funds described in Note 1) for the year ended December 31, 2000 includes $366,967 and $301,483 from two major customers which represents 50% and 41%, respectively, of technical services revenues. Technical services revenue (including pass through funds described in Note 1) for the year ended December 31, 1999 includes $488,383 and $110,129 from two major customers which represents 80.5% and 18.2%, respectively, of technical services revenues. Receivables from these major customers as of December 31, 2000 and 1999 amount to $137,632 and $185,609, which represents 77.4% and 97.6%, respectively, of consulting accounts receivable.

The Company's major technical services customers operate within the mining industry, both nationally and internationally. Due to the nature of the Company's operations, the major sources of sales revenues may change from year to year.

NOTE 5 - Income Taxes:

The following is a reconciliation of the federal statutory tax and tax rate to the Company's provision for taxes and its effective tax rate.

51

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

	2000		1999
		PERCENT		PERCENT
		OF PRE-TAX		OF PRE-TAX
	AMOUNT	INCOME	AMOUNT	INCOME
Federal tax at statutory rate	$-	- %	$-	- %
Temporary differences,
primarily bad debt and
compensation related expenses	-	- %	-	- %
Non-deductible expenses	-	- %	-	- %
Utilization of NOL	-	- %	-	- %
Total Income Tax Expense	$-	0.0%	$-	0.0%

The Company's consolidated net operating loss available for carryforward to offset future taxable income and tax liabilities for income tax reporting purposes expire as follows:

	Net Operating
Year Ending December 31:	Loss
2001	$    33,828
2002	26,089
2003	14,737
2005	65,113
2006	430,403
2007	188,146
2008	113,253
2012	322,525
2018	377,944
2019	1,605,954
2020	3,265,824
	$6,443,816

The Company's total deferred tax assets, and deferred tax asset valuation allowances at December 31, 2000 and 1999 are as follows:

	2000	1999
Total deferred tax assets	$ 2,298,877	$ 1,115,945
Less valuation allowance	(2,298,877)	(1,115,945)
Net deferred tax asset	$    -	$   -

52

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

NOTE 6 - Stock Option and Purchase Plans:

Pursuant to various Board of Director authorizations, the Company adopted a debt restructuring plan which included the private placement of its Common Shares and/or warrants to acquire Common Shares at a minimum of $0.l0 per share. The warrants issued under this plan are exercisable at varying dates through November 2, 2002.

On March 31, 1998 the Company began a private placement offering to raise $2 million in equity funds. Included in the offering is one two year warrant for each two common shares acquired. A total of 5,000,000 warrants were issued in Tranche 1 and 2 of the offering, with an exercise price of $0.25 and $0.40 per share for years one and two of the exercise period, respectively. The warrants are exercisable at varying dates through January 2001.

In February 1999 the Company began the final tranche of the 1998 Private Placement. A total of 1,172,063 two year warrants were issued in connection with the final tranche, with an exercise price of $0.75 and $1.00 for years one and two of the exercise period, respectively. The warrants are exercisable at varying dates through August 2001.

In November 1999 the Company began a private placement of three year convertible notes to raise $2.5 million. The placement was completed in February 2000 and raised a total of $2,668,000. The notes and accrued interest are convertible to restricted Common Shares at varying dates through February 2003, with conversion prices ranging from $0.50 to $1.18. The number of shares reserved for conversion as of December 31, 2000 and 1999 totaled 3,944,342 and 163,641, respectively.

In addition to the above private placement warrants, the Company has granted options and warrants to acquire Common Shares to certain officers, directors, employees, consultants, and creditors of the Company. The options are exercisable at varying dates through December 2003, except for the 1,000,000 options granted to an officer/stockholder, which expire one year after the end of his employment. The number of outstanding options was 1,454,900 and 1,167,000 shares at December 31, 2000 and 1999, respectively.

Following is a summary of all the above described warrants and options granted for the years ended December 31, 2000 and 1999.

53

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

	NUMBER OF SHARES
	2000	1999
Under option, beginning of year	6,989,016	12,415,762
Granted	4,213,846	2,771,574
Exercised	(2,472,243)	(8,198,320)
Expired	(972,936)	-
Under option, end of year	7,757,683	6,989,016
Average price for all options granted and exercised	$0.55	$0.26

Compensatory Stock Options:

Included in the above options and warrants are compensatory options to acquire 353,900 and 1,253,000 restricted common shares for December 31, 2000 and 1999, respectively. These options were granted to various employees and consultants at varying dates during 2000 and 1999. The options for 2000 are exercisable at any time over three years from the date of grant, with exercise prices of 213,200 shares at $0.25, 9,700 shares at $0.40, 70,000 shares at $0.75, and 37,000 shares at $0.90. For 1999, all the options are exercisable at any time during the option period for $0.25 per share. 1,000,000 of the 1999 options were granted to an officer and expire one year after the termination of his employment. All the other 1999 options expire three years after the grant date. The Company applies APB Opinion 25 in accounting for these stock options. Total compensation, based on the fair market values of the stock on the grant dates is $123,990 and $59,307 for December 31, 2000 and 1999, respectively. These amounts are being amortized over the three year lives of the options, which resulted in compensation expense of $55,278 and $3,773 for December 31, 2000 and 1999, respectively, and deferred compensation as of December 31, 2000 and 1999 of $124,246 and $55,534, respectively. 186,000 shares of the 1999 options were exercised during 2000.

If the Company were to apply the provisions of FASB Statement No. 123 to these options, using the fair value method, compensation expense would have been $173,686 and $233,318 for December 31, 2000 and 1999, respectively. Net loss and loss per share would have been impacted as follows:

	2000	1999
Net Income (Loss):
As reported	$(4,131,722)	$(1,901,479)
Pro forma	$(4,250,130)	$(2,131,024)
Earnings (Loss) per share:
As reported	$ (0.0563)	$ (0.0290)
Pro forma	$ (0.0580)	$ (0.0325)

54

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

The pro forma amounts were estimated using the Black-Scholes option pricing model with the following assumptions for 2000 and 1999:

	2000	1999
Dividend yield	0%	0%
Risk-free interest rate	5.13%	6.25%
Expected life	3 years	3 years
Expected volatility	60.86%	78.43%

NOTE 7 - Common Stock to be Issued:

The following summarizes stock transactions commencing prior to December 31, with stock issued or to be issued subsequent to that date:

	2000	1999
Payment of consulting and operating fees	$ 47,050	$ 18,565
Payment of director fees	2,925	4,590
Payment of salaries	67,176	48,211
Payment of interest	-	237
Payment of notes payable and interest	-	13,058
Purchase of equipment	-	4,400
Exercise of warrants	-	15,000
	$117,151	$104,061

NOTE 8 - Accrued Expenses:

The following is the composition of accrued expenses as of December 31:

	2000	1999
Accrued salaries and vacation	$ 51,829	$30,256
Federal and state payroll taxes	21,239	15,128
Sales tax	564	1,107
Audit & annual meeting costs	53,000	42,000
	$126,632	$ 88,491

NOTE 9 - Related Party Transactions:

Several promissory notes are held by stockholders at December 31, 2000 and 1999 (see Note 3 for terms).

55

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

Interest expense includes $7,176 and $16,945 for December 31, 2000 and 1999, respectively, relating to the Company's notes/leases payable and salary in arrears due to stockholders. Accrued interest payable includes $10,364 and $5,445 for the notes payable and accrued salary due to stockholders as of December 31, 2000 and 1999, respectively.

An officer/stockholder of Whitney & Whitney, Inc. was owed $29,454 for salary in arrears as of December 31, 2000. The individual retired on December 31, 1998 and will receive payment of the back salary over several years. The individual has agreed not to make demand for $22,254 of the arrearages prior to January 1, 2002.

$46,654 and $36,654 of the accrued management salaries as of December 31, 2000 and 1999, respectively, is for salary in arrears due to several officer/stockholders and employee/stockholders. Interest amounting to $3,196 was paid in 1999 and 2000 by issuance of 11,372 shares of common stock.

Consulting and labor services amounting to $860,642 and $250,424 for 2000 and 1999, respectively, were paid by issuance of 1,163,798 and 589,022 shares, respectively, of common stock. The shares were or are to be issued at varying dates in 1999, 2000 and 2001.

After approval from the Company's Board of Directors, in March 1999 the Company's subsidiary, WWI, agreed to provide technical services to Golden Phoenix Minerals, Inc. (Golden), a junior mine exploration and development company whose common shares trade on the OTC Bulletin Board. Services are billed monthly and WWI receives a combination of Golden common stock, SEC Rule 144 restricted common stock, and cash. Separately, Dr. Whitney personally agreed to acquire up to 10,000,000 common shares of Golden at $0.10 per share, making him beneficial owner of more than ten percent of Golden. Any unexercised options under this arrangement can be assigned to WWI. Dr.'s Whitney and Cavell are principals in a group that controls the mining claims underlying one of Golden's two principal exploration and development properties. At December 31, 2000 and 1999 WWI owned 200,000 unrestricted Golden shares, and 1,594,366 and 536,267, respectively, Rule 144 restricted Golden shares. The initial Rule 144 one year period for resale began April, 2000, and continues monthly thereafter. Total amount billed for 2000 and 1999 was $301,483 and $95,546, respectively. A total of $101,163 and $23,793 is included in accounts receivable at December 31, 2000 and 1999, respectively. At December 31, 2000, the average bid/asked price for Golden common was $0.1275, resulting in a value of shares held on that date of $228,782.

In the fourth quarter of 2000, the Company’s subsidiary, IMI, entered into a purchase and refining agreement with Golden to process and resell Golden’s gold production from its mining operations. IMI processes the gold and sells it to an independent third party. Gold sales under this agreement were $49,144 for 2000.

For related party transactions subsequent to December 31, 2000, see Note 15.

56

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

NOTE 10 - Lease Commitments and Rent Expense:

0perating Leases

The Company leases its corporate office facility under a noncancellable agreement which expired June 30, 2000. A one year extension to June 30, 2001 was obtained in 2000. Monthly payments are $4,868.

A wholly owned subsidiary of the Company (Itronics Metallurgical, Inc. - IMI) leases storage facilities on a month-to-month basis and, therefore, no long-term binding contractual obligation exists with regards to minimum lease payments. The monthly rent payment is $1,000.

On April 1, 1999 a wholly owned subsidiary of the Company, (Whitney & Whitney, Inc.   - WWI) entered into a sublease agreement with Golden to lease one half of its office space to be utilized by the technical services group. The sub-lease period is from April 1, 1999 to July 31, 2000, with monthly payments of $2,511. WWI now leases the space from the property owner under a two year noncancellable lease expiring July 31, 2002. The monthly rent payment is $2,389.

On May 3, 1999 the Company entered into a four year lease for a vehicle, with monthly payments of $481.

Future minimum rental commitments at December 31, 2000, under these operating lease agreements are due as follows:

2001	$ 63,640
2002	22,490
2003	1,923
	$ 88,053

Total rental expense included in the statements of operations for the above leases for the years ended December 31, 2000 and 1999 are $115,710 and $147,175, respectively.

Capital Leases

On August 5, 1995 the Company entered into a lease agreement for new photobyproduct equipment with a stockholder. The lease is in the amount of $10,000, and is payable at $332 per month for 36 months. At the end of the lease there is an optional buyback clause for either 10% of the value of the assets or two months additional payments.

On January 30, 1996 and March 20, 1996, the Company entered into lease agreements for new photobyproduct equipment with two stockholders. The leases, in the amounts of $7,000 and $10,000, are payable at $233 and $355 per month, respectively, for 36 months. There are optional buyback clauses at the end of the leases for either 10% of the value of the assets

57

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

or two to four months of additional payments. The March 1996 lease was completed and the buyback clause was exercised.

In December 1998 the Company entered into a lease agreement to acquire two computers. The lease term is for three years, with monthly payments of $154. There is a $1 purchase option at the end of the lease.

At varying dates in 1999 the Company's subsidiaries, WWI and IMI, entered into leases to finance the equipment for the manufacturing facility in Reno/Stead, Nevada and for computer equipment. The leases totaled $987,315. Of this amount $277,852 was received in cash and $130,936 was received in cash subsequent to December 31, 1999. $65,033 of the cash received was in connection with two sale/leaseback transactions of computer and office equipment. The lease periods range from three to five years, and the total monthly lease payments are $24,192. With the exception of two leases, all have buyout options for $1 at the end of the lease. Of the other two leases, one is for transportation equipment with a buyout of $6,020, and the other is for a forklift with a buyout of $3,647.

At varying dates in 2000 the Company and its subsidiaries entered into new leases primarily for financing purposes. The leases totaled $543,832, of which $437,636 was received in cash. The lease periods range from three to five years, and the total monthly lease payments are $13,737. All the leases have buyout options for $1 at the end of the lease.

All of the above described leases are secured by the equipment acquired or financed under the lease.

Future minimum lease commitments at December 31, 2000 are due as

follows:

2001	$ 456,997
2002	454,012
2003	446,135
2004	290,076
2005	52,610
	$1,699,830

NOTE 11 - Business Segments:

The Company and its subsidiaries operate primarily in two business segments as identified in Note 1. The following defines business segment activities:

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

Photobyproduct Fertilizer:            Photobyproduct recycling, Silver                                        recovery,Fertilizer production and Sales

Mining Technical Services:            Mining industry services

The photobyproduct fertilizer segment operates principally in the Northern Nevada and Southern California areas and, to a lesser extent, the Northern California area. The primary source of revenue for this segment is from the pick-up and processing of photobyproducts and recovery of silver therefrom. The customer base is diverse and includes organizations in the photo-processing, printing, x-ray and medical fields. Fertilizer sales are concentrated in the same geographic markets and the customer base is principally in commercial markets, including golf courses, turf farms, and professional lawn maintenance organizations.

The mining technical services segment performs its services primarily out of the Company's Reno, Nevada offices, but its source of clients is not limited to organizations based locally. It has served both national and international clients in the past. As discussed in Note 4, at present the segment is serving primarily two clients in the gold mining industry, who have several operations in different areas of the United States.

The Company measures segment performance based on operating income or loss. At present there are no intercompany revenues. Costs benefiting both segments are incurred by both the Company and by Whitney & Whitney, Inc. Such costs are allocated to each segment based on the estimated benefits to the segment. General and administrative costs incurred by the Company that have no other rational basis for allocation are divided evenly between the segments. Cost allocation percentages are reviewed annually and are adjusted based on expected business conditions for the year.

Operating income (loss) by business segment:
	2000	1999
Photobyproduct Fertilizer:
Revenues:
Fertilizer sales	$ 119,634	$ 61,026
Photobyproduct recycling	192,768	125,553
Silver and gold sales	190,322	112,725
	502,724	299,304
Cost of sales and operating expenses	3,533,251	1,852,332
Research and development	41,496	49,120
Plant start-up costs	174,979	27,878
	3,749,726	1,929,330
Operating (Loss)	$(3,247,002)	$(1,630,026)

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

	2000	1999
Mining Technical Services:
Technical services revenues	$ 726,699	$ 606,580
Cost of sales and operating expenses	1,098,156	886,589
Operating (Loss)	$(371,457)	$ (280,009)

General and administrative expenses of $235,054 and $141,904 incurred by Itronics Inc. were equally divided between the two segments for 2000 and 1999, respectively.

Reconciliation of segment revenues, cost of sales, gross profit (loss), and operating income (loss) to the respective consolidated amounts:

	2000	1999
Revenues
Photobyproduct Fertilizer	$ 502,724	$ 299,304
Mining Technical Services	726,699	606,580
Consolidated Revenues	$ 1,229,423	$ 905,884
Cost of Sales
Photobyproduct Fertilizer	$ 828,349	$ 614,139
Mining Technical Services	607,096	542,344
Consolidated Cost of Sales	$ 1,435,445	$ 1,156,483
Gross Profit (Loss)
Photobyproduct Fertilizer	$ (325,625)	$ (314,835)
Mining Technical Services	119,603	64,236
Consolidated Gross Profit (Loss)	$ (206,022)	$ (250,599)
Operating Income (Loss)
Photobyproduct Fertilizer	$(3,247,002)	$(1,630,026)
Mining Technical Services	(371,457)	(280,009)
Consolidated Operating Income (Loss)	(3,618,459)	(1,910,035)
Other Income (Expense)	(513,263)	8,556
Consolidated Net Income (Loss) before taxes	$(4,131,722)	$(1,901,479)

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

Other segment information:	2000	1999
Capital expenditures by business segment:
Photobyproduct Fertilizer	$ 695,217	$ 2,193,354
Mining Technical Services	187,565	199,857
Consolidated Capital Expenditures	$ 882,782	$ 2,393,211
Depreciation and amortization expense by business segment:
Photobyproduct Fertilizer
Depreciation	$ 118,155	$ 31,305
Amortization	76,889	24,855
	195,044	56,160
Mining Technical Services
Depreciation	13,752	4,706
Amortization	15,467	5,790
	29,218	10,496
Consolidated Depreciation and Amortization	$224,262	$ 66,656

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

Identifiable assets by business segment (net of accumulated depreciation, accumulated amortization, and allowance for doubtful accounts):

	2000		1999
	PHOTO-	MINING	PHOTO-	MINING
	BYPRODUCT	TECHNICAL	BYPRODUCT	TECHNICAL
	FERTILIZER	SERVICES	FERTILIZER	SERVICES
ASSET DESCRIPTION
Current Assets
Cash	$ 11,892	$ 3,838	$ 14,507	$ 33,486
Accounts receivable, net	43,718	174,001	34,835	190,254
Account receivable, lease
equipment financing	2,809	-	130,500	3,169
Inventories	266,893	1,826	53,155	1,826
Deferred loan fees, current	20,500	5,410	5,864	2,059
Prepaid expenses	50,617	4,532	22,879	3,028
	396,429	189,607	261,740	233,822
Property and Equipment, net
Land	215,000	-	215,000	-
Building and improvements	1,025,532	-	786,529	-
Construction in progress,
manufacturing facility	48,506	-	681,225	-
Leasehold improvements	801	-	6,485	-
Equipment	1,051,341	148,505	140,486	37,616
Vehicles	83,089	2,325	25,540	3,654
Equipment under capital lease	572,039	210,840	577,607	193,521
	2,996,308	361,670	2,432,872	234,791
Other Assets, net
Patents, trademarks, and other	11,227	-	12,283	-
Marketable securities	-	228,782	-	165,660
Inter-company investments/loans	-	1,435,705	-	2,732,356
Deposits	11,057	19,812	9,694	19,953
Deferred loan fees	70,023	16,312	23,457	8,237
	92,307	1,700,611	45,434	2,926,206
	$3,485,044	$2,251,888	$2,740,046	$3,394,819

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

Reconciliation of segment assets to consolidated assets:

	2000	1999
Total Assets:
Photobyproduct Fertilizer	$ 3,485,044	$ 2,740,046
Mining Technical Services	2,251,888	3,394,819
Total Segment Assets	5,736,932	6,134,865
Itronics Inc. assets	12,622,324	9,528,737
Less: inter-company elimination	(13,749,750)	(11,986,260)
Consolidated Assets	$ 4,609,506	$ 3,677,342

NOTE 12 - Contingencies:

In June 1995 the former President of a former mining client filed suit against the Company, Whitney & Whitney, Inc. (W&W) and several key employees, alleging libel and slander related to the issuance of W&W's final report on the project. The Company's liability insurance carrier is presently defending W&W and its key employees in this case. Management believes the allegations to be without merit, and is vigorously defending against the suit, and has served a counter-suit against the individual. In March 1997 the June 1995 suit was dismissed by the Court. The individual has subsequently filed an appeal of the dismissal. In February 2001 the appeal was heard before the Court of Appeal of the State of California and on March 12, 2001, the Court affirmed the lower court judgment to dismiss the case. The individual has the right to appeal the decision to the Supreme Court of California, however, most such petitions are denied.

In February 1997, this same individual filed a second suit that includes the Company, W&W and a key employee as co-defendants, along with several unrelated parties. The suit alleges breach of contract and other causes of action and seeks in excess of $5 million plus punitive damages. The Company's liability insurance carrier has agreed to assume the defense of this action with a reservation of rights, including the right to disclaim insurance coverage. Management believes the allegations are without merit and is vigorously defending against the suit. In May 1998 agreement was reached with the plaintiff that if the appeal of the first suit fails, the second suit will be dropped.

In management's judgment, no accrual of a loss contingency is required in the financial statements.

NOTE 13 - Going Concern:

The Company's consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

of assets and the satisfaction of liabilities in the normal course of business. The Company and its subsidiaries have reported recurring losses from operations, including a net loss of $4,131,722 during the year ended December 31, 2000, a negative working capital of $265,351, and a stockholders’ deficit balance of $421,201 as of December 31, 2000. These factors indicates the Company and its subsidiaries' ability to continue in existence is dependent upon their ability to obtain additional long-term debt and/or equity financing and achieve profitable operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company and its subsidiaries be unable to continue in existence.

Prior to acquiring Whitney & Whitney, Inc. in 1988, the Company registered 1,777,000 common shares for public offering. Each common share included one Class A and one Class B warrant. Due to security law changes immediately subsequent to the offering, the offering did not raise sufficient equity capital to complete the Company's business plan. In order to solve the Company's liquidity problems, management has been implementing a plan of increasing equity through private placements of preferred and common shares, conversion of debt to common shares, and payment of consulting and other labor services with common shares.

In addition to continuing the above described efforts, development of the technology necessary to manufacture fertilizer from photobyproducts has been completed. In March 1998 the Company’s subsidiary, Itronics Metallurgical, Inc., signed a definitive manufacturing and distribution agreement with Western Farm Services, Inc. (WFS). The agreement gives WFS the exclusive license and right to manufacture and market the Gold’n Gro line of fertilizer products in the states of Arizona, California, Hawaii, Idaho, Oregon and Washington. The agreement is for five years, with five year renewal options.

In February 1999 the Company opened the Final Tranche of the 1998 Private Placement to raise $780,000 in equity funds. A total of $837,500 was received under the Final Tranche in 1999. In addition, $1,487,924 was received in 1999 from the exercise of warrants from the 1998 and earlier private placements.

In January 2000 the Company began a Private Placement of 9% Convertible Promissory Notes to raise $2.5 million. A total of $2,631,000 was received. In addition, a total of $711,239 was received in 2000 from the exercise of warrants from the 1999 and earlier private placements.

In October 2000 the Company completed the registration of 10,000,000 common shares in connection with its agreement with Swartz Private Equity, LLC. to raise $15 million over three years. The Company has received $154,700 under this agreement subsequent to December 31, 2000.

In March 2001 the Company began a Private placement of 12% Convertible Promissory Notes to raise $750,000.

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ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

NOTE 14 - Off-Balance Sheet Risks and Concentration of Credit Risk:

The Company occasionally maintains bank deposits in excess of federally insured limits. Statement of Financial Accounting Standards No. 105 identifies this as a concentration of credit risk requiring disclosure, regardless of the degree of risk. The Company’s risk is managed by maintaining its accounts in one of the top five largest banks in the country.

As of December 31, 2000, a significant portion of the Company's accounts receivable is concentrated with two mining industry clients. This concentration of credit risk is somewhat mitigated due to the fact that the Company has been providing services for one of these client for more than ten years and the client has always paid the billings on a timely basis.

Increase or decrease in photobyproduct recycling service and silver extraction revenues has a direct relationship with federal, state, and local regulations and enforcement of said regulations. Increase or decrease in fertilizer revenues will be related to crop cycles, seasonal variations, and weather patterns.

The ability to recognize a net profit from silver recovery sales is based on the fair market value of silver (London five day average) at the time the photobyproducts are obtained versus the fair market value of silver when recovered silver is sold. Most customers are given an 80% silver credit against recycling services based on the content of silver in the photobyproducts. If the fair market value of silver declines, the possibility exists that the 80% credit, plus operating costs associated with the silver extraction, could exceed the revenues generated at the time the silver is sold.

Management's plan to reduce the market risk of silver is to increase the volume of photobyproducts and the resultant silver recovery, and then to implement a hedging program in which silver will be sold forward, thereby matching the price to be received to the price paid to the Company's customers.

As a handler of photobyproduct materials, the Company is subject to various federal, state, and local environmental, safety, and hazardous waste regulations. The Company believes that its policies and procedures for handling hazardous wastes are in compliance with the applicable laws and regulations and are consistent with industry standards. Costs for these compliance activities are expensed as incurred. As the Company's photobyproduct fertilizer business expands, the various laws and regulations that are applicable to the Company's activities will change. During 1996, the Company received concurrence from the State of Nevada environmental officials that the Company's photobyproduct fertilizer process meets the existing requirements for exemption from all environmental regulations, except toxic metal content standards, and with the exception that certain presently conducted lab analyses of the photobyproducts will continue to

65

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

be required. Certain of the Company's large scale customers presently meet the exemption requirements. Once all the photobyproducts are utilized in the fertilizer or other commercial products, all the Company's customers will be exempt. As a result, the Company's cost of compliance could decrease.

NOTE 15 - Subsequent Events:

Subsequent to December 31, 2000, new capital leases in the amount of $243,494 (original principal amount), of which $192,282 was received in cash, were incurred primarily in financing transactions.

The following summarizes common stock activity from January 1, 2001 through March 14, 2001:

	ISSUED		TO BE ISSUED
	SHARES	AMOUNT		SHARES	AMOUNT
Swartz Private Equity (acquired)	363,500	$ 72,700		-	$-0-
Swartz Private Equity (unacquired)	436,500	-		300,000	-
Warrant exercise	300,000	30,000		-	-
Labor & consulting services	497,272	189,445		40,000	34,900
Director fees	7,500	2,925		-	-
Operating expenses	577	225		-	-
	1,605,349	$295,295		340,000	$34,900

Under the agreement with Swartz Private Equity, LLC (Swartz) a total of $154,700 has been received subsequent to December 31, 2000 through March 14, 2001, including $82,000 which was recorded as a subscription receivable at December 31, 2000. The unacquired shares in the above table represent shares issued to Swartz concurrent with the beginning of "puts" under the agreement. Swartz acquires the shares based on a percentage of trading volume during the "put period". Therefore, not all shares issued to Swartz will necessarily be acquired by Swartz. Unacquired shares carry forward to future puts and would be cancelled upon the end of the agreement.

In addition, a total of $22,500 in labor and consulting services has been incurred and will be paid in stock.

In March 2001 the Company began a Private Placement of 12% Convertible Notes to raise $750,000. The notes will be due in three years. The notes and accrued interest are convertible, at any time during the three year period, into the Company's restricted Common Stock, at $0.15 per share. The Company may call the notes prior to the due date and, in that event, the note holder will have thirty days to decide whether to convert the note and interest to stock.

NOTE 16 – Earnings (Loss) Per Share:

Following is a reconciliation of the numerators, Net Income (Loss), and the denominators, weighted average number of shares outstanding, in the computation of earnings (loss) per share (EPS) for the years ended December 31, 2000 and 1999.

66

ITRONICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

	2000	1999
Net Income (Loss)	$(4,131,722)	$(1,901,479)
Less: Preferred stock dividends	-	-
Basic EPS income (loss) available to
common stockholders	$(4,131,722)	$(1,901,479)
Weighted average number of shares outstanding	73,324,348	65,585,785
Common equivalent shares	-	-
	73,324,348	65,585,785
Per share amount	$(0.0563)	$(0.0290)

Warrants, options, and shares to be issued, totaling 8,014,432 and 7,341,308 shares as of December 31, 2000 and 1999, respectively, could potentially dilute future EPS. No diluted EPS is presented as the effect of including these shares is antidilutive.

67

ITRONICS INC. AND SUBSIDIARIES

SIGNIFICANT SUBSIDIARIES

EXHIBIT 21

                                       STATE OF           NAMES UNDER WHICH

NAME                                  INCORPORATION          THEY DO BUSINESS

Whitney & Whitney, Inc.                  Nevada                   Same

Itronics Metallurgical, Inc              Nevada                   Same

Itronics California, Inc.                California               Same

Nevada Hydrometallurgical Project

(A Partnership)                          Nevada                   Same

American Hydromet(A Joint Venture)       Nevada                   Same

68

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

                                            ITRONICS INC.

Date: March 29, 2001                       By: /S/ JOHN W. WHITNEY

                                            John W. Whitney

                                            President, Treasurer and Director

                                            (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Date: March 29, 2001                        By: /S/ JOHN W. WHITNEY

                                               John W. Whitney

                                               President, Treasurer and Director

                                               (Principal Executive and Financial

                                               Officer)

Date: March 29, 2001                        By: /S/ MICHAEL C. HORSLEY

                                               Michael C. Horsley

                                               Controller

                                               (Principal Accounting Officer)

Date: March 29, 2001                        By: /S/ PAUL H. DURCKEL

                                               Paul H. Durckel

                                               Director

Date: March 29, 2001                        By: /S/ ALAN C. LEWIN

                                               Alan C. Lewin

                                               Director

69