UNITED STATES
                     SECURlTIES AND EXCHANGE COMMISSION
                            Washington, DC 20549

                                FORM I0-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, 1998
                                                      ------------------

( )	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: (702) 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)


<PAGE>


        State issuer's revenues for its most recent fiscal year: $766,720.   
                                                                 --------

        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, 1999, was $19,675,733.

	As of February 28, 1999 there were issued and outstanding 56,423,631
shares of the Registrant's Common Stock.

                                      2

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES

                        1998 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                                               24
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          37
Item 13.        Financial Statements, Exhibits and Reports on Form 8K   37


                                      3

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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.      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.

        2.      Photobyproduct Fertilizer: * This segment, known as Itronics
                Metallurgical, Inc., operates a semi-works * * 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. 
                In the first half of 1999 the recycling operations are being 
                moved to a commercial size facility. The Company is expected
                to achieve a commercial level of fertilizer sales in the
                second half of 1999.


                *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 of the 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.

                ** The term "semi-works" refers to a processing and/or
                manufacturing operation that is in transition between an
                initial pilot scale used solely for research and development
                purposes and full commercial scale, where the primary
                function of the operation is to produce goods or services for
                sale.

        The Company has two wholly owned subsidiaries, Whitney & Whitney, Inc.
("W&W") and Itronics Metallurgical, Inc. ("IMI"), 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:

                                      4

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        1.      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, 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.
                             
        2.      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 bar bearing a unique hallmark,
"Silver Nevada Miner".

        3.      Nevada Hydrometallurgical Project:
                ----------------------------------
         Nevada Hydrometallurgical Project ("NHP") is a research and develop-
ment 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.

        4.      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.

                                      5

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	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.  During that year,
experimentation with processed run of plant liquids as fertilizer was also
begun.

        A description of some of the obstacles encountered and overcome over
the ensuing years, which accounts for the Company's present financial
condition 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 photo-
byproduct 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 has been
undercapitalized since the 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.
However the research on the third segment of the integrated system, converting
the demetallized solutions to fertilizer, took 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.

	As mentioned above, it was believed that the R&D effort would be fully
supported by photowaste service revenue.  However, two major factors prevented

                                      6

<PAGE>


this from occurring.  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. In order 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, contributing to the losses that have
occurred.

	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 major 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.  Photowaste volume reached the threshold of these limitations in
1994. Consequently, the Company has had a limited ability to increase
photowaste volume to offset the price reductions dictated by market
conditions. These regulations are expected to remain in effect permanently.
The Company's path to overcoming this obstacle is through utilization of the
demetallized solutions in fertilizer and other commercial products. In other
words, the more fertilizer sold, the more photowaste the Company can receive.
This is why management has placed such strong emphasis on completion of the
fertilizer R&D and on obtaining the distribution arrangements discussed on
page 19 of this report.

        To summarize, the combination of under-capitalization and the problems
encountered in the photobyproduct fertilizer R&D project produced the opera-
ting losses that have occurred.

        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 13 to the Consolidated Financial Statements
beginning on page 60 of this report.

        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:

                                      7

<PAGE>


      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 55.2% of the
Company's 1998 consolidated revenue. One major client produced 93% of this
revenue. At present this client 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 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.

                                      8

<PAGE>


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 nearly 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.

	 

        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, which
has 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 demetallized
liquid photobyproducts in a "heavy-metal-free" liquid multi-nutrient
fertilizer product line for turf and other applications. The status of
development of the three integrated components is more fully described below:

	The technology is being developed in a semi-works plant in Reno which
is operating in about 7,000 square feet of leased facilities. Development of
the integrated technology represents a major technical innovation. There are
three separate 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 99.98% 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.

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<PAGE>


        The metal-bearing sludge is dried and passed to the refining operation
for separation of the contained silver. This operation is also technically
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.

      The 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 com-
plete capability for recovering all of the valuable components of photoby-
products 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 multi-nutrient nitrogen products 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

                                     10

<PAGE>


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.

        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 acceptable
fertilizer product line from liquid photobyproducts that produces excellent
results in use. As such, Itronics now has unique proprietary technology for
completely recovering the silver and for converting the waste liquids into
usable "heavy-metal-free" commercial products, thereby achieving
environmentally acceptable total recycle of the total waste stream.

        Through 1997, the Company has been testing its Gold'n Gro 20-1-7 in
various commercial applications, including golf courses, turf farms, and        
professional lawn maintenance organizations. In 1995 the Company began
participating in a controlled fertilizer product application comparison
program sponsored by the University of California at Riverside. For the
second consecutive year, 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 Iron, a fully chelated
liquid iron supplement fertilizer, was registered in California and Nevada.
In mid 1997, development of Gold'n Gro 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 December 1997 development of Gold'n Gro 6-0-10 was
completed. This product is designed for use in drip irrigation systems and
for grape, vegetable and citrus applications. In August 1997, the Company
received a national trademark for the name "Gold'n Gro".

	In early 1998 development of eleven new Gold'n Gro fertilizer
products was completed. These include Gold'n Gro 10-1-10 for vegetables,
especially potatoes, Gold'n Gro 7-3-9 for grapes, vegetables and citrus,
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 and garden vegetables. In
addition there are three formulas each for golf course tees/greens and golf
course fairways/roughs. The formulas are designed for cool season, mid-season
(spring and fall) and warm season. In early 1999 a decision was made to focus
on just eight products in order to simplify and speed up the introduction of
the products into the marketplace.

	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.

        All Gold'n Gro products are carefully engineered to provide micro-
nutrient content adequate for plant nutrition, while also being completely
"heavy-metal-free" and safe for the environment.


                                     11

<PAGE>


        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 9 of this report.



2.	Operations

	The Company operates a semi-works plant for the purpose of completing
development of an integrated system to receive photobyproduct materials,
recover the silver and other metals, and convert the demetallized solutions
to liquid turf fertilizer and other products. A critical component of this
system is to match, within a reasonable range, the incoming volume of photoby-
product 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. As a result, during the lengthy period of researching and testing
the fertilizer products, the Company has not significantly expanded photoby-
product solution volume. However, as testing of the basic products nears
completion, the Company has begun to aggressively seek 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, but it has not grown appreciably
over the last four years. Now that a line of commercial fertilizer products
has been perfected, the Company plans to expand 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. Because of this, the Company is now able to compete 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. A valuable commercial product is produced, and
nearly 100% of water reuse is achieved.

	The distillation equipment began operations in March of 1996, and was
performing effectively by mid-June.  The concentrate being produced is up to
forecast standards, and water quality is proving to be excellent. This same
manufacturing company bought a second distillation unit in early 1997.
Successful startup and operation of this technology provides a business
expansion opportunity for Itronics.

        The distillation concentrate has a high silver content and is
dominantly composed of ammonium thiosulfate (ATS) and EDTA chelates, the

                                     12

<PAGE>


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. During the
fourth quarter of 1997, a sales department was established to concentrate on
expanding the customer base for such distillation equipment and
photobyproduct services.

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

	The purchase option price is $1,000,000 including a $300,000 down
payment. The owner has agreed to finance $700,000 of the purchase price and
has the alternative to carry it over 25 years at commercial rates with a 5
year balloon or by taking 2,491,103 shares of the Company's restricted common
stock. In March 1999 IMI exercised the option to purchase the facility and
the seller agreed to take the $700,000 in the Company's restricted common
stock. The purchase is targeted to be completed prior to March 31, 1999.

	An application for a Special Use Permit was filed with the City of
Reno on January 15, 1998. On March 4, 1998 the Reno Planning Commission
approved the Special Use Permit Application, and the Permit became effective
on March 14, 1998. The lease and occupancy are now dependent on obtaining
the necessary Environmental Control Permit, which will require completion of
engineering drawings for specified improvements, receipt of necessary
building permits,  inspection/approval by the City of Reno Environmental
Control Department, and obtaining of funding to support the move. A concrete
flooring and containment berm is complete. Engineering drawings for the
plumbing and electrical components are now being prepared. Application for
the building permit to complete the equipment installation is expected to be
made in April 1999, and the move to the facility is being planned for May
1999.

	The new facility will make it possible for IMI to expand fertilizer
manufacturing and silver refining to commercial operations.
   
	The Company's revenues in the photobyproduct management business are
generated from three major sources: (1) the pick up and processing of photoby-
product 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 that obligates the
Company to accept from the customer photobyproducts conforming to the


                                     13

<PAGE>


provisions of the agreement. The service agreement is automatically renewed
annually, and can be canceled by advance notice of 30 days. The fee is based
upon the silver content of the waste and competitive market factors. The
Company periodically reviews and adjusts the fees charged for its services.
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 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 Company is also
reviewing the potential for handling silver-bearing ion exchange resins. 

        The photobyproducts are transported to the Company's current semi-
works recycling facility at Reno, Nevada. All customer's material, whether it
is photographic solutions or film, is logged and recorded.

        Upon receiving photographic solution into the processing facility,
two samples of the incoming waste are always taken prior to processing.  One
sample is sent to an independent EPA certified laboratory for analysis. The
other sample is retained by the Company and stored on-premises for two months.
At this time, the photographic solution is also tested for contamination.
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 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 then refines
the material into silver matte bars and ships them to an internationally known
silver refiner for sale. 

        Presently, the recovered silver is processed in the Company's
prototype refining operation. This operation is small scale and will be
scaled up to a commercial level once the move to the new facility is
completed.

        The final stage of the photobyproduct fertilizer process is to blend
the demetallized solution with other nutrients to create liquid turf
fertilizer and other "heavy-metal-free" Gold'n Gro products. Through 1995,

                                     14

<PAGE>


the Company's primary focus had been on field testing the products.
Consequently, sales of fertilizer have been limited. In 1996, however, the
Company began small scale commercial sales, and is presently working with
several commercial users of the product to determine the optimum application
procedures. 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. Initial discussions center around the possible sale of 100% of the
Company's fertilizer production capacity, with increasing sales as capacity
is expanded. 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 19 of this report.

	The fertilizer manufacturing operation is also at a small scale. In
1997 new tankage was acquired and installed and a larger mixer system was
installed. This operation is suited for automation at a larger scale and
planning is ongoing to determine the desired configuration and requirements
for a commercial scale operation at the new Reno-Stead plant facility. In
early 1999 the new plant configuration was complete and acquisition of
additional tankage and mixing equipment was begun. The majority of the new
equipment is being financed with capital leases. The initial investment in
equipment is estimated to be approximately $350,000.

        In 1998, the photobyproduct fertilizer segment produced 44.8% 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. Eventually, this
segment may produce the majority of the Company's revenues.


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, about 79 million ounces of silver are consumed in photo-
materials 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
typically prefer film. The large waste haulers pick up all categories of
waste, but do not handle film and paper. It appears that photowaste management


                                     15

<PAGE>


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.

	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. Kodak may be the largest silver recycler in the United
States. DuPont has 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 process-
ing with an almost 85% reduction in volume of photographic liquids over the
past five years. There has been little visible impact on color photography,
although the new digital cameras are getting wider usage. 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 rate in the amount 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


                                     16

<PAGE>


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. The sales territory is the United States, Canada
and Mexico, with an option to expand to other territories as demand justifies.
This equipment is designed to remove the water from used liquid
photochemicals, producing two products: a commercial chemical concentrate,
and clean distilled water. Removal of the water from the photochemicals
produces a relatively high value concentrate product that can be shipped
cost effectively over long distances. The photochemical recycling sales
department is concentrating on developing customer contacts for potential
distiller sales. Sale of distillers is an integral part of expanding the
supply of photochemicals needed to support expanding fertilizer sales.

        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 photoby-
          product materials.
        * Proprietary "heavy-metal-free" liquid multinutrient fertilizer  
          product line that eliminates 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.

        As discussed under the section on Regulation, the actual rate of
growth for the photobyproduct recycling business is dependent upon the rate
and vigor of environmental enforcement.  The Company's photobyproduct
recycling business development will continue to be dependent upon this fact,
however, the results of continuing expansion of regulatory enforcement are
beginning to be seen on a major scale. For example, Safety Kleen entered the
business in early 1995 by acquiring three large private photowaste handling
companies on the east and west coasts of the U.S., in Boston, San Francisco,


                                     17

<PAGE>


and Los Angeles. These acquisitions include the largest photowaste handler in
San Francisco, and one of the top three photowaste handlers in Los Angeles.
The entry of this large waste hauling company in the market, along with
continuing expansion of enforcement has created a very dynamic market
situation with many changes occurring. Opportunities for Itronics to build
relationships with the major photoproduct manufacturers and service companies
using its superior fully integrated technology are now opening up.

        Toward that goal, one of the top international photoproduct
manufacturing companies has approached Itronics because of Itronics'
photobyproduct fertilizer manufacturing technology and because of Itronics'
growing service capability in Northern California. Itronics and this company
are presently establishing a working service relationship in Northern
California while the company evaluates the potential for the fertilizer in
the U.S. and European markets. Itronics ability to develop a larger scale
working relationship with this and other large photoproduct manufacturers is
dependent on its ability to establish a nationwide service capability in a
relatively short period of time (2 to 3 years).

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".  Each market accounts for at
least $3 billion in annual sales in the United States making the total a $6
billion market.

	The Urban market is divided into the "Home Lawn and Garden" segment
and the "Professional Care" segment.  Neither of these markets is statistic-
ally 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 including Monsanto and the Vigoro Corporation are 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 companies, golf courses, turf farms,
and large municipal and commercial facilities. Since early 1997, IMI has
completed development of an additional 14 fertilizer products. These products
cover most of the applications being targeted in the Turf, Ornamental and
Professional Grower markets in the western U.S. In early 1999 the decision
was made to focus marketing efforts on eight of these 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 $1.0 billion.


                                     18

<PAGE>


        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 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 states of Arizona,
California, Hawaii, Idaho, Oregon and Washington. IMI will manufacture its
base products for shipment to various WFS 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, and the process
continued into 1999. The result of these efforts is that now more than 70
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 is 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. WFS is in the process
of designating locations that will be used to make customer deliveries. Once
these arrangements are in place, it will be possible for product to flow
from the two manufacturing plants to customer locations as customer demand
requires. In July 1998 WFS began manufacturing Gold'n Gro 8-12-9, a plant
starter product, and Gold'n Gro 20-1-7, the number one ranked fertilizer in a


                                     19

<PAGE>


two year University of California Riverside study. A third product, Gold'n
Gro 9-3-9, was also manufactured successfully.
 
	The Company is developing branded products that have the Gold'n Gro
trademark. The Company is developing a plan for consumer sales through 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 photoby-
product 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 past 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.

	The Company expects fertilizer sales to have a seasonal component,
with the primary sales season running from February through November 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 turfs 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 southwestern United States where growing seasons are longer
and, in some cases, year round.

        Due to this 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.


                                     20

<PAGE>


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.

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 photo-
byproduct semi-works 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 semi-works 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


                                     21

<PAGE>


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 TCLP 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 do not
utilize all the photobyproducts received, however, once all the
photobyproduct materials are utilized 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.

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 equipment and furniture and
technical library typically found in a consulting business. IMI leases
approximately 8,400 square feet of warehouse space in Reno, Nevada. This
space contains the plant for the photobyproduct recycling business,
laboratory and research facilities, fertilizer manufacturing and inventory,
and the Company's prototype silver refining operation.

	As previously discussed on page 13 of this report, IMI has entered
into a lease/purchase agreement to acquire a 35,000 square foot manufacturing
facility in Reno-Stead, Nevada. IMI exercised the purchase option in March
1999, and expects to complete the purchase prior to March 31, 1999.

	In March 1999 W&W leased approximately 2,500 square feet of office
space in Reno, Nevada. The W&W technical services group will be relocated to
this space in April 1999.


                                     22

<PAGE>


        II.     EQUIPMENT.
                ----------
        The actual equipment being used in the recycling process is
proprietary information. However, the plant for processing liquid photoby-
products is a fairly typical chemical process facility consisting of
appropriate arrangement of tanks and pumps. Solids produced by processing
are recovered by filtration. The plant design is modular and is suited to a
small scale operation. Actual space required for commercial operation of the
liquid photobyproduct processing operation is 15,000 square feet.

        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. Plant design is modular, is partially auto-
mated, and is currently being operated on a small scale. When sized for larger
commercial volumes, the plant will still be small. It is expected that
ultimately 10,000 square feet of space will be required for a relatively
large commercial volume. Presently 1,000 square feet of space is in use. 

        A unique aspect of work place environmental management in the pilot
plant is the use of portable sumps under all items of equipment that manage
the processing and transfer of liquids whether hazardous or not. Large hoods
and roof fans are utilized in all facilities to ensure adequate air flow and
ventilation.

	The Company is now substantially expanding its investment in
equipment in preparation for the move to the Reno/Stead facility. 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. Capacity at the new
facility is now planned to process 20,000 to 60,000 gallons of used
photchemicals per month and to manufacture 30,000 to 70,000 gallons per month
of liquid fertilizer. Refinery capacity is now planned to produce 5,000 to
10,000 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


                                     23

<PAGE>


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. Due to a civil court backlog, the appeal hearing has been
delayed for at least 25 months from July 31, 1998. As of the date of this
report, a hearing date has not been set.



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

	The Company held its annual meeting on November 19, 1999. 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			36,228,799
			 Against		        42
			 Abstain		    30,000


	



                                   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 1997, 1998, and the first
quarter of 1999, through February 26, 1999.


                              High Bid           Low Bid
                              --------          --------
        3/31/97                $0.31              $0.03
        6/30/97                $0.27              $0.14
        9/30/97                $0.28              $0.13
        12/31/97               $0.38              $0.25
        3/31/98                $0.29              $0.20
        6/30/98                $0.25              $0.13
        9/30/98                $0.23              $0.14
        12/31/98               $0.27              $0.19
        2/26/99                $0.94              $0.17

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


                                     24

<PAGE>


        (b)     The number of record holders of the Common Shares on December
31, 1998 was approximately 867.



        (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 1998. All 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
commissions or underwriting discounts have been paid.

                                                      Shares       Value
   Transaction Description                            Issued       Received
 ----------------------------                       -----------   ---------
Private placement for cash (includes
 notes receivable totaling $25,000 at
 December 31, 1998)                                  6,750,000   $  843,750 

Exercise of options                                  1,407,620      140,762

Labor services of management and directors             729,473       91,543

Interest on accrued management
 salaries                                               78,692        9,874

Consulting and operating expenses                       44,085        9,500

Purchase of equipment                                    7,500          938     
                                                     ---------    ---------

                                                     9,017,370   $1,096,367
                                                     =========    =========
   
	In connection with the above cash private placement, two year
warrants representing options to acquire 4,870,000 restricted common shares
at $0.25 and $0.40 per share for the first and second years, respectively,
were issued. In addition, two year warrants representing options to acquire
3,720,000 restricted common shares at $0.15, $0.20, $0.30, and $0.40 per
share for the respective six month intervals were issued.

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


                                     25

<PAGE>


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 1998 consolidated net loss of $1,024,863 or
$0.0223 per share compared to a 1997 loss of $530,921 or $0.0170 per share.
The primary causes for the increased loss are (1) a decline in technical
services gross profit due to the completion of one of the major technical
services projects early in the fourth quarter of 1997 and to management
concentration of effort on fertilizer product development; and (2) increased
operating costs associated with research and development on the Gold'n Gro
line of fertilizer products, corporate marketing, establishment of sales and
marketing departments for photobyproduct services and fertilizer sales,
start-up costs associated with the new manufacturing facility, 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 raising the capital required to
complete the move to the new facility and on making both the investing public
and potential customers aware of the Company and its products and services.

        Consolidated sales increased approximately $88,100, or 13.0%, in 1998
compared to 1997. Consolidated cost of sales and operating expenses increased
approximately $606,500, or 53.0%, in 1998 compared to 1997. 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.

        MINING TECHNICAL SERVICES
-----------------------------------------------------------------------------

                                               Year Ended December 31,
                                             ---------------------------
                                                  1998         1997
                                               ---------    ----------
Sales revenue                                  $ 422,848     $442,190

Operating income (Loss)                         (201,136)     (74,910)    

-----------------------------------------------------------------------------

        Mining technical services revenue totaled $422,848 for 1998, compared
to $442,190 in 1997, a decrease of 4.4%. Included in these revenue figures
are pass-through expenses of $221,856 and $140,123 for 1998 and 1997,
respectively. Excluding these amounts, revenues amounted to $200,992 and
$302,067 for 1998 and 1997, respectively, a decrease of 33.5%. This decline
in revenue is attributable to a combination of reduced work level and 1997
completion of one of the Company's major projects and to management
concentration of effort on the photobyproduct fertilizer segment of the


                                     26

<PAGE>


Company. Continuing depressed gold prices have reduced the mining industry's
need for the Company's services. However, there is also a business
opportunity in that many mining companies have reduced their technical
staffs, but have ongoing technical needs. The Company's plans to expand the
technical services segment are more fully discussed on page 9 of this report.
 
        Combined cost of sales and operating expenses totaled $623,984,
compared to $517,100 for 1997, an increase of 20.7%. Included in these
operating expense figures are pass-through expenses of $221,856 and $140,123
for 1998 and 1997, respectively. Excluding these amounts, combined cost of
sales and operating expenses amounted to $402,128 and $376,977 for 1998 and
1997, respectively, an increase of 6.7%. The increased costs are attributable
to increased professional salaries and corporate marketing efforts.
                                    
	The above changes in revenues and operating expenses resulted in a
segment operating loss of $201,136 for 1998, compared to an operating loss of
$74,910 for 1997.
 
        PHOTOBYPRODUCT FERTILIZER
-----------------------------------------------------------------------------

                                                Year Ended December 31,
                                              --------------------------        
                                                  1998        1997
                                               ---------   ---------
Sales revenue                                 $ 343,872    $ 236,432 

Operating income (loss)                        (783,201)    (391,041) 

-----------------------------------------------------------------------------

        Revenues for the photobyproduct fertilizer segment totaled $343,872 in
1998, compared to $236,432 in 1997, an increase of 45.4%. Volume for photoby-
product recycling services in 1998 decreased 1.2% from 1997, while
photobyproduct recycling revenue increased by 2.1%. Silver sales were
$163,799 and $102,572 for 1998 and 1997, respectively. The 59.7% sales
increase reflects a combination of a 50.6% increase in sales volume and a
13.2% increase in the average silver price in  1998, compared to 1997.
Fertilizer sales were $53,750 and $10,077 for 1998 and 1997, respectively,
an increase of 433%. During the current year, the majority of the sales have
been to Western Farm Services, Inc. (WFS). Progress of the marketing effort
with WFS is discussed on page 19 of this report.

	Combined cost of sales and operating expenses for the segment amounted
to $1,127,073 in 1998, compared to $627,473 in 1997, a 79.6% increase. Cost
of sales increased approximately $183,000, which includes increases of
$64,100 in direct costs from increased sales, $85,000 in payroll costs
related to increased production, additional production personnel, and higher
hourly rates caused by the tight labor market, and $14,800 in increased rent
due to additional warehouse space and increased rental rates on existing
facilities. Operating costs increased by $316,700. R&D costs increased
$30,600 due to the management effort in developing commercial products
appropriate for marketing through WFS. Sales and marketing increased
$154,500, reflecting the establishment of sales departments for
photobyproduct services and fertilizer sales and the costs associated with
implementing the WFS fertilizer sales and manufacturing agreement. Plant
start-up costs of $42,600 include rent and utilities on the new plant prior


                                     27

<PAGE>


to commencing commercial production. The increase in general and
administrative costs of $75,200 includes an increase of $53,300 in payroll
and consulting costs related to establishing a full time finance position.
 
	These changes in revenues and operating expenses resulted in a segment
operating loss of $783,201 in 1998, compared to $391,041 in 1997. 

        SUMMARY

	On a consolidated basis, the various changes in revenues and
operating expenses resulted in a 1998 operating loss of $984,337, compared to
an operating loss of $465,951 for 1997.

II. Changes in Financial Condition; Capitalization

	Cash amounted to $348,829 as of December 31, 1998, compared to $29,213
as of December 31, 1997. Net cash used by operations was $689,177 in 1998,
compared to $423,971 in 1997. Operating resources utilized to finance the 1998
loss of $1,024,863 include approximately $210,200 in expenses paid with the
Company's common stock and increases in accounts payable and accrued expenses
of approximately $70,000 and $86,400, respectively. The cash provided by the
increase in accrued expenses includes approximately $32,800 in unpaid salary
to management and professional employees and $38,900 in current payroll tax
withholdings related primarily to the issuance of common stock for conversion
of unpaid salaries. These sources of cash were partially utilized by an
increase in accounts receivable of $65,100 due primarily to increased mining
technical services revenue during the fourth quarter of 1998, compared to
the fourth quarter of 1997. Cash amounting to approximately $169,400 was
invested in property and equipment in 1998, including $94,800 in design and
construction of improvements to the new manufacturing plant. Approximately
$1.2 million was raised in the 1998 Private Placement, at a cost of $52,900.
Financing sources of cash in 1998 also included $69,300 in stockholder
advances.

        Total assets increased from $445,054 at December 31, 1997 to
$1,062,529 at December 31, 1998. Current assets increased $431,300, net
property and equipment increased $166,200, and other assets increased $20,000.

        Total liabilities increased from $605,080 at December 31, 1997 to
$632,947 at December 31, 1998, an increase of approximately $27,900. Of this
amount, current liabilities increased $133,000 and long-term liabilities
decreased $105,100. During 1998, $161,750 in accrued management salaries and
an account payable due an officer/stockholder were converted into the
Company's restricted common stock.
	 
	  The result of the above financing and debt conversions was to
change the stockholders' deficit from $160,026 at December 31, 1997 to a
stockholders' equity of $429,582 at December 31, 1998.
 
III.   Working Capital/Liquidity

 	  As discussed in Note 15 to the Consolidated Financial Statements on
page 64 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, 1998:


                                     28

<PAGE>


        1. A total of $1,202,000 was received from the sale of common stock
through private placements and option exercises.

        2. Accrued salaries, accounts payable, and debt totaling $181,800
were converted into common stock.

        3. Various expenses including salaries, interest, director fees, and
legal and outside services, totaling $230,100, were paid with common stock.

        4. A total of $69,300 was received in stockholder loans.

        5. Notes receivable with balances of $25,000 on December 31, 1998
were received in subscription of the 1998 Private Placement.

	  
        The result of these steps was to change from a working capital
deficit of $182,447 at December 31,1997 to positive working capital of
$115,949 at December 31, 1998, an improvement of approximately of $298,400.
The current asset component of working capital increased from approximately
$189,300 at December 31,1997 to approximately $620,600 at December 31, 1998.
The primary changes in the components of current assets were an increase in
cash of $319,600, an increase in accounts receivable of $65,100, an increase
of $29,000 in notes receivable from stockholders, and an increase of $24,500
in prepaid expenses. The current liability component of working capital
increased from $371,704 at December 31, 1997 to $504,654 at December 31,
1998. Significant increases in the components of current liabilities include
$60,000 in accounts payable, $53,600 in accrued expenses and contracts
payable, and $53,200 in the current portion of advances from stockholders.
Significant decreases in the components of current liabilities include
$16,200 in accrued management salaries and $15,500 in the current portion of
capital lease obligations due stockholders.

        For details of steps to improve the Company's working capital and
liquidity taken subsequent to December 31, 1998, see the discussion in Notes
15 and 17 to the Consolidated Financial Statements on pages 64 and 67 of this
report.

IV.   Year 2000 Assessment

	The Company has begun its assessment of the potential effects of the
Year 2000 issue on the Company's operations. The assessment is in two parts.
First, an evaluation of the Company's computer systems and equipment with
embedded computer chips for Year 2000 compliance. The majority of the
Company's computers and software have been acquired within the last year.
Therefore, management anticipates only minor Year 2000 compliance problems
with its computer systems.

	The second part of the assessment process involves the Year 2000
readiness of third parties. There are two primary issues related to the
evaluation of the potential impact on the Company.

        First, interruption of the services provided by local public
utilities, namely power and telephone service, would have a material negative
impact on the Company's operations. Based on attendance at seminars and
public reports, management believes that the local utility service providers


                                     29

<PAGE>


are actively working on their Year 2000 compliance issues. At this time,
management believes that no interruption of service will occur.

        Second, significant Year 2000 problems with the Company's major
customers and suppliers could have a material negative impact on the
Company's operations. At the present time, there are two major customers in
the photobyproduct fertilizer segment and one major customer in the Company's
mining technical services segment. The Year 2000 assessment process involves
discussing the issue with these customers and evaluating the impact their
operations could have on the Company's operations. All three customers are
substantially larger and financially stronger than the Company, so no
significant problems with these customers are anticipated at this time.

        Based on current information, management does not anticipate the Year
2000 issue will have a material impact on the Company's operations.


V.  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

<PAGE>


                                   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            12/31/98      Position             Position Held Since
        ----            -------       --------             -------------------
Dr. John W. Whitney       52         President/Treasurer      May 1988
                                     Director
Paul H. Durckel           81         Director                 September 1995
Alan C. Lewin             52         Director                 September 1997
Gregory S. Skinner        44         Secretary                December 1990

Duane H. Rasmussen        68         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, Whitney & Whitney, Inc. and Itronics Metallurgical,
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

<PAGE>


        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.


        Paul H. Durckel:
        ----------------
         Mr. Durckel has served as a director of the Company since September
1995. He has served various companies involved in fertilizer manufacturing and
sales for approximately 30 years. He is presently an Independent Real Estate
Salesman for Myers Realty, Inc. and has served them 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

<PAGE>


        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, 1998 exceeded $100,000:


        Name and                                 Annual Compensation
        Principal             Calendar          ----------------------
        Position                Year             Salary          Bonus
        --------                ----            --------        ------
        Dr. John W. Whitney:    1998            $111,709         $-0-
        President, Treasurer    1997            $ 97,000         $-0-
        and Director            1996            $ 96,547         $-0-



        1) As of December 31, 1997, Dr. Whitney had accumulated deferred
           salary totaling $141,750. Of this amount, $32,000 was accrued in
           1997, $49,750 was accrued in 1996, and $60,000 was accrued in 
           prior years. Dr. Whitney was granted options to convert up to 
           $250,000 in unpaid salary at $0.10 per share, for a total of 
           2,500,000 shares of common stock. Dr. Whitney was also granted 
           options for 1,200,000 shares of common stock at $0.10 for his 
           personal guarantee of certain obligations of the Company and its 
           subsidiaries. The options were to expire in February 1997, but 
           were extended to six months after all the Company and 
           subsidiaries' debts owed to, or guaranteed by, Dr. Whitney were 
           paid in full. In May 1996, Dr. Whitney received warrants for 
           100,000 shares. The warrants were exercisable for five 
           years at $0.10 per share. The warrants were issued in conjunction 
           with Dr. Whitney's acquisition of 100,000 shares for cash. The 
           combined total of options and warrants for Dr. Whitney was for 
           3,800,000 shares of common stock. Of these options and warrants, Dr. 
           Whitney exercised 500,000 shares in December 1996, 2,092,380 in 
           1997, and the remaining 1,207,620 in January 1998. In September 
           1998 Dr. Whitney converted an additional $50,000 of unpaid salary by 
           acquiring five units of the Company's 1998 Private Placement, 
           Tranche One. As of December 31, 1998 Dr. Whitney has $11,750 in 
           unpaid salary and warrants, expiring September 30, 2000, for 200,000 
           shares of common stock at $0.25 per share for the first year and 
           $0.40 per share for the second year, after September 30, 1998,


                                     33

<PAGE>


           respectively. 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 $1,709, $1,000, and $547, 
           for 1998, 1997, and 1996, 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 1998. 


Option Grants in Last Fiscal Year

	None.


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                1,207,620                $-0- 

(1)   The options were at $0.10 per share and the offering price of
   restricted stock to non-employees on the exercise date was $0.10.
   Consequently, no value was realized. If value realized was based on the
   high bid on the exercise date, the value realized would have been
   $132,838. The securities received, 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.


Options Unexercised:
                                Number of Securities    Value of Unexercised
                                Underlying Unexercised  In-the-Money Options
                                Options at 12/31/98     At 12/31/98
                                ----------------------  --------------------
Name                            Exercisable Unexercise. Exercisable Unexer.
--------------------            ----------- ----------  ----------- -------
Dr. John W. Whitney               200,000       -        $ -0- (1)   $ -0-

(1)   The warrants are at $0.25 per share and the offering price of restricted  
   stock to non-employees in 1998 was $0.125. Consequently, no value would be 
   realized. If value realized was based on the high bid as of December 31,  
   1998, the value realized would have been $-0-. 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.


                                     34

<PAGE>
 

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, 1999, 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(4)      Total     Class
----------------------  --------------   -------------  ----------  ---------

John W. Whitney
P.O. Box 10725
Reno, NV 89510           14,361,823(3)    1,200,000      15,561,823    25.68
(1)(2)

Richard J. Cavell
1013 No. Marshall Dr.
Camano Island, WA         5,094,377         50,000        5,144,377     8.65

(1)     Director

(2)     Officer

(3)     Includes 87,636 shares owned by or to be issued to John B.
        Whitney, Dr. John W. Whitney's minor son, 71,632 shares owned
        by Maureen E. Whitney, Dr. Whitney's wife. Warrants, expiring           
        September 30, 2000, for 200,000 shares of common stock are at    
        $0.25 per share for the first year at $0.40 per share for the 
        second year, after September 30, 1998, respectively. Options 
        for 1,000,000 shares are at $0.25 per share.

(4)     All warrants of Dr. Cavell are priced at $0.10 per share.


b)	Security Ownership of Management.
      ---------------------------------
	The following table sets forth as of February 28, 1999, certain
information, with respect to director and executive officer ownership of
common stock in the Company:


                                     35

<PAGE>


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          14,361,823(5)    1,200,000       15,561,823    25.68
(3)(4)

Paul H. Durckel
1511 Main St.
Gardnerville, NV. 89410    201,000            -             201,000     0.34
(3)

Alan C. Lewin      
P.O. Box 10725
Reno, Nv 89510             170,000          50,000          220,000     0.37
(3)

All directors and
executive officers as
a group (5 persons)     17,148,712       1,290,000       18,438,712    30.38


(1)     Of the above options and warrants, 50,000 are at $0.10 per   
        share, 240,000 are at $0.25 per share for the first year and $0.40 per  
        share for the second year, from the date of grant, respectively, and 
        1,000,000 are at $0.25 per share.   

(2)     The percent of class is based on the sum of 59,404,144 shares
        outstanding or to be issued as of February 28, 1999 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, 1999.

(3)     Director

(4)     Officer

(5)     Includes 87,636 shares owned by or to be issued to John B. Whitney,
        Dr. John W. Whitney's minor son, and 71,632 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.


                                     36

<PAGE>



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. As of December 31, 1997, Dr. Whitney has accumulated deferred
salary totaling $141,750. The entire balance was converted into the Company's
common stock in 1998.

        2. In 1994, options totaling 2,675,000 shares for Dr. Whitney and
200,000 shares for Dr. Cavell, which were to expire in 1995, were extended to
dates ranging from February 5, 1996 to May 15, 1997. The option price of $0.10
per share remained unchanged. In 1995, an additional option for 1,025,000
shares was granted to Dr. Whitney and his existing options were extended to
dates ranging from February 5, 1997 to May 15, 1997. In 1996, the above
options were extended to six months after all debts owed to, or guaranteed by,
Drs. Whitney and Cavell by Itronics Inc. and its subsidiaries and
partnerships are paid in full. Of the above options, Dr Whitney exercised
500,000 shares in 1996, 1,992,380 in 1997, and 1,207,620 in 1998. Dr Cavell
exercised all 200,000 of his options in 1998.
        

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, 1998 and
                     1997.
                (b)  Consolidated Statements of Operations for the Years ended
                     December 31, 1998 and 1997.
                (c)  Consolidated Statements of Stockholders' Equity 
                     (Deficit) for the Years ended December 31, 1998 and 1997.
                (d)  Consolidated Statements of Cash Flows for the Years ended
                     December 31, l998 and 1997.
                (e)  Notes to Consolidated Financial Statements.

        2.      List of Exhibits:
                -----------------
                11  Statement re computation of loss per share
                21  List of significant subsidiaries.
                
                
        II.     Reports on Form 8-K. 
                --------------------
                None


                                     37

<PAGE>


                         INDEX TO FINANCIAL STATEMENTS
                             AND SUPPLEMENTAL DATA
                               DECEMBER 31, 1998
                                                                PAGE
                                                                ----
INDEPENDENT AUDITOR'S REPORT ON
THE FlNANCIAL STATEMENTS                                         39

FINANCIAL STATEMENTS
        Consolidated Balance Sheets                              40
        Consolidated Statements of Operations                    42
        Consolidated Statements of Stockholders' Equity 
         (Deficit)                                               44
        Consolidated Statements of Cash Flows                    46
        Notes to Consolidated Financial Statements               48


EXHIBITS:
        11     Computation of loss per share                     69
        21     Significant subsidiaries                          70
        27     Financial Data Schedule                           72        

STATEMENTS AND SCHEDULES

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


                                     38

<PAGE>


                          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,
1998 and 1997, and the related consolidated statements of operations,
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 generally accepted audit-
ing 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, 1998
and 1997, and the results of their operations and their cash flows for the
years then ended in conformity with 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 $1,024,863 during the year
ended December 31, 1998. 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
15. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





                                /S/ KAFOURY, ARMSTRONG & CO.


Reno, Nevada
March 5, 1999
                                      

                                     39

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997


                                    ASSETS


CURRENT ASSETS                                        1998           1997 
                                                   ----------     ----------
  Cash                                             $  348,829    $   29,213
  Accounts receivable, less allowance for
    doubtful accounts, 1998, $1,406;
    1997, $1,406 - Notes 4 and 16                     117,397        52,272     
  Notes receivable, shareholders - Note 15             66,325        37,337
  Inventories                                          41,107        47,973
  Prepaid expenses                                     46,945        22,462
                                                    ---------     ---------
        Total Current Assets                          620,603       189,257    
                                                    ---------     ---------



PROPERTY AND EQUIPMENT
  Design and construction in progress, 
   leasehold improvements                              98,358         3,546
  Leasehold improvements                               14,212        14,212     
  Equipment and furniture                             394,746       327,635     
  Vehicles                                             68,273        32,858     
  Equipment under capital lease - Note 11              35,189        32,012     
                                                    ---------     ---------
                                                      610,778       410,263    
      Less:  Accumulated depreciation and
            amortization                              281,433       247,073    
                                                     ---------     ---------
                                                      329,345       163,190     
                                                    ---------     ---------


OTHER ASSETS
  Patents, trademarks, and other, less accumulated 
    amortization 1998, $12,857; 1997, $11,801           8,339         6,895     
  Stock placement and organization costs, less 
    accumulated amortization 1998, $26,360; 
    1997, $18,319                                      45,040           226     
  Note receivable, shareholder - Note 15               42,340        82,663
  Investment in American Gold & Silver Ltd.             9,250          -     
  Deposits                                              7,612         2,823  
                                                    ---------     ---------  
                                                      112,581        92,607     
                                                    ---------     ---------
                                                   $1,062,529    $  445,054
                                                    =========     =========


                                     40


<PAGE>

                   LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

                                                       1998          1997
CURRENT LIABILITIES                                 ----------    ----------
  Accounts payable                                 $  152,682    $   92,654
  Accrued management salaries - Note 10                80,914        97,088    
  Accrued expenses - Note 9                           103,136        53,424    
  Insurance contracts payable                          19,279        15,394   
  Interest payable                                     15,084        17,314     
  Current maturities of long-term debt - Note 3         4,251         5,000
  Current maturities of capital lease obligations -
    Note 11                                               700          -        
  Current maturities of advances from 
    stockholders - Note 3                             113,318        60,085   
  Current maturities of capital lease obligations
    due stockholders - Note 11                          8,964        24,419     
  Other                                                 6,326         6,326     
                                                    ---------     ---------
        Total Current Liabilities                     504,654       371,704     
                                                    ---------     ---------
LONG-TERM LIABILITIES
  Long-term debt, less current maturities - 
    Note 3                                             21,769           -
  Capital lease obligations, less current 
    maturities - Note 11                                3,017           -
  Advances from stockholders, less current
    maturities - Note 3                                43,154        70,946     
  Capital lease obligations due stockholder,
    less current maturities - Note 11                   7,042         2,803 
  Accrued salary due officer/stockholder - Note 10     37,200       140,000    
  Deferred gain, less current maturities -
    Note 11                                            16,111        19,627    
                                                    ---------     ---------
        Total Long-Term Liabilities                   128,293       233,376
                                                                       
Contingency - Note 14                                    -             -        
                                                    ---------     ---------
                                                      632,947       605,080     
                                                    ---------     ---------
STOCKHOLDERS' EQUITY (DEFICIT)
  Preferred stock, par value $0.001 per share;
   authorized 999,500 shares, issued and outstand-
   ing 1998, 0 shares; 1997, 0 shares - Note 6           -             -
  Common stock, par value $0.001 per share;
   authorized 250,000,000 shares, issued and
   outstanding 1998, 56,059,727; 1997, 43,050,532;     56,060        43,051     
  Additional paid-in capital                        4,625,194     3,039,980     
  Accumulated deficit                              (4,375,283)   (3,350,420)    
  Common stock to be issued - Note 8                  123,611       107,363    
                                                    ---------     ---------    
                                                      429,582      (160,026)    
                                                    ---------     ---------
                                                   $1,062,529    $  445,054     
                                                    =========     =========

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


                                     41

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                                                    1998            1997
                                                 ----------      ----------
REVENUES
  Mining technical services - Note 4           $    422,848      $  442,190     
  Photobyproduct recycling                          126,323         123,783     
  Silver                                            163,799         102,572    
  Fertilizer                                         53,750          10,077     
                                                -----------       ---------
        Total Revenues                              766,720         678,622     

COST OF SALES                                       923,115         730,679 
                                                -----------       ---------
         Gross Profit (Loss)                       (156,395)        (52,057)    
                                                -----------       ---------
OPERATING EXPENSES
  Depreciation and amortization                      39,941          23,708     
  Research and development                           90,104          59,479     
  Sales and marketing                               278,817          87,767
  Plant start-up costs                               42,620            -        
  General and administrative                        376,460         242,940     
                                                 ----------       ---------
                                                    827,942         413,894     
                                                -----------       ---------
        Operating (Loss)                           (984,337)       (465,951)   
                                                -----------       ---------
OTHER INCOME (EXPENSE)
  Forgiveness of debt - Note 12                        -             22,458     
  Interest expense                                  (46,511)        (58,543)    
  Other, net                                          5,985           2,615    
                                                -----------       ---------
        Total Other Income (Expense)                (40,526)        (33,470)    
                                                -----------       ---------
(Loss) before provision for income tax           (1,024,863)       (499,421)   
Provision for income tax - Note 5                      -               - 
                                                -----------       ---------
Net Income(Loss) before cumulative effect of a                                  
 change in accounting principle                  (1,024,863)       (499,421)

Cumulative effect on prior years (to 
 December 31, 1996) of changing the accrual of     
 audit and annual meeting costs - Note 18              -            (31,500)
                                                -----------       ---------
        Net Income (Loss)                      $ (1,024,863)     $ (530,921)
                                                ===========       =========
                                              
Weighted average number of shares outstanding    45,993,944      32,718,152     
                                                 ==========      ==========


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


                                     42

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                  (continued)

                          
                                                    1998            1997
                                                 ----------      ----------
Earnings (loss) per share before cumulative 
 effect of a change in accounting principle -
 Note 19                                         $ (0.0223)      $ (0.0160)
Cumulative effect on prior years (to December
 31, 1996) of changing the accrual of audit
 and annual meeting costs - Note 18                  -             (0.0010)     
                                                  ---------       ---------

Earnings (Loss) per share                        $ (0.0223)      $ (0.0170)     
                                                 ==========      ==========


Pro forma amounts assuming the new method of
 accruing audit and annual meeting costs is
 applied retroactively
  
  Net Income (Loss)                            $(1,024,863)      $(499,421)
  Earnings (Loss) per share                    $   (0.0223)      $ (0.0160)



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


                                     43

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997



                                                    PREFERRED STOCK
                                                    ----------------
                                                    NUMBER OF
                                                    SHARES     AMOUNT
                                                    ---------  --------
Balance, December 31, 1996                             247     $   -  

  Sale/issue of preferred/common stock                  -          -         
	               
  Net (loss) for the year ended                         -          - 
    December 31, 1997		
		
  Exchange of preferred for common stock              (247)        -
                                                          
                                                     -------    -------
Balance, December 31, 1997                              -          -
                                                     
  Sale/issue of preferred/common stock                  -          -         
	               
  Net (loss) for the year ended 
    December 31, 1998                                   -          -   
                                                     -------    -------

Balance, December 31, 1998                              -       $  -
                                                     =======    =======      


                                     44

<PAGE>



    COMMON STOCK          
  ----------------         ADDITIONAL
    NUMBER OF               PAID-IN      ACCUMULATED  COMMON STOCK
    SHARES       AMOUNT     CAPITAL       DEFICIT    TO BE ISSUED     TOTAL
   ---------    --------  ----------   ------------  ------------ ----------- 
   29,748,046   $ 29,748  $1,444,912   $(2,819,499)  $ 114,591    $(1,230,248)
   
   10,118,772     10,119   1,001,384          -         (7,228)     1,004,275

         -          -           -         (530,921)       -          (530,921)


    3,183,714      3,184     593,684          -           -           596,868
    
   ----------   --------  ----------   ------------   --------    -----------
   43,050,532     43,051   3,039,980    (3,350,420)    107,363       (160,026)

   13,009,195     13,009   1,585,214          -         16,248      1,614,471


         -          -           -       (1,024,863)       -        (1,024,863)
   ----------   --------  ----------   ------------   --------    -----------

   56,059,727   $ 56,060  $4,625,194   $(4,375,283)   $123,611    $   429,582
   ==========   ========  ==========   ===========    ========    ===========   
   


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


                                     45

<PAGE>


                        ITRONICS INC, AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                                                     1998           1997
                                                  -----------    ----------
Cash flows from operating activities       
  Net income (loss)                             $(1,024,863)    $ (530,921)     
  Adjustments to reconcile net loss to cash
    used by operating activities:
     Depreciation and amortization                   39,941         23,708     
     Forgiveness of debt                               -           (22,458)
     Expenses paid with issuance of common stock:              
       Interest expense                              18,143         29,085     
       Legal and consulting expenses                 57,850         17,658      
       Directors fees                                 5,127          3,844 
       Operating expenses                             9,500          1,477
       Salaries                                     119,591         12,806      
     (Increase) decrease in:
        Accounts receivable                         (65,125)         8,354
        Interest receivable-stock subscription       (1,003)          -         
        Inventories                                   6,866        (19,970)     
        Prepaid expenses and deposits                (9,375)        (3,423) 
     Increase (decrease) in:
        Accounts payable and other liabilities       70,028        (17,461)     
        Accrued expenses and contracts payable       86,373         67,502      
        Interest payable                             (2,230)         5,828     
                                                  ---------       ---------
          Net cash used by operating activities    (689,177)      (423,971)   
                                                  ---------       ---------
Cash flows from investing activities:
  Acquisition of fixed assets                      (169,401)       (61,491)    
  Acquisition of intangibles                        (52,855)          -         
                                                  ---------       ---------
          Net cash used by investing activities    (222,256)       (61,491)     
                                                  ---------       ---------
Cash flows from financing activities:
  Proceeds from sale of stock                     1,202,263        508,850      
  Proceeds from long-term debt, stockholders         69,327         96,500
  Payments on long-term debt, stockholders          (35,102)       (85,651)     
  Payments on long-term debt, unrelated parties      (5,439)        (6,115) 
 
                                                  ---------       ---------
           Net cash provided by financing
           activities                             1,231,049        513,584      
                                                  ---------       ---------
           Net increase in cash                     319,616         28,122      

Cash, beginning of year                              29,213          1,091      
                                                  ---------       ---------
Cash, end of year                                $  348,829      $  29,213
                                                  =========       =========

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


                                     46

<PAGE>

                 
                        ITRONICS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                (continued)


                                                    1998            1997
                                                 ----------      ----------
Supplemental Disclosures of Cash Flow
 Information:
  Cash paid during the period for interest       $   30,598     $   23,630      
  Schedule of non-cash financing transactions:
    Settlement of debt/accruals for
     issuance of common stock:
        Accounts payable                             10,000          1,952      
        Accrued liabilities                         151,750        187,640      
        Notes payable                                20,000         89,526      
        Capital lease payments                         -            20,076     
        Accrued interest payable                       -            16,584
    Payment of expenses with issuance of common
     stock:                      
        Interest expense                             18,143         29,085
        Legal and consulting fees                    57,850         17,658     
        Director fees                                 5,127          3,844
        Operating expenses                            9,500          1,477      
        Salaries                                    119,591         12,806 
        Prepaid expenses                             19,897           -        
    Notes receivable received in subscription of
     common stock                                    42,000        120,000      
    Equipment financed with long-term debt           26,459           - 
    Equipment financed with capital lease             3,717           -        
    Purchase of fixed assets by issuance of
     common stock                                       938          2,798      
 


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


                                     47

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997



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, developing and implementing silver recovery and photobyproduct
   recycling techniques, and research and development of manufacturing
   fertilizer from photobyproducts. The process of converting to a commercial   
   level of operations for the photobyproduct recycling and fertilizer  
   manufacturing segment was commenced during 1998.

       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:

                                                        1998        1997
                                                     PERCENTAGE  PERCENTAGE
                                                     ----------  ----------
           Whitney & Whitney, Inc.                     100.00      100.00
           Itronics Metallurgical, Inc.                100.00      100.00
           Nevada Hydrometallurgical Project
            (A Partnership)                             92.50       92.50
           American Hydromet (A Joint Venture)          81.63       81.40
           American Gold & Silver
            (A Limited Partnership)                     43.84       42.85

        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.


                                     48

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997



        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, 1998 and 1997 were $221,854 and $140,123, respectively.

       Accounts Receivable Allowance Account:

        The photobyproduct fertilizer segment of the Company uses the
   allowance method to account for uncollectible accounts receivable.

        The Company considers accounts receivable for the mining technical
   services segment to be fully collectible; accordingly, no allowance for
   doubtful accounts is required.

       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.

        Cost of silver 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 16).

   Property and Equipment:

        Property and equipment are stated at cost.  Depreciation is computed


                                     49

<PAGE>

  
                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997



   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
             Non-compete agreement                      10

       Research and Development:

        The Company's fertilizer production process is in the research and
   development stage. Accordingly, wages, benefits, rent, and other costs 
   associated with the research are expensed as research and development 
   expenses when incurred. Nominal sales, and the related cost of sales, are 
   included in revenues and cost of sales, 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 plus cumulative preferred dividends for the period divided by the
   weighted average number of common shares outstanding during 1998 and 1997.
   Common stock equivalents are not included, as their effect would be
   antidilutive.

        Loss per common share for the period is $0.0223 and $0.0170 for 1998
   and 1997, respectively. Loss per common share, excluding the effects of
   cumulative preferred dividends for the period is $0.0223 and $0.0162 for
   1998 and 1997, respectively. Loss per common share assuming all shares
   issued for the settlement of services and liabilities during 1998 and 1997


                                     50

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


   were outstanding as of the beginning of each year (or issuance/accrual
   date, if later) is $0.0213 and $0.0139, respectively, excluding the effects
   of cumulative preferred dividends for the period which is antidilutive.

	 Common Stock:

	  The Company's common shares have, subject to the provisions of any  
   series of Preferred Stock (see Note 6), 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, 1998 and 1997 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,
                                                     --------------------
                                                       1998        1997
                                                     --------    --------
   Notes due to unrelated outside parties:
   ---------------------------------------
   Unsecured note payable for loan made as part 
   of the Company's acquisition of Whitney & 
   Whitney, Inc., 10.5% interest. In September
   1997 this note and accrued interest was 
   settled for $10,000 cash down, $20,000 in 
   common stock and $5,000 cash due on 
   January 15, 1998. (see Note 12)                   $  -        $  5,000

   Note payable secured by a vehicle. The note is
   payable at $575 per month, including interest
   at 11.0% per annum, for 60 months beginning 
   December 30, 1998.                                 26,020         -
                                                      ------       ------
                                                      26,020        5,000


                                     51

<PAGE>

   
                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


     
       Less current portion due within one year       (4,251)      (5,000)
                                                     -------       -------
   Total long-term liabilities due to unrelated       
    parties                                          $21,769       $  -        
                                                     =======       =======

   Loans from Stockholders/Related Transactions:     
   ---------------------------------------------
   Unsecured note payable to two stockholders (one
   of which is an officer of the Company). Interest
   on the loan is 3% over Bank of America's prime
   rate (9% at the date of the loan), terms of
   payment include 23 monthly installments of
   $1,669 commencing June 5, 1993. (On May 28, 1997,
   the due date of the note was extended from May 5,
   1997 to May 5, 1998.)                             $  -        $  8,201

   
   Unwritten, unsecured 14% interest bearing advance 
   payable to officer/stockholder, due on demand.  
   Monthly installments are estimated at $1,000,
   but are contingent upon the Company's future
   cash flows.                                        44,255       12,428

   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.                  46,983       49,000

   Unsecured note payable to stockholder in the
   amount of $10,000, dated December 28, 1994.
   Interest only at 11.5% is payable quarterly.
   In December 1997 this note was restructured. 
   Monthly payments of $220 begin January 1998 
   and are to continue to December 2000,  at 
   which time the unpaid balance will be due and 
   payable.                                            8,456       10,000

   Four unsecured notes payable to an unaffiliated
   company owned by an officer/ stockholder
   totaling $22,440, dated in July 1995 and 1996.
   The notes are payable in monthly installments
   of $534, contingent on the Company's cash flow, 
   including variable interest at 6% over prime 
   (15% as of December 31, 1998).                     14,278       14,402


                                     52

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


                                                        DECEMBER 31,
                                                   ---------------------
                                                     1998        1997
                                                   ---------   ---------

   Unwritten, unsecured advance payable to an 
   officer/stockholder. Variable interest (10.5%
   to 19.8% as of December 31, 1998) is payable
   monthly. The advance is due on demand.         $   10,500    $   5,000

   Unsecured note payable owed to a family member        
   of an officer/stockholder dated March 1997.
   Interest accrues at 10% per annum. The balance
   of principal and interest is payable in March 
   2002. An option has been granted to convert the 
   note and accrued interest into the Company's 
   common stock.                                      10,000       10,000   

   Unsecured note payable due an officer/stock-
   holder, dated December 1997. Payments are interest 
   only at prime plus 6%(15% at December 31, 1998)
   through 1998, monthly payments of $476 through 1999,
   with the balance due on December 31, 1999.         22,000       22,000      
                                                    --------     --------
                                                     156,472      131,031
   Less current portion due within one year         (113,318)     (60,085)
                                                    --------     --------
   Total long-term liabilities due to stock-
    holders                                        $  43,154    $  70,946
                                                    ========     ========


   Long-term debt matures as follows:

          YEAR                   UNRELATED PARTIES     STOCKHOLDERS
        --------                 -----------------     ------------
          1999                       $  4,251             $113,318 
          2000                          4,743               33,154  
          2001                          5,293                 -      
          2002                          5,904               10,000
          2003                          5,829                 -
                                       ------              -------
                                     $ 26,020             $156,472
                                       ======             ========

NOTE 4 - Major Customers:

        Technical services revenue (including pass through funds described in   
   Note 1) for the year ended December 31, 1998 includes $391,807 from one  
   major customer which represents 92.7% of technical services revenues.  
   Technical services revenue (including pass through funds described


                                     53

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


   in Note 1) for the year ended December 31, 1997 includes $268,877 and  
   $123,858 from two major customers which represents 88.8% of technical  
   services revenues. Receivables from these major customers as of December 
   31, 1998 and 1997, amount to $79,883 and $33,838, which represents 
   89.2% and 98.0%, 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.

	  Silver sales for the years ended December 31, 1998 and 1997 includes 
   $116,430 and $69,342, respectively, from one major customer. The customer
   is one of the largest silver refiners in the country.

NOTE 5 - Income Taxes:

        Although the Company has incurred net losses for 1998 and 1997, the
   majority of the loss from the photobyproduct fertilizer segment is
   attributed to American Hydromet, which is a joint venture. Net   
   income (loss) before taxes, after application of the above, amount to   
   $(201,342) and $(160,505) for 1998 and 1997, respectively. 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.

                                              1998               1997
                                     -------------------  -------------------
                                               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 carry-
   forward to offset future taxable income and tax liabilities for income tax
   reporting purposes expire as follows:

        Year Ending December 31:                     Net 0perating Loss
        -----------------------                      ------------------
                1999                                    $   12,260
                2001                                        33,828
                2002                                        26,089
                2003                                        14,737


                                     54

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997



                2005                                    $   65,113
                2006                                       430,403
                2007                                       188,146
                2008                                       113,253
                2012                                       322,525
                2018                                       371,905             
                                                         ---------    
                                                        $1,578,259
                                                         =========
	
        The Company's total deferred tax assets, and deferred tax asset
   valuation allowances at December 31, 1998 and 1997 are as follows:

                                                      1998         1997
                                                   ---------    ---------
        Total deferred tax assets                  $ 572,240    $ 464,006
        Less valuation allowance                    (572,240)    (464,006) 
                                                    --------     --------
        Net deferred tax asset                     $    -      $     -
                                                    ========     ========

NOTE 6 - Redeemable Preferred Stock:

        On June 15, 1989, the Company authorized 1,000,000 shares of Preferred
   Stock (par value of $0.001 per share). In addition, 500 shares of the
   Preferred Stock were designated as Series "A" Cumulative Convertible
   Redeemable Preferred Non-Voting shares (hereinafter called Series "A"
   Preferred Shares). Except for the Series "A" Preferred Shares, the
   Company's Board of Directors has the authority to divide the Preferred
   Shares into series and to set the relative rights and preferences of each
   series.

        As of December 31, 1998 and 1997, there were -0- and -0- shares,   
   respectively, of Series "A" Preferred Shares issued and outstanding. 247   
   shares were issued prior to 1997 at a price of $900 per share, and have     
   provisions for a cumulative dividend of $160 per annum per share, or 
   approximately 18% per annum. As of December 31, 1998 and 1997, cumulative 
   unpaid dividends on Series "A" Preferred Shares were $-0- and $-0-. 

        On May 30, 1997 the Series "A" Preferred shareholders were offered
   an exchange of 9,000 common shares for each Preferred Share. Preferred
   shareholders accepting the exchange offer agreed to forego all cumulative
   and future dividends related to the Preferred Shares. On September 5, 1997   
   the exchange offer was amended to include conversion of the cumulative   
   dividends through the redemption date of October 31, 1998 at the rate of 
   $0.33 1/3 per common share, which was the equivalent to the conversion rate
   under the terms of the Preferred Shares. As of December 31, 1997, 100% of  
   the Preferred Shares have been exchanged, resulting in a reduction of the 
   Stockholders' Deficit of $596,868 from December 31, 1996.


                                     55

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997



NOTE 7 - Stock Option and Purchase Plans:

        Pursuant to various Board of Director authorizations, the Company has
   adopted an ongoing debt restructuring plan which includes 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 4,870,000 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 November 
   30, 2000. A bonus warrant was granted for each common share acquired in 
   Tranche 2 of the Offering. The bonus warrants are exercisable in four six 
   month intervals at prices of $0.15, $0.20, $0.30, and $0.40 per share, 
   respectively. A total of 3,720,000 bonus warrants were issued, with varying 
   exercise dates through November 12, 2000. 

        In addition to the above private placement warrants, the Company has
   granted options for Common Shares to certain officers, directors, employees
   and creditors of the Company. The options are exercisable at varying
   dates through March 17, 2002. The number of outstanding options was 218,710 
   and 1,615,538 shares at December 31, 1998 and 1007, respectively.

        Following is a summary of all the above described warrants and options
   granted for the years ended December 31, 1998 and 1997.

                                                        NUMBER OF SHARES
                                                     ----------------------   
                                                        1998        1997
                                                     ---------    ---------   
        Under option, beginning of year              5,317,590    6,106,078 
        Granted                                      8,600,792    1,876,978
        Exercised                                   (1,482,620)  (2,630,466)
        Expired                                           -         (35,000)
                                                    ----------    ---------
        Under option, end of year                   12,435,762    5,317,590
                                                    ----------    ---------
        Average price for all options
        granted and exercised                          $0.19        $0.l0
                                                    ----------    ---------

NOTE 8 - 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:


                                     56

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


                                                        1998       1997
                                                     ----------  ---------
        Payment of legal and consulting fees          $ 15,020    $ 15,000 
        Payment of director fees                         1,377       1,000
        Payment of salaries                            103,318      58,541
        Payment of interest                              3,896       7,092 
        Payment of notes payable                          -         25,000
        Purchase of equipment                             -            730
                                                       -------     -------
                                                      $123,611    $107,363
                                                       =======     =======

NOTE 9 - Accrued Expenses:

        The  following  is  the  composition  of  accrued  expenses  as  of
   December 31:
                                                        1998        1997
                                                      --------    --------
        Accrued vacation                              $ 19,709     $ 9,703
        Payroll taxes*                                    -          1,880
        Federal and State payroll taxes                 47,236       8,288
        Sales tax                                        1,191       1,053
        Audit & annual meeting costs                    35,000      32,500      
                                                       -------     -------
                                                      $103,136    $ 53,424
                                                       =======     =======

        * One subsidiary was on a payment schedule with the Internal Revenue
   Service of $1,184 per month until the balance was paid in February 1998.

NOTE 10  - Related Party Transactions:

        Several promissory notes are held by stockholders at December 31, 1998
   and 1997 (see Note 3 for terms).

        Interest expense includes $42,088 and $49,511 for December 31, 1998
   and 1997, respectively, relating to the Company's notes payable and salary  
   in arrears due to stockholders. Accrued interest payable includes $14,973 
   and $17,314 for the notes and leases payable to stockholders as of December 
   31, 1998 and 1997, respectively.

	  An officer/stockholder of Whitney & Whitney, Inc. was owed $50,854
   for salary in arrears as of December 31, 1998. The individual retired on 
   December 31, 1998 and desires to receive payment of the back salary over 
   several years. The individual has agreed not to make demand for 
   approximately $37,200 of the arrearages prior to January 1, 2000.

        An officer/stockholder of the Company was owed $11,750 and $141,750
   for salary in arrears as of December 31, 1998 and 1997, respectively.  The
   officer/stockholder made an agreement with the Company not to make demand
   on these arrearages prior to March 1, 1999 (to a maximum of $140,000). The


                                     57

<PAGE>

 
                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


   $141,750 due at December 31, 1997 was converted into the Company's common 
   stock during 1998. The $11,750 due at December 31, 1998 is included in 
   accrued management salaries.

        $110,204 and $223,438 of the accrued management salaries as of 
   December 31, 1998 and 1997, respectively, is for salary in arrears due to 
   several officer/stockholders and employee/stockholders. Interest amounting 
   to $18,143 was paid in 1998 and 1999 by issuance of 124,073 shares of 
   common stock. Interest amounting to $21,014 for 1997 was paid in 1997 and 
   1998 by issuance of 210,137 shares of common stock.

        Accounts payable for legal fees of $10,000 and $15,000 were paid by 
   issuance of 80,000 and 150,000 shares of common stock for 1998 and 1997,  
   respectively, all of which were issued in 1998.
   
        $20,000 and $111,186 of long-term debt, leases and related accrued 
   interest were paid by issuance of common stock in 1998 and 1997, 
   respectively. The transactions are detailed in Note 3.

        Consulting and labor services amounting to $349,088 and $218,104 for 
   1998 and 1997, respectively, were paid by issuance of 2,738,418 and   
   2,181,040 shares, respectively, of common stock. The shares were or are to 
   be issued at varying dates in 1997, 1998 and 1999.

        In 1998 and 1997 technical services were performed for a client, the   
   majority of which is owned by officer/director/shareholders of the Company.
   Total technical services revenue from the project was $10,239 and $15,449 
   for 1998 and 1997, respectively. Accounts receivable includes $4,759 from 
   this project as of December 31, 1998.

        For related party transactions subsequent to December 31, 1998, see
   Note 17.

NOTE 11 - Lease Commitments and Rent Expense:

        0perating Leases
        ----------------
        The Company leases its office facility under a noncancellable
   agreement which expires June 30, 1999.

        A wholly owned subsidiary of the Company (Itronics Metallurgical,
   Inc. - IMI) leases plant facilities under a noncancellable agreement which
   expired June 30, 1997. Beginning July 1, 1997 the lease is 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 $3,120. The subsidiary also leases storage space for the period of     
   October 1, 1998 through March 31, 1999 for $614 per month. 


                                     58

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


	On January 15, 1998 IMI entered into a lease agreement, with option to 
   purchase, for a 35,000 square foot manufacturing facility in Reno/Stead, 
   Nevada. Occupancy of approximately 16,000 square feet occurred on June 1, 
   1998, with rental payments of $4,789 per month beginning on that date. The 
   lease expires on March 31, 2001. Occupancy of the remainder of the facility 
   occurred on October 15, 1998. The monthly rental amount increased by $2,500 
   beginning on that date. The additional rent is being paid by issuance of the 
   Company's restricted common stock. The option to purchase the facility is 
   for $1,000,000, payable with a $300,000 cash down payment, $100,000 in the 
   Company's restricted common stock, and a mortgage on the property for 
   $600,000. The mortgage is payable over 25 years at commercial interest 
   rates, with a balloon payment at the end of five years. The purchase option 
   expires on April 1, 1999. 

        Future minimum rental commitments at December 31, 1998, under these
   operating lease agreements are due as follows:
                                                        
                   1999                          $ 86,846
                   2000                            57,470         
                   2001                            14,368            
                                                  -------
                                                 $158,684
                                                  =======
                                                                             
       Total rental expense included in the statements of operations for the
   above leases for the years ended December 31, 1998 and 1997 are $138,788 
   and $88,234, 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
   or two to four months of additional payments.

 	  On December 31, 1998, the August 5, 1995 and January 30, 1996 leases 
   were extended, with eighteen monthly lease payments at the existing rates 
   and the remaining balance due on July 25, 2000.

	  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.


                                     59

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


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

        Future minimum lease commitments at December 31, 1998 are due as
   follows:
                                                    
                1999                                    $ 9,820
                2000                                      8,889
                2001                                      1,848
                                                         ------
                                                        $20,557
                                                         ======

NOTE 12 - Forgiveness of Debt:

        Forgiveness of debt has the following components:

                                                 1998        1997
                                               --------    --------             
        Write-off of various account
          payable balances                     $   -       $  9,134
        Settlement of note payable and
          accrued interest                         -         13,324
                                                -------     -------
                                               $   -       $ 22,458
                                                =======     =======

	  Income of $13,324 in 1997 resulted from the settlement of a note and   
   accrued interest totaling $48,324 for $15,000 in cash payments and $20,000  
   in common stock.

NOTE 13 - Business Segments:

	  Effective for years beginning after December 15, 1997, Statement of
    Financial Accounting Standards No. 131 has changed the disclosure
    requirements regarding business segments. The focus of the new
    pronouncement is to disclose segment information in a manner consistent
    with the information used by management to evaluate segment performance
    and to decide on allocation of resources. No significant changes were
    required in the Company's methodology of determining segment information.

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

                Mining Technical Services:      Mining industry services

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


                                     60

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


        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 one client in the gold mining industry, who has
   several operations in different areas of the United States.

        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 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:
                                                    1998            1997
                                                  ---------      ---------
        Mining Technical Services:      
          Technical services
            revenues (Note 1)                     $ 422,848      $ 442,190
          Cost of sales and operating expenses      623,984        517,100
                                                   --------       --------
              Operating (Loss)                    $(201,136)     $( 74,910)
                                                   ========       ========
        Photobyproduct Fertilizer:
          Revenues:
            Photobyproduct recycling             $  126,323      $ 123,783
            Silver recovery (Note 16)               163,799        102,572 
            Fertilizer sales (Note 15)               53,750         10,077
                                                  ---------       --------
                                                    343,872        236,432
                                                  ---------       --------
          Cost of sales and operating expenses    1,036,969        567,994 
          Research and development                   90,104         59,479
                                                  ---------       --------
                                                  1,127,073        627,473
                                                  ---------       --------
              Operating (Loss)                   $ (783,201)     $(391,041)
                                                  =========       ========


                                     61

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


        General and administrative expenses of $87,873 and $105,921 incurred by
   Itronics Inc. were equally divided between the two segments for 1998 and
   1997, respectively.

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

                                                     1998           1997
                                                  ----------     ---------
        Revenues
          Mining Technical Services             $   422,848     $ 442,190
          Photobyproduct Fertilizer                 343,872       236,432
                                                  ---------       -------
           Consolidated Revenues                $   766,720     $ 678,622
                                                  =========       =======
        Cost of Sales
          Mining Technical Services (Note 1)    $   375,789     $ 366,296      
          Photobyproduct Fertilizer                 547,326       364,383
                                                  ---------       -------
           Consolidated Cost of Sales           $   923,115     $ 730,679
                                                  =========       =======
        Operating Income (Loss)
          Mining Technical Services             $  (201,136)    $( 74,910)
          Photobyproduct Fertilizer                (783,201)     (391,041)
                                                 -----------     ---------
           Consolidated Operating Income (Loss)    (984,337)     (465,951)

           Other Income (Expense)                  ( 40,526)     ( 33,470)
                                                 -----------     ---------
           Consolidated Net Income (Loss) before
             taxes and cumulative effect of a 
             change in accounting principle     $(1,024,863)    $(499,421)
                                                 ===========     =========

   Other segment information:
        Capital expenditures by business
         segment:
          Mining Technical Services               $  31,298     $  23,574
          Photobyproduct Fertilizer (Note 11)       169,217        40,715
                                                    -------        -------
            Consolidated Capital Expenditures     $ 200,515     $  64,289
                                                    =======       =======

        Depreciation and amortization expense
         by business segment:
                                           
          Mining Technical Services
            Depreciation                          $   5,094     $   4,594
            Amortization                              2,075          -
                                                     ------        ------
                                                      7,169         4,594
                                                     ------        ------


                                     62

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


                                                     1998           1997
                                                  ----------     ----------
          Photobyproduct Fertilizer
            Depreciation                          $  25,820      $  12,657
            Amortization                              6,952          6,457
                                                     ------         ------
                                                     32,772         19,114
                                                     ------         ------
            Consolidated Depreciation and
             Amortization                         $  39,941      $  23,708
                                                     ======         ======

        Identifiable  assets  by  business  segment  (net  of  accumulated
   depreciation, accumulated amortization, and allowance for doubtful 
   accounts):
                                          1998                   1997
                                  ---------------------  -------------------
                                  MINING     PHOTO-       MINING    PHOTO-
                                  TECHNICAL  BYPRODUCT    TECHNICAL BYPRODUCT
        ASSET DESCRIPTION         SERVICES   FERTILIZER   SERVICES  FERTILIZER
   -------------------------     ----------- ----------   --------  ----------
   Current Assets
     Cash                       $   29,004   $ 17,637     $   9,795   $ 15,154  
     Accounts receivable, net       89,539     27,858        34,525     17,747
     Inventories                     1,826     39,281         1,826     46,147
     Prepaid expenses                  802     18,916           795     17,467
                                 ---------    -------     ---------    -------
                                   121,171    103,692        46,941     96,515
                                 ---------    -------     ---------    -------
   Property and Equipment, net
     Construction in progress,  
       leasehold improvements         -         98,358         -         3,546
     Leasehold improvements           -          7,355         -         8,225  
     Equipment                      43,818     118,795       29,253     90,742
     Vehicles                        4,983      32,532        2,249      4,233
     Equipment under capital
       lease                         3,624      19,880         -        24,942
                                 ---------     -------    ---------    -------
                                    52,425     276,920       31,502    131,688 
                                 ---------     -------    ---------    -------
   Other Assets, net  
     Patents, trademarks,
       and other                      -          8,339          -        6,895 
     Organizational costs             -            113          -          226  
     Intercompany investments
       and loans                 3,105,064        -        3,047,477      -
     Deposits                        2,121       5,491         2,121       702 
                                 ---------     -------     ---------   ------- 
                                 3,107,185      13,943     3,049,598     7,823
                                 ---------     -------     ---------   -------
                                $3,280,781    $394,555    $3,128,041  $236,026
                                 =========     =======     =========   =======


                                     63

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


   Reconciliation of segment assets to consolidated assets:

                                                   1998              1997
                                                ----------        ----------
    Total Assets:
      Mining Technical Services                 $3,280,781        $3,128,041
      Photobyproduct Fertilizer                    394,555           236,026
                                                 ---------         ---------
        Total Segment Assets                     3,675,336         3,364,067

      Itronics Inc. assets                       6,746,058         5,147,366
      Less: intercompany elimination            (9,358,865)       (8,066,379)
                                                 ---------         ---------
        Consolidated Assets                     $1,062,529        $  445,054
                                                 =========         =========

NOTE 14 - 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 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. Due to a civil court backlog, 
   the appeal hearing has been delayed for at least 25 months from July 31, 
   1998. As of the date of this report, a hearing date has not been set. 

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

NOTE 15 - Going Concern:

        The Company's consolidated financial statements have been presented
   on the basis that it is a going concern, which contemplates the realization
   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 $1,024,863 during the year ended
   December 31, 1998. This factor indicates the Company and its subsidiaries'


                                     64

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


   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. Management is now organizing the resources needed to market
   the products. 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.

        During 1997 the Company issued a Private Placement Memorandum to raise  
   $500,000 in equity funds and made an offer to exchange its Preferred Shares 
   for Restricted Common Shares. A total of $324,300 was received from the 
   Private Placement during 1997. Promissory notes, with balances of $82,663 
   and $120,000 at December 31, 1998 and 1997, respectively, have been accepted 
   in subscription of the Private Placement and an additional $81,175 was 
   received in 1998. The Preferred Exchange is more fully discussed at Note 6.

 	  During 1998 the Company issued a Private Placement Memorandum to
   raise $2 million in equity funds. A total of $1,078,750 was received from
   the Private Placement in 1998. In addition, $37,500 was received subsequent
   to December 31, 1998, $70,000 in accrued management salaries and an account 
   payable due to an officer/stockholder were converted into common stock in 
   the Private Placement, and promissory notes with balances of $25,000 at 
   December 31, 1998 have been accepted in subscription of the Private 
   Placement. 

	  In February 1999 the Company opened the Final Tranche of the 1998 
   Private Placement to raise $780,000 in equity funds. Through March 5, 1999, 
   $115,000 has been received under the Final Tranche. In addition, through 
   March 5, 1999, $561,174 has been received in exercise of 1998 and prior 
   warrants.


                                     65

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


NOTE 16 - 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, 1998, a significant portion of the Company's
   accounts receivable is concentrated with one mining industry client. This
   concentration of credit risk is somewhat mitigated due to the fact that the
   Company has been providing services for this client for more than ten years.

        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 have not been segregated in the Company's
   records, but 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
   be required. Certain of the Company's large scale customers presently meet
   the exemption requirements. Once all the photobyproducts are utilized in


                                     66

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997


   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 17 - Subsequent Events:

        Through March 5, 1999, new capital leases in the amount of $150,701
   (original principal amount) were incurred to finance equipment acquisitions 
   for the Reno/Stead manufacturing facility. An additional $200,000 in  
   equipment leases were pending on that date.
       
  	The following summarizes common stock activity from January 1, 1999
   through March 5, 1999:


                                           ISSUED             TO BE ISSUED
                                   -------------------     ------------------
                                      SHARES   AMOUNT       SHARES     AMOUNT
                                   ---------- --------     --------   --------
        
        Warrant exercise           1,095,240   $169,674   2,665,000   $391,500
        Private placement             60,000      7,500     567,750    145,000
        Labor & consulting services  249,125     37,881     696,574     84,157
        Director fees                  7,500      1,377        -          -     
        Interest                      27,889      3,896        -          -     
        Purchase of equipment           -          -          1,429        500  
        Operating expenses            24,390      5,000        -          -
        Acquisition of subsidiary       -          -          7,409      1,667
                                   ---------   --------   ---------   --------
                                   1,464,144   $225,328   3,938,162   $622,824
                                   =========   ========   =========   ========

        In addition, a total of $10,150 in labor services and $1,772 in  
   interest on accrued salaries has been incurred and will be paid in stock.

        In February 1999 the Company opened the Final Tranche of the 1998 
   Private Placement Memorandum to raise $780,000 in equity funds by offering 
   common shares and warrants at varying rates, with an anticipated minimum of 
   $0.35 per share. Through March 5, 1999 $115,000 has been received from 
   the Final Tranche. In addition, through March 5, 1999 $561,174 has been 
   received in exercise of 1998 and prior warrants.

        The Company's subsidiary, Itronics Metallurgical, Inc., intends to 
   exercise its option to purchase the Reno/Stead manufacturing facility prior 
   to April 1, 1999, the expiration date of the option. Terms of the option are 
   more fully described in Note 11. 

NOTE 18 - Change in Accounting Principle:

	  During 1997 the Company changed its method of accounting for its
   annual audit and shareholder meeting expenses. The change was made to
   provide better quarter to quarter comparability of the Company's Statements


                                     67

<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1998 AND 1997

 
   of Operations. Prior to the change, the entire expense would be incurred and 
   expensed within one or two quarters of the year. The Company believes it to 
   be more appropriate to allocate these costs over the entire year. The effect 
   of the change in 1997 was to increase net loss before cumulative effect of a 
   change in accounting principle by $1,000, or ($0.000) per share. The   
   adjustment of $31,500 included in the 1997 net loss is the cumulative effect 
   of applying the new accounting method retroactively. The pro forma amounts 
   shown on the Statements of Operations have been adjusted for the effect of 
   retroactively applying the new accounting method.

NOTE 19 - Earnings (Loss) Per Share:

        Following is a reconciliation of the numerators, Net Income (Loss) 
   before cumulative effect of a change in accounting principle, and the 
   denominators, weighted average number of shares outstanding, in the 
   computation of earnings (loss) per share (EPS) before cumulative effect of a 
   change in accounting principle for the years ended December 31, 1998 and   
   1997.

                                                1998           1997
                                              --------       -------- 
      Net Income (Loss) before cumulative 
       effect of a change in accounting
       principle                            $(1,024,863)    $(499,421)

        Less: Preferred stock dividends           -           (26,000)
                                              ---------      ---------
      Basic EPS income (loss) available to
       common stockholders                  $(1,024,863)    $(525,421)
                                            ============    ==========
	                                          
      Weighted average number of shares
       outstanding                           45,993,944     32,718,152

      Common equivalent shares                     -              -   
                                             ----------     ----------
	
                                             45,993,944     32,718,152
                                             ==========     ==========

        Per share amount                      $(0.0223)      $(0.0160)
                                              =========      ========= 

        Warrants, options, and shares to be issued, totaling 13,411,850 and 
   6,391,232 shares as of December 31, 1998 and 1997, respectively, could 
   potentially dilute future EPS. No diluted EPS is presented as the effect of 
   including these shares is antidilutive.                  
 

                                     68
 
<PAGE>


                        ITRONICS INC. AND SUBSIDIARIES

                         COMPUTATION OF LOSS PER SHARE
                FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                                  EXHIBIT 11


                                                 1998             1997
                                                ------           ------
Common and common equivalent shares used
 in determining net loss per share            

	Weighted average number of common
       shares outstanding during the
       period                                 45,993,944       32,718,152     

	Common equivalent shares                      -                -   
                                              ----------       ----------
                                              
                                              45,993,944       32,718,152
                                              ==========       ==========

Net Loss                                      $1,024,863       $  530,921

Cumulative preferred dividends for the
 period                                             -              26,000
                                               ---------        ---------
Net loss plus cumulative preferred dividends
 for the period                               $1,024,863       $  556,921
                                               =========        =========

Loss per share                                $   0.0223       $   0.0170
                                               =========        =========


                                     69

<PAGE>


                        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

Nevada Hydrometallurgical Project
 (A Partnership)                        Nevada                  Same

American Hydromet                  
 (A Joint Venture)                      Nevada                  Same
         

                                     70

<PAGE>


                                  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 30, 1999                   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 30, 1999                    By: /S/  JOHN W. WHITNEY
     ---------------                       ----------------------------------
                                           John W. Whitney
                                           President, Treasurer and Director
                                           (Principal Executive and Financial   
                                           Officer)


Date: March 30, 1999                    By: /S/  MICHAEL C. HORSLEY           
     ---------------                       ----------------------------------
                                           Michael C. Horsley
                                           Controller
                                           (Principal Accounting Officer)

Date: March 30, 1999                    By: /S/  PAUL H. DURCKEL              
     ---------------                       ----------------------------------
                                           Paul H. Durckel
                                           Director

Date: March 30, 1999                    By:  /S/ ALAN C. LEWIN
     ---------------                       ----------------------------------
                                           Alan C. Lewin
                                           Director


                                     71


<PAGE>