UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-K

            (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                  For the fiscal period ended December 31, 2001

                                       OR

             ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
          For the transition period from ___________ to ______________

                             Commission file number
                                     0-22923

                           INTERNATIONAL ISOTOPES INC
             (Exact name of registrant as specified in its charter)

                Texas                                 74-2763837
       (State of incorporation)           (IRS Employer Identification Number)

         4137 Commerce Circle
          Idaho Falls, Idaho                            83401
(Address of principal executive offices)              (zip code)

                                 (208) 524-5300
              (Registrant's telephone number, including area code)

         Securities registered under Section 12(b) of the Exchange Act:
         --------------------------------------------------------------
                          COMMON STOCK, $.01 PAR VALUE

         Securities registered under Section 12(g) of the Exchange Act:
         --------------------------------------------------------------
                          COMMON STOCK, $.01 PAR VALUE

                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 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 ( ) NO (X )

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not 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-K or any amendment to this
Form 10-K. (X)




<PAGE>

The  aggregate  market  value of the shares of common stock at April 4, 2002 was
$6,655,679.

As of April 4, 2002 the number of shares  outstanding of common stock,  $.01 par
value was 95,081,135 shares.




                                       2
<PAGE>


                           INTERNATIONAL ISOTOPES INC

                                    FORM 10-K

                              PRELIMINARY STATEMENT

         In late  2000,  after it was  apparent  that we  could  not  raise  the
additional  equity  financing  we needed,  we indicated  that the Company  would
pursue  strategic  alternatives  to sell  certain  assets  in order to  continue
operations.  Effective  December 31, 2000 the Company  decided to dispose of all
its business segments, with the exception of the I4 operations. As a result, all
results of operations for the  discontinued  segments have been  reclassified as
discontinued operations.

         On January  16,  2001,  the Company  completed  the sale of the Woodrow
Spencer office and warehouse  facility located in Denton,  Texas for proceeds of
$950,000, less closing costs of $63,811.

         On  April  20,   2001,   the   Company   completed   the  sale  of  the
Radiopharmaceutical  Manufacturing  Facility to NeoRx Corporation  ("NeoRx") for
cash proceeds of $12.0 million and warrants to purchase  800,000 shares of NeoRx
common stock.

         On April 27, 2001, the Company  completed the sale of its brachytherapy
seed assets ("Seed Assets") to Imagyn Medical Technologies,  Inc. ("Imagyn") for
cash proceeds of approximately $5.0 million.

         On  December  14,  2001,  the Company  completed  the sale of the Shady
Oaks/LINAC  facility to Advanced  Molecular  Imaging  Systems  Inc.  (AMISI) for
$8,251,849.  The sale was completed through AMISI's  assumption of $7,933,000 of
the Company's debt with Texas State Bank.

         The Company still has 115 acres of property in Waxahachie,  Texas,  and
excess  LINAC  components  as  assets  still  held for  sale.  The  property  in
Waxahachie,  Texas  has a net book  value  of  $409,531.  Based  on an  external
appraisal  conducted,  the Company  believes that proceeds from the sale of this
property  will be in excess of its net book  value.  Based on  discussions  with
potential  buyers,  the Company expects to sell the excess LINAC  components for
more   than   $800,000.    The   sale   of   the   Woodrow   Spencer   facility,
Radiopharmaceutical   Manufacturing  Facility,  the  Seed  Business,  the  Shady
Oaks/LINAC,  the  Waxahachie  property,  and the  excess  LINAC  components  are
referred to as the "Asset Sales".

         In March 2001 I4 terminated its commercial  use  subcontract  agreement
that  was  first  established  in 1996 at the  Idaho  National  Engineering  and
Environmental  Laboratory.  This  contract  had  permitted  access  to the Idaho
research  reactor for isotope  production but also included an obligation to pay
for the operations of a DOE owned  processing  facility.  The cost of supporting
those  operations  had increased  considerably  in the past several years to the
point  of no  longer  being  a  profitable  operation  under  those  contractual
arrangements.  Subsequent to contract termination the Company provided personnel
as  subcontracted  labor to the  laboratory  contractor  until that contract was
mutually  terminated in September  2001.  The Company  personnel who  previously
supported  subcontracted  operations  labor at the laboratory  were added to the
Company staff in Idaho Falls to support the growing labor  requirements of flood
source manufacturing and gemstone processing. The termination of these contracts
will not effect the  Company's  plans to continue HSA cobalt  production as some
material remains in production in the DOE reactor facility and this material can
be shipped directly from the reactor site to the customers  facilities'  without
any processing in the government laboratory.

         In April 2001, the Company also successfully completed a composition of
creditors  pursuant  to  which  we  were  able  to  reduce  our  trade  debt  by
approximately  $1,200,000  as almost all of the  Company's  unsecured  creditors
agreed to accept a payment equal to 50% of the amount owed to them.


                                       3
<PAGE>

         In January 2002 certain persons acting together as a group acquired all
of the  Company's  outstanding  shares  of  Series A 5%  Convertible  Redeemable
Preferred  Stock and certain  common stock from its then current  owners,  Brown
Simpson's  Strategic Growth Fund, Ltd. and Brown Simpson's Strategic Growth Fund
LP. The securities acquired consisted of all 10,000 shares of Series A Preferred
Stock and 2,087,837 shares of common stock, which the Brown Simpson entities had
acquired as interest  payments on the Preferred Stock. Also in January 2002, the
Company  re-acquired  2,817  shares  (or  37.7%)  of the  Company's  Series B 7%
Convertible Redeemable Preferred Stock for $86,832.

         In February and March 2002 the Company gained approval from 100% of the
holders of Series A and 80% of the holders of Series B Preferred  Stock to amend
their  respective  Certificates  of  Designation  to  eliminate  the Series A 5%
dividend and the Series B 7% dividend,  change the mandatory redemption date for
the all  Preferred  Stock to May 2022,  and remove  certain  default and penalty
provisions.  In addition,  the Company's Board of Directors  approved a purchase
offer of the Series A and B  Preferred  Stock (5000  common  shares for each one
share of Series A or B  Preferred  Stock).  All of the  holders  of the Series A
Preferred  Stock agreed to sell their  10,000  preferred  shares for  50,000,000
shares of common  stock at $0.20 per share.  Holders  of the Series B  Preferred
Stock  agreed to sell their  3,700  preferred  shares for  18,500,000  shares of
common stock at $0.20 per share

         In March 2002 the Company made a $20,000 payment to the former chairman
of the board and put a new 10-year note in place for the remaining balance owed.
The new note amount was set at $909,737 with annual income based  payments fixed
at 7%  interest  plus 30% of the  Company  pretax net  profits to be paid toward
principal on the note. The former  chairman agreed to declare any previous notes
or agreements as null and void.

         The Company emerging  subsequent to the Asset Sales now consists solely
of our I4 Idaho  operations  and the size and  nature  of the  business  will be
substantially less in scope than in prior years. The Company projects sufficient
revenue growth during 2002 to meet our cash flow and operational needs. However,
prospective  investors are cautioned  regarding  the  speculative  nature of any
forward-looking  projections.  Also see  "Item 7,  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations"  for a discussion of
these and other  risk  factors  relating  to the  Company  when  considering  an
investment in our securities.


Documents Incorporated by Reference

         The information  called for in Part III is incorporated by reference to
the definitive  proxy  statement for the annual meeting of  shareholders  of the
Company,  which will be filed with the  Securities  and Exchange  Commission not
later than 120 days after December 31, 2001.


                                       4
<PAGE>




INTERNATIONAL ISOTOPES INC

FORM 10-K

TABLE OF CONTENTS

                                                                        Page No.
Part I.

Item 1.   Business ....................................................     6
Item 2.   Properties ..................................................    11
Item 3.   Legal Proceedings ...........................................    11
Item 4.   Submission of Matters to a Vote of Securities-Holders .......    11


Part II.

Item 5.   Market for the Registrant's Common Equity and
            Related Stockholder Matters ...............................    12
Item 6.   Selected Financial Data .....................................    15
Item 7.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations .......................    16
Item 7a.  Quantitative and Qualitative Disclosure about Market Risk....    22
Item 8.   Consolidated Financial Statements............................    22
Item 9.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure .......................    22

Part III.

Item 10.  Directors and Executive Officers of Registrant ..............    23
Item 11.  Executive Compensation ......................................    23
Item 12.  Security Ownership of Certain Beneficial Owners
            and Management ............................................    23
Item 13.  Certain Relationships and Related Transactions ..............    23


Part IV.

Item 14.  Exhibits, Financial Statement Schedule
            and Reports on Form 8-K ...................................    23
Power of Attorney .....................................................    24
Signatures ............................................................    25




                                       5
<PAGE>



PART I

Item 1.  BUSINESS

General

         International  Isotopes  Inc, a Texas  corporation  (together  with its
wholly owned  subsidiary,  International  Isotopes Idaho Inc.  ("I4")  hereafter
referred to as "we" or the "Company" or "I3") was  initially  formed to produce,
market  and  distribute  a  broad  range  of  products  used in  diagnostic  and
therapeutic nuclear medicine,  research and industry. The Company's strategy was
to  establish  a  position  in the market as the first  U.S.  based  independent
commercial manufacturer of a broad range of radioisotopes,  pharmaceutical grade
radioisotopes, and finished radiopharmaceuticals,  including medical devices (on
a contract or joint venture basis) for the nuclear medicine industry.

         During  1999,  the  Company   concentrated  its  efforts  on  making  a
transition  from a development  stage  enterprise to an operating  manufacturing
company with a focus on finished radiopharmaceuticals.  The steps needed to make
this transition proved to be more costly and complex than  anticipated,  causing
the Company to miss many of our  milestones.  In  addition,  we were  conducting
testing and final  modifications  for operation of the  Radioisotope  Production
Facility  and  the  LINAC  in  conformity   with  the  Company's   redesign  and
reconfiguration.  The  challenges we  encountered  while bringing the LINAC into
regular operations were also more complicated than originally estimated.  As the
year progressed we found it necessary to make strategic changes in our structure
and business plans.

         In late  2000,  after it was  apparent  that we  could  not  raise  the
additional  equity  financing  we needed,  we indicated  that the Company  would
pursue  strategic  alternatives  to sell  certain  assets  in order to  continue
operations.   As  a  result,  the  Company   investigated  and  pursued  several
alternatives  in an attempt to salvage its business.  First,  we pursued several
partnering  relationships  with  customers.  These  attempts were not successful
primarily due to the Company's  weak  financial  condition.  We also  considered
seeking relief or  liquidation  under Chapter 11 and Chapter 7 of the Bankruptcy
Code, respectively. It was concluded that bankruptcy was not the best option for
the  Company or  creditors  since it was likely  that the claims of secured  and
unsecured  creditors  and  bankruptcy  administration  costs  would  exceed  the
realizable  value of our assets and that  unsecured  creditors and  shareholders
would receive  nothing due to radiation  license  liabilities,  the  anticipated
difficulty in selling assets containing radioactive materials,  and the probable
loss of critical highly skilled employees.

         Effective  December 31, 2000 the Company  decided to dispose of all its
business  segments,  with the  exception  of the I4  operations  in Idaho.  This
strategy  was  accepted  based  upon  the  premise  that the  remaining  Company
operations  in Idaho  would be  sufficient  to sustain the company and meet cash
requirements  for continued  business  operations.  As a result,  all results of
operations for the discontinued segments have been reclassified as "discontinued
operations".  From  November  2000 until the  present,  the Company laid off 183
personnel  and closed all of its operating  facilities  in Texas.  The following
paragraphs  describe some of the more significant  events that took place during
the course of the year.

         2001 Developments

         On January  16,  2001,  the Company  completed  the sale of the Woodrow
Spencer office and warehouse  facility located in Denton,  Texas for proceeds of
$950,000,  less closing  costs of $63,811.  The facility had a net book value of
$1,095,962  December 31, 2000.  Based on the  anticipated  sales  proceeds,  the
Company recorded an impairment  charge related to this facility in the amount of
$209,773 thereby  reducing the net book value to $886,189.  The Company used the
proceeds to reduce its revolving line of credit by $863,890  (including  accrued
interest of $23,400) and fund operating expenses with the remaining amounts.


                                       6
<PAGE>

         In March 2001 I4 terminated its commercial  use  subcontract  agreement
that  was  first  established  in 1996 at the  Idaho  National  Engineering  and
Environmental  Laboratory.  This  contract  had  permitted  access  to the Idaho
research  reactor for isotope  production but also included an obligation to pay
for the operations of a DOE owned  processing  facility.  The cost of supporting
those  operations  had increased  considerably  in the past several years to the
point  of no  longer  being  a  profitable  operation  under  those  contractual
arrangements.  Subsequent to contract termination the Company provided personnel
as  subcontracted  labor to the  laboratory  contractor  until that contract was
mutually  terminated in September  2001.  The Company  personnel who  previously
supported  subcontracted  operations  labor at the laboratory  were added to the
Company staff in Idaho Falls to support the growing labor  requirements of flood
source manufacturing and gemstone processing. The termination of these contracts
will not effect the Company `s plans to continue HSA cobalt  production  as some
material remains in production in the DOE reactor facility and this material can
be shipped directly from the reactor site to the customers  facilities'  without
any processing in the government laboratory.

         On  April  20,   2001,   the   Company   completed   the  sale  of  the
Radiopharmaceutical  Manufacturing  Facility to NeoRx Corporation  ("NeoRx") for
$12.0  million in cash and warrants to purchase  800,000  shares of NeoRx common
stock  (valued  at $0).  The  assets  acquired  by NeoRx had a net book value of
$11,304,724 at December 31, 2000. The Company  transferred the NeoRx warrants to
the Series A and B preferred stockholders in exchange for certain concessions in
their  certificates of designation.  The Company used the proceeds from the sale
to repay net advances  made by NeoRx in the amount of $861,060,  reduce its note
payable to a commercial  lender by $1,296,469  (including  interest of $36,578),
reduce its revolving line of credit by $2,614,023 (including accrued interest of
$45,857), reduce its capital lease obligations by $3,291,289, repay a portion of
the  $1,145,000  note payable to the Chairman of the Board for $348,000 and fund
other operating expenses.

         On April 27, 2001, the Company  completed the sale of its brachytherapy
seed  assets  (the  "Seed  Business")  to  Imagyn  Medical  Technologies,   Inc.
("Imagyn") for cash proceeds of approximately $5.0 million.  The assets acquired
by Imagyn had a net book value of $5,416,294 at December 31, 2000.  Based on the
anticipated  sales  proceeds,  the  Company  recorded  an  impairment  charge of
$416,294  related  to  these  assets  thereby  reducing  the net  book  value to
$5,000,000.  The  Company  used the  proceeds  to repay  advances  and  expenses
incurred  by Imagyn in the amount of $108,786  and reduce its note  payable to a
commercial lender by $4,645,582 (including accrued interest of $25,768),  reduce
capital lease  obligations by $145,632 and fund other  operating  expense in the
amount of $100,000.

         On  December  14,  2001,  the Company  completed  the sale of the Shady
Oaks/LINAC  facility to Advanced  Molecular  Imaging  Systems  Inc.  (AMISI) for
$8,251,849.  The sale was completed through AMISI's  assumption of $7,933,000 of
the Company's  debt with Texas State Bank. The Company will retain an obligation
of $500,000 on that loan for six months or until  AMISI  renews  their note with
Texas State Bank. The Company also retains an obligation (also for six months or
until AMISI renews the note) for  decommissioning  the Shady Oaks/LINAC facility
should AMISI  default on payment or not meet Texas State Bank  requirements  for
note  renewal.  Concurrent  with the  closing  of this  sale  Texas  State  Bank
initiated a new $1.1 million revolving line of credit with the Company.  The net
book value of the Shady  Oaks/LINAC  assets at December 31, 2000 of  $23,053,925
was  reduced  by an  impairment  charge of  $15,889,765  to a net book  value of
$7,164,160.

         In April 2001, the Company also successfully completed a composition of
creditors  pursuant to which we were able to reduce our trade debt by $1,200,000
as our unsecured creditors agreed to accept a payment equal to 50% of the amount
owed to them.

         Recent Developments

         In January 2002 certain persons acting together as a group acquired all
of the  Company's  outstanding  shares  of  Series A 5%  Convertible  Redeemable
Preferred  Stock and certain  Common Stock from its then current  owners,  Brown
Simpson's  Strategic Growth Fund, Ltd. and Brown Simpson's Strategic Growth Fund
LP. The securities acquired consisted of all 10,000 shares of series A Preferred
Stock and 2,087,837 shares of common Stock, which the Brown Simpson entities had
acquired as interest  payments on the Preferred Stock.  Also in January 2002 the
Company  re-acquired  2,817  shares  (or  37.7%)  of the  Company's  Series B 7%
Convertible Redeemable Preferred Stock.


                                       7
<PAGE>

         In February and March 2002 the Company gained approval from 100% of the
holders of Series A and 80% of the holders of Series B Preferred  Stock to amend
their  respective  Certificates  of  Designation  to  eliminate  the Series A 5%
dividend and the Series B 7% dividend,  change the mandatory redemption date for
the all  Preferred  Stock to May 2022,  and remove  certain  default and penalty
provisions.  In addition,  the Company's Board of Directors  approved a purchase
offer of the Series A and B  Preferred  Stock (5000  common  shares for each one
share of Series A or B  Preferred  Stock).  All of the  holders  of the Series A
Preferred  Stock agreed to sell their  10,000  preferred  shares for  50,000,000
shares of common  stock at $0.20 per share.  Holders  of the Series B  Preferred
Stock  agreed to sell their  3,700  preferred  shares for  18,500,000  shares of
common stock at $0.20 per share  reducing the  remaining  number of  outstanding
Preferred Series B shares to 950.

         In March 2002 the Company made a $20,000 payment to the former chairman
of the board and put a new 10-year note in place for the remaining balance owed.
The new note amount was set at $909,737 with annual income based  payments fixed
at 7%  interest  plus 30% of the  Company  pretax net  profits to be paid toward
principal on the note. The former  chairman agreed to declare any previous notes
or agreements as null and void.

Ongoing Operations

         The Company emerging  subsequent to the Asset Sales now consists solely
of our I4 Idaho operations,  the nature of which is substantially different from
the  original  Company.  In June 2001 we  formally  announced  a transfer of the
Company headquarters to Idaho.  Concurrent with the discontinuance of operations
in Texas,  the Company  focused on generating  revenues from the newly completed
contracts for contract  manufacturing  medical flood sources,  processing  Topaz
Gemstones, and continuing to produce High Specific Activity (HSA) cobalt-60 from
a DOE test reactor (ATR).  As of December 31, 2001, the Company had 11 full time
employees.

         The Company still has 115 acres of property in Waxahachie,  Texas,  and
excess LINAC  components  as assets held for sale.  The property in  Waxahachie,
Texas  has a net book  value of  $409,531  at  December  31,  2001.  Based on an
external appraisal  conducted,  the Company believes that proceeds from the sale
of this property will be in excess of its net book value.  Based on  discussions
with potential  buyers,  the Company expects to sell the excess LINAC components
for more than $800,000.

         In  November  2000 the  Company  signed a 5-year  exclusive  processing
contract with Quali-Tech.  Inc. for handling,  storage,  and processing of topaz
gemstone.  Also in November 2000,  the Company signed a five-year  manufacturing
contract with RadQual,  LLC to  manufacture  and supply  medical flood  sources.
Activities  in both these new  business  areas  were  directed  towards  initial
start-up for the remainder of 2000,  and the first quarter of 2001 although some
limited  gemstone  processing  resulted in a small amount of revenue during this
period. By February 2001 the Company had completed initial start up of the Topaz
gemstone handling and began producing revenues from this processing contract. In
April 2001 the Company  received  sealed source  registration  approval from the
State of Texas on the medical  flood  sources and the Company  began  commercial
sale of that product as well.

         The Company has been able to  continue  steady  growth in the amount of
revenues  generated  from  production  of medical  flood  sources  and  gemstone
processing and expects  continued  growth through 2002.  Therefore,  the Company
projects sufficient cash flow to met our operational needs. However, prospective
investors are cautioned  regarding the speculative nature of any forward looking
projections. Also see "Item 7, Management's Discussion and Analysis of Financial
Condition  and Results of  Operations"  for a discussion of these and other risk
factors   relating  to  the  Company  when  considering  an  investment  in  our
securities.


                                       8
<PAGE>

Industry Overview and Target Markets

         The  industry  and  markets   which  require  or  involve  the  use  of
radioactive  material are diverse.  The  Company's  current  operations  involve
several of these diverse applications. First, our HSA cobalt production supplies
bulk material,  which is used primarily in medical devices.  Second, the Company
is a  contract  manufacturer  of  medical  flood  sources  which  are  used  for
operational  checks on gamma camera systems.  Finally,  the Company supports the
packaging and measurement of gemstones that have undergone  reactor  irradiation
for color enhancement.

         The Company conducts its operations in Idaho Falls, Idaho. Although the
medical flood source and gemstone  products appear diverse they share the common
link as being radioactive materials.  Therefore, the Company is required to have
an  operating  license  from the Nuclear  Regulatory  Commission  and  specially
trained  staff to handle  these  materials.  The  Company  has an NRC  operating
license and has, in fact,  continued to amend this license  several times during
2001  to  increase  the  amount  of  material  permitted  within  the  facility.
Additional  processing  capabilities and license amendments could be implemented
that would permit  processing of other  reactor  produced  radioisotopes  by the
Company but at the present  time this  license  does not  restrict the volume of
business operation performed or projected to be performed in the coming year.

Products

         HSA Cobalt - The Company is one of a very few sources of this  material
worldwide.  High Specific  Activity  (HSA) cobalt is used  primarily in external
beam radiation  medical devices such as the Gamma Knife. This device is used for
non-surgical  radiation  treatment  of vascular  deformities  and  non-malignant
tumors in the brain.  The HSA cobalt requires three to five years of irradiation
to reach the  necessary  level of activity  for this  medical  application.  The
Company manages an inventory of approximately 800,000 curies of this material in
various  stages of  production,  thus ensuring a long and  continuous  supply of
material.  After  irradiation  the  material  is shipped  directly  from the DOE
reactor laboratory to the customer's  facilities,  thus eliminating the need for
any on site processing of the material following irradiation.

         Other Reactor Produced  Radioisotopes - The Company's  facility and NRC
license permits  processing of a wide variety of  radioisotopes.  The Company is
evaluating   establishing   additional  radioisotope  transport  and  processing
capabilities  that would permit production and sale of various new radioisotopes
using the DOE laboratory  test reactor for  production  and the Company's  Idaho
Falls facility for processing.

         Flood  Source  Contract  Manufacture  - The  Company  is  an  exclusive
contract  manufacturer of flood sources for RadQual,  LLC. The flood sources are
used for the daily operational quality control checks of SPECT or Planar Imaging
gamma cameras.  These gamma cameras are a fundamental  imaging  modality used in
thousands of nuclear  medicine and  cardiovascular  imaging  centers  around the
country.  The  customer  replaces  the sources  approximately  once each 12 - 18
months.

         Gemstone  Processing  - The  Company  has an  exclusive  contract  with
Quali-Tech Inc., who in turn contracts with the Topaz Group Inc., for processing
topaz  gemstones.  These  gemstones are irradiated in a reactor to give them the
characteristic  blue color  associated with topaz.  The Company receives "white"
stones,  packages  these stones for  irradiation,  manages the  transport of the
stones to and from the reactor  facility,  and then completes  post  irradiation
processing  of the stones before  return  shipment to the customer.  In 2001 the
production   volume  of  the  gemstones  was  limited  by  the  availability  of
irradiation  containers  due to  the  difficulty  involved  with  repairing  and
constructing these containers.  However,  in January 2002 the Company has solved
container  construction  problems and  implemented  a new  technology  to repair
containers.  As a result  the  Company  has been  able to double  the  number of
containers in service for irradiation of the gemstones.

Competition

         HSA cobalt is produced in some other reactors but we do not believe any
in the U.S. are capable of producing the high activity level and volume required
for meaningful commercial production.


                                       9
<PAGE>

         Reactor produced  radioisotopes are supplied by many reactor facilities
around the world  including  two domestic  sources (the  University  of Missouri
Research  Reactor  and the  High  Flux  Isotope  Reactor  located  in Oak  Ridge
Tennessee). Most radioisotopes from reactors are produced in bulk form, are very
competitively priced, and offer small margins for profit.  However, we think the
limited capacity of MURR and the non-commercial  operational  aspects of the DOE
owned reactor in Oak Ridge make them weak competitors for large-scale production
of industrial isotopes such as HSA cobalt-60.

         Medical flood sources - The Company is one of three major  producers of
flood  sources  within  the  U.S.  The  Company's  customer  (RadQual,  LLC) has
increased the number of authorized distributors and expanded the production line
to include several specialized source designs.  These factors,  coupled with the
excellent quality and delivery performance record the Company established during
2001,  we hope to have set the stage for  increased  sales of these  products in
2002, although there can be no assurance of increased sales.

         Gemstone  processing - there is no other commercial  company or reactor
in the U.S.  processing  irradiated  gemstones.  We believe there are one or two
other  reactors  in the world who support  this  business  with other  companies
overseas.

Manufacturing

         Quality  assurance  and quality  control  are  performed  according  to
current Good  Manufacturing  Practices  ("GMP")  regulations and Nuclear Quality
Assurance  standard #1 (NQA-1).  The Company maintains  quality control,  and is
responsible for the quality of all components, containers, in-process materials,
labeling, and final products.

Government Regulation

         The  Company  has  obtained  a  license  from  the  Nuclear  Regulatory
Commission,  Region IV which permits use and possession of by-product  material.
The  scope  of  this   license   includes   radioactive   gemstone   processing,
environmental sample monitoring, and various research and development activities
and we believe is broad  enough in scope not to  restrict  anticipated  business
activities in the coming year.

         Regulation  of  Radioisotope  Production  and  Radioactive  Waste.  The
manufacture  of  radioisotopes,  medical flood  sources,  and  processing  topaz
gemstones  are subject to  extensive  federal  regulation.  Prior to  commencing
operations in our newly leased Idaho  facility,  the Company  obtained  approval
from the Nuclear Regulatory  Commission.  The medical flood sources are licensed
as Sealed  Sources  through  the State of Texas  Department  of Health.  The new
production  facility will not handle "special nuclear  materials" (i.e.  nuclear
fuels and weapons grade uranium, thorium and plutonium) and, therefore, will not
be designated as a "fixed nuclear facility.

         Pursuant to the Low Level  Radioactive Waste Policy Act of 1980, states
are required to assure the safe disposal of mildly  radioactive  materials.  The
disposal of  radioactive  waste is regulated in Idaho by the Nuclear  Regulatory
Commission,  Region IV.  Radioactive  waste  produced falls into the category of
low-level  radioactive  waste as the production and processing of  radioisotopes
generate a certain amount of low-level, solid radioactive waste.

         Other Regulations. In the event we enter into agreements with suppliers
to acquire neutron-produced  research and therapeutic  radioisotopes we could be
subject to additional  regulations of the Nuclear Regulatory  Commission or Food
and Drug Administration.

Employees

         In November  2000,  when the Company first  determined it would proceed
with asset sales, the Company  employed 183 people.  As a condition of the Asset
Sales to NeoRx and  Imagyn,  the Company  identified  38  employees  who perform
functions in connection with the sold assets and business lines. The purchasers,
Imagyn and NeoRx, offered employment to these employees at their discretion. The
remaining employees associated with discontinued  operations were terminated and
as of December 31, 2001 the Company had 11 full-time  employees,  consisting  of
one  executive  officer,  two  scientific  and  engineering  professionals,  six
production technicians,  and two administrative  personnel. The Company also has
two  additional   part  time  or  contract   employees   working  as  accounting
consultants.


                                       10
<PAGE>


Item  2.  PROPERTIES

         The  Company  has three  years  remaining  on a  five-year  lease  with
purchase  options on a 7,500 square foot facility  located in Idaho Falls.  This
facility is currently  licensed under the Nuclear  Regulatory  Commission and is
being used for  processing  of topaz  gemstones  and contract  manufacturing  of
medical flood sources.

         The Company still has 115 acres of property in Waxahachie,  Texas,  and
excess  LINAC  components  as  assets  still  held for  sale.  The  property  in
Waxahachie,  Texas  has a net book  value  of  $409,531.  Based  on an  external
appraisal  conducted,  the Company  believes that proceeds from the sell of this
property  will be in excess of its net book  value.  Based on  discussions  with
potential  buyers,  the Company expects to sell the excess LINAC  components for
more than $800,000.


Item 3. LEGAL PROCEEDINGS

         During  2000-2001  the  Company  was a  defendant  in several  lawsuits
involving  creditor and supplier  claims.  The Company has settled each of these
claims.

         The Company is not a party to any other legal proceedings incidental to
its  business  which,  in the opinion of  management,  are  expected to have any
material  adverse  effect  on the  Company's  consolidated  financial  position,
operating results, or liquidity.


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         An annual  meeting of  stockholders  was conducted on November 2, 2001.
The  purpose of the  meeting  was to review  Company  performance  and present 3
propositions for voting and stockholder approval. The three propositions were 1)
to elect five  directors to serve until the next  succeeding  annual meeting and
until their  respective  successors are elected and qualified;  2) to ratify the
appointment  by the Board of  Directors  of Grant  Thornton  LLP as  independent
certified public  accountants of the Company for the fiscal year ending December
31, 2001; and 3) to approve an increase in the authorized shares of common stock
from 50,000,000 to 250,000,000  shares. A Proxy statement,  form of Proxy, and a
copy of the Annual Report on Form 10K as filed with the  Securities and Exchange
Commission were distributed to all stockholders on September 2, 2001. A total of
72.2% of the Common  shares voted and all three  propositions  were passed by at
least 70% of the shares then outstanding.




                                       11
<PAGE>



PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS

         Prior  to the  completion  of our  IPO in  August  1997,  there  was no
established  public  trading  market  for our  Common  Stock.  At that  time the
Company's  Common Stock  commenced  trading on the NASDAQ Small Cap Market under
the symbol of "INIS".  The Company was also listed on the Boston Stock  Exchange
under the symbol "ITL".  High and low sales prices reported by Nasdaq during the
periods indicated are shown below:

           Fiscal Year        Quarter      High            Low


              1999              1st      $ 16.625        $ 8.6250
              1999              2nd      $ 16.875        $ 7.6250
              1999              3rd      $ 10.00         $ 4.3125
              1999              4th      $  8.50         $ 4.5625

              2000              1st      $ 10.375        $ 5.250
              2000              2nd      $  7.00         $ 4.000
              2000              3rd      $  4.50         $ 2.813
              2000              4th      $  4.438        $ 0.094

              2001              1st      $  0.3475       $ 0.0937
              2001(1)           2nd      $  0.0937       $ 0.0625
              2001(2)           2nd      $  0.13         $ 0.035
              2001              3rd      $  0.09         $ 0.03
              2001              4th      $  0.05         $ 0.015

         (1)    For the Nasdaq listing April 2 - 10, 2001
         (2)    For the Non- Nasdaq OTC April 11 - June 29, 2001

         On January 3, 2001 we were formally  notified that the Company's common
stock had failed to maintain a minimum  bid price of $1.00 over the  previous 30
consecutive  trading  days as  required  by the Nasdaq  Small Cap  Market  under
Marketplace  Rule  4310(c)(4)  (the  "Rule").   Therefore,  in  accordance  with
Marketplace  Rule  4310(c)(8)(B),  we were  provided 90 calendar  days to regain
compliance  with  this  Rule.  On  April  3,  2001,  we were  notified  that our
securities had been delisted.

         On  December  31,  2001,  there were over 260  holders of record of the
Common Stock (although we believe that the number of beneficial owners of Common
Stock is  approximately  3,500).  The closing  price on December 31, 2001 , of a
share of common stock was $ 0.019.  We have never paid any cash dividends on the
common stock.  In the future,  and based upon Company  profit  performance,  the
Board of Directors of the Company will evaluate and  determine  whether to issue
dividends  or retain funds for research  and  development  and  expansion of our
business.

         In January  of 2001,  the  Company  elected  to issue  common  stock in
payment  for the  quarterly  dividend  on the  Series A  redeemable  convertible
preferred stock. The Company satisfied the $125,000  quarterly  dividend payment
by issuing  711,186  shares of common  stock at $0.1757  per share,  the average
closing price of the common stock for the preceding 10 trading days,  discarding
the highest and the lowest for the period.

         In March of 2001, the Company  elected to issue common stock in payment
for the  quarterly  dividend on the Series B  redeemable  convertible  preferred
stock.  The Company  satisfied the $143,798  dividend payment by issuing 885,001
shares of common stock at $0.1625 per share,  the average  closing  price of the
common stock for the preceding 5 trading days.

         On April 15, 2001, the Company issued  1,376,651 shares of common stock
in payment of the  quarterly  dividend  requirement  of $125,000 on the Series A
Preferred Stock.


                                       12
<PAGE>

         On  April   20,   2001   the   Company   completed   the  sale  of  the
Radiopharmaceutical  Manufacturing  Facility to NeoRx for cash proceeds of $12.0
million and warrants to purchase 800,000 shares of NeoRx common stock (valued at
$0). The  warrants  were to be provided to the  Company's  Series A and Series B
Preferred  stockholders  in exchange  for their  agreement  to complete  certain
amendments and modifications to their Certificates of Designation.

         In May of 2001,  500 shares of Series B Preferred  stock were converted
into 250,000 shares of common stock.

         On June 1, 2001, the Company issued 2,798,172 shares of common stock in
payment  of the  quarterly  dividend  requirement  of  $139,909  on the Series B
Preferred Stock.

         In June of 2001, 250 shares of Series B Preferred  Stock were converted
into 125,000 shares of common stock.

         On  September  1, 2001,  the  Company  declared  a  required  quarterly
dividend  of  $130,673  on the  Series B  Preferred  Stock.  This  dividend  was
satisfied on January 14, 2002 by issuing 3,266,807 shares of common stock.

         On December 1, 2001, the Company declared a required quarterly dividend
of $130,673 on the Series B Preferred  Stock.  This  dividend  was  satisfied on
January 14, 2002 by issuing 6,533,625 shares of common stock.


Recent Sales of Unregistered Securities

         The Series B Preferred Stock was mandatorily redeemable on May 31, 2003
in cash or common stock at the then Average Price, at the Company's option. When
originally  issued,  holders of Series B  Preferred  Stock could  require  early
redemption  on December  1, 2000 and June 1, 2001.  Other  mandatory  redemption
events included change in control,  suspension or delisting from NASDAQ, the BSE
or any  subsequent  market  on  which  the  common  stock  is  listed  for  five
consecutive  days, breach by the Company of any  representations,  warranties or
other conditions in the preferred stock purchase agreement, and other events. In
March, 2001, the holders of Series B Preferred Stock agreed to a modification in
terms,  which removed their early redemption  rights and certain  adjustments to
their  conversion  price.  The Series B Preferred Stock was then  convertible to
common stock at a fixed price of $2 .00 per share  subject to  adjustment in the
case of stock splits or stock dividends. As consideration for those concessions,
we  distributed  to the  holders of Series B  Preferred  Stock an  aggregate  of
360,850 warrants to purchase NeoRx common stock that the Company had received in
connection with the sale of the  Radiopharmaceutical  Manufacturing  Facility to
NeoRx.

         The Series A Preferred Stock was mandatorily redeemable on May 20, 2002
in cash or common stock at the then Average Price, at the Company's  option.  In
March, 2001, the holders of Series A Preferred Stock agreed to a modification in
terms,  which removed their early redemption  rights and certain  adjustments to
their  conversion  price.  The Series A Preferred Stock was then  convertible to
common stock at a fixed price of $2 .00 per share,  subject to adjustment in the
case of stock splits or stock dividends. As consideration for those concessions,
we  distributed  to the  holders of Series A  Preferred  Stock an  aggregate  of
439,150 warrants to purchase NeoRx common stock that the Company had received in
connection with the sale of the  Radiopharmaceutical  Manufacturing  Facility to
NeoRx.

         In January 2002 certain persons acting together as a group acquired all
of the  Company's  outstanding  shares  of  Series A 5%  Convertible  Redeemable
Preferred  Stock and certain  Common Stock from its then current  owners,  Brown
Simpson's  Strategic Growth Fund, Ltd. and Brown Simpson's Strategic Growth Fund
LP. The securities acquired consisted of all 10,000 shares of Series A Preferred
Stock and 2,087,837 shares of common stock, which the Brown Simpson entities had
acquired as interest  payments on the Preferred Stock. Also in January 2002, the
Company  re-acquired  2,817  shares  (or  37.7%)  of the  Company's  Series B 7%
Convertible Redeemable Preferred Stock for $86,832.


                                       13
<PAGE>

         In February and March 2002 the Company gained approval from 100% of the
holders of Series A Preferred Stock and 80% of the holders of Series B Preferred
Stock to amend their  respective  Certificates  of  Designation to eliminate the
Series  A 5%  dividend  and the  Series  B 7%  dividend,  change  the  mandatory
redemption  date for the all  Preferred  Stock to May 2022,  and remove  certain
default and penalty  provisions.  In addition,  the Company's Board of Directors
approved a purchase  offer for the Series A and B Preferred  Stock (5000  common
shares for each one share of Series A or B Preferred Stock).  All of the holders
of the Series A Preferred Stock agreed to sell their 10,000 preferred shares for
50,000,000  shares of common  stock at $0.20 per share.  Holders of the Series B
Preferred  Stock  agreed to sell their  3,700  preferred  shares for  18,500,000
shares of  common  stock at $0.20 per share  reducing  the  remaining  number of
outstanding Preferred Series B shares to 950.



                                       14
<PAGE>


Item 6. SELECTED FINANCIAL DATA

         The following table sets forth selected historic financial data for the
period from the three years ended  December 31, 1999 through  December 31, 2001.
The   information   contained   herein  should  be  read  in  conjunction   with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  and the  Financial  Statements  and Notes  thereto  of the  Company
included on the pages immediately following the index to Consolidated  Financial
Statements appearing on pages F-1.

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                        2001             2000              1999
                                                    ------------     ------------       ------------
<S>                                                 <C>              <C>                <C>
Revenues                                            $  2,177,900     $  2,076,884       $  2,553,389
                                                    ------------     ------------       ------------

Cost of Revenue                                        1,424,111          930,536          1,100,952
Operating costs and expenses                           1,797,385        7,150,192          4,730,659
                                                    ------------     ------------       ------------
    Operating loss                                    (1,043,596)      (6,003,844)        (3,278,222)

Loss from discontinued operations                     (1,774,118)     (16,891,284)       (10,798,850)
Impairment loss                                                -      (17,975,043)                 -
                                                    ------------     ------------       ------------
    Loss from discontinued operations               $ (1,774,118)    $(34,866,327)      $(10,798,850)
                                                    ------------     ------------       ------------

    Net loss                                        $ (2,818,215)    $(40,983,720)      $(14,097,606)
                                                    ============     ============       ============

Preferred stock dividends, deemed dividend and
    accretion of discount                             (1,325,085)     (14,884,922)        (2,356,111)

Net loss applicable to common stockholders          $ (4,143,300)    $(55,868,642)      $(16,453,717)
                                                    ============     ============       ============
Net loss per common share - basic and diluted       $      (0.26)    $      (5.77)      $      (2.03)
                                                    ============     ============       ============
Weighted average common shares outstanding
    basic and diluted                                 15,976,551        9,686,303          8,110,521
                                                    ============     ============       ============

Cash and cash equivalents and investments           $    293,969     $    642,554       $  2,990,300
Property and equipment (net)                             280,036          455,541         40,734,736
Total assets                                           4,266,660       29,584,819         51,549,026
Long-term debt, excluding current portion                 45,182        2,093,752         17,006,704
Redeemable convertible preferred stock, net
  of discounts                                        17,117,755       17,337,954          8,392,475
Total stockholders' equity (deficit)                 (16,348,824)     (13,750,809)        21,599,200

</TABLE>



                                       15
<PAGE>



Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Overview

         This overview contains forward-looking statements that include, but are
not  limited  to, the  Company's  expectations  regarding  its future  financial
condition  and  operating  results,  product  development,  business  and growth
strategy, market conditions,  and competitive environment.  The Company's actual
results could differ materially from those anticipated in these  forward-looking
statements as a result of certain factors disclosed in this document.

         During 2000,  it became  apparent  that the Company was not going to be
successful in completing a third round of preferred stock funding.  Since we had
been a development  stage company with  virtually no other sources of funds than
additional  financing,  this funding was essential to continue operations.  As a
result,  we  investigated  and  pursued  several  alternatives  in an attempt to
salvage the business.  First, we pursued several  partnering  relationships with
customers.  These  attempts  were  not  successful  primarily  due to  our  weak
financial  condition.  We also  considered  seeking relief or liquidation  under
Chapter 11 and Chapter 7 of the Bankruptcy Code, respectively. We concluded that
bankruptcy  was not the best  option  for the  Company or our  creditors  as the
claims  of  secured   creditors   and   unsecured   creditors   and   bankruptcy
administration  costs  would  exceed  the  realizable  value of our  assets  and
unsecured  creditors and shareholders would receive nothing due to the radiation
license  liabilities,  the anticipated  difficulty in selling assets  containing
radioactive  materials,  and  the  probable  loss  of  critical  highly  skilled
employees.  Without  these  key  employees  the  assets'  value  to a  potential
purchaser would be greatly diminished.

         Therefore,  we decided to pursue a strategy of  divestiture  outside of
bankruptcy to attempt to maximize value for our creditors and shareholders. From
early  December  2000,  banking  institutions  and entities  that have  acquired
certain  Company assets funded our continuing  operations  through most of 2001.
Our  primary  lender  increased  our  borrowing  capacity  in the amount of $2.4
million and NeoRx advanced the Company $930,000, which was converted to purchase
price upon  consummation  of the sale of our  Radiopharmaceutical  Manufacturing
Facility.

         In November 2000 the Company  signed a five-year  exclusive  processing
contract with Quali-Tech.  Inc. for handling,  storage,  and processing of topaz
gemstone.  Also in November  2000 the Company  signed a five-year  manufacturing
contract with RadQual,  LLC to  manufacture  and supply  medical flood  sources.
Activities  in both these new  business  areas  were  directed  towards  initial
start-up for the  remainder of 2000 and the first  quarter of 2001 although some
limited  gemstone  processing  resulted in a small amount of revenue during this
period. By February 2001 the Company had completed initial start up of the Topaz
gemstone handling and began producing revenues from this processing contract. In
April 2001 the Company  received  sealed source  registration  approval from the
State of Texas on the medical  flood  sources and the Company  began  commercial
sale of that product as well.

         On March 20, 2001, we signed an asset purchase  agreement with NeoRx to
sell our  Radiopharmaceutical  Manufacturing  Facility for $12.0 million in cash
and warrants to purchase  800,000  shares of NeoRx common stock  (valued at $0).
The purchase price was reduced by the $861,000 previously advanced by NeoRx. The
transaction  closed  on  April  20,  2001.  The net book  value of the  tangible
equipment was approximately $11.3 million at December 31, 2000. The net proceeds
from the sale were used to repay the  aforementioned  advance  from  NeoRx  and,
along with the $6 million note payable assumed by NeoRx,  reduced long-term debt
approximately  $3.9  million  and  reduced  capital  lease  obligations  by $3.3
million.  The remaining  funds were used to pay closing costs totaling  $383,000
and to satisfy various creditor obligations.

         On March 20, 2001, we signed a letter of intent with Imagyn to sell the
brachytherapy seed assets for cash proceeds of approximately  $5.0 million.  The
transaction  closed  on  April  27,  2001.  The net book  value of the  tangible
equipment related to this transaction was approximately $5.4 million at December
31, 2000.  Based on the  anticipated  sales  proceeds,  the Company  recorded an
impairment  charge of $416,294 related to these assets at December 31, 2000. The
proceeds  were used to repay  advances  and  expenses  incurred by Imagyn in the
amount of  $108,786  and  reduce  the note  payable  to a  commercial  lender by
$4,645,582  (including  accrued  interest  of  $25,768),  reduce  capital  lease
obligations  by  $145,632  and fund  other  operating  expense  in the amount of
$100,000.


                                       16
<PAGE>

         In March 2001 I4 terminated its commercial  use  subcontract  agreement
that  was  first  established  in 1996 at the  Idaho  National  Engineering  and
Environmental  Laboratory.  This  contract  had  permitted  access  to the Idaho
research  reactor for isotope  production but also included an obligation to pay
for the operations of a DOE owned  processing  facility.  The cost of supporting
those  operations  had increased  considerably  in the past several years to the
point  of no  longer  being  a  profitable  operation  under  those  contractual
arrangements.  Subsequent to contract termination the Company provided personnel
as  subcontracted  labor to the  laboratory  contractor  until that contract was
mutually  terminated in September  2001.  The Company  personnel who  previously
supported  subcontracted  operations  labor at the laboratory  were added to the
Company staff in Idaho Falls to support the growing labor  requirements of flood
source manufacturing and gemstone processing. The termination of these contracts
will not effect the  Company's  plans to continue HSA cobalt  production as some
material remains in production in the DOE reactor facility and this material can
be shipped directly from the reactor site to the customers  facilities'  without
any processing in the government laboratory.

         In April 2001, the Company also successfully completed a composition of
creditors  pursuant  to  which  we  were  able  to  reduce  our  trade  debt  by
approximately  $1,200,000 as most of our unsecured  creditors agreed to accept a
payment equal to 50% of the amount owed to them.

         Subsequent  to the close of the asset  sales to NeoRx  Corporation  and
Imagyn Medical,  Inc., in April and May of 2001 International Isotopes and Texas
State Bank cooperated to restructure  several of the notes and loans established
for the company.  A balance  limit on the  company's  main  commercial  loan was
reduced from  $15,000,000 to $7,750,000  with an interest rate of 9.6% per annum
and all principal and interest  payments were  suspended  until the loan reaches
maturity on January 27, 2002.  The company's  previous $5 million line of credit
note was reduced to a $1 million  line,  also with an interest  rate of 9.6% per
annum.  Principal and interest payments on the line of credit were also deferred
until  the  maturity  date  of  April  27,  2002.   Immediately   after  closing
approximately  $400,000  was drawn  against  this  line of credit to reduce  the
commercial  loan to the limited amount of $7,750,000  and address  miscellaneous
legal  expenses and payments made by Texas State Bank on the  company's  behalf.
The balance of this line of credit is to be used to support the continuing  cash
needs of the  company.  Texas State Bank also opened a new  $500,000  commercial
line of credit  with an  interest  rate of 9.6% per annum to support the interim
operations of the Shady  Oaks/LINAC  facility pending the completion of the sale
of that property and equipment.  Principal and interest payments on this line of
credit were also deferred until January 27, 2002.

         On  December  14,  2001,  the Company  completed  the sale of the Shady
Oaks/LINAC  facility to Advanced  Molecular  Imaging  Systems  Inc.  (AMISI) for
$8,251,849.  The sale was completed through AMISI's  assumption of $7,933,000 of
the Company's  debt with Texas State Bank. The Company will retain an obligation
of $500,000 on that loan for six months or until  AMISI  renews  their note with
Texas State Bank. The Company also retains an obligation (also for six months or
until AMISI renews the note) for  decommissioning  the Shady Oaks/LINAC facility
should AMISI  default on payment or not meet Texas State Bank  requirements  for
note  renewal.  Concurrent  with the  closing  of this  sale  Texas  State  Bank
initiated  a new $1.1  million  revolving  line of credit with the Company at 7%
interest.


Liquidity and Capital Resources

         On  December  31, 2001 the  Company  had cash and cash  equivalents  of
$293,969  compared to $642,554 at December 31, 2000. For the year ended December
31, 2001, net cash used in operating  activities of $7,594,915 and net cash used
in financing activities of $10,298,100 was provided from investing activities of
$17,544,430.


                                       17
<PAGE>

         The Company has incurred  losses  applicable to common  shareholders of
$4,143,300 for the year ended  December 31, 2001 and has an accumulated  deficit
of $87,190,470  since inception.  The Company has principally  funded operations
and plant and equipment expenditures from proceeds from public and private sales
of equity as well as through the Asset Sales,  discussed  above. The Company has
also borrowed  funds under short and  long-term  borrowing  arrangements.  As of
December 31, 2001, we had net  borrowings of $1,053,020 in the revolving line of
credit,  with  Texas  State  Bank,  secured  by a portion  of  assets,  accounts
receivable,  and excess LINAC  equipment  which is still held by the Company for
sale;  a long term  note  payable  of  $70,477  to the  Eastern  Idaho  Economic
Development  Council,  secured by an irrevocable letter of credit,  with monthly
principal and interest  payments of $2,213;  a note payable of $345,295 to Texas
State Bank secured by the Waxahachie real estate with no monthly payment;  and a
ten year note payable to William Nicholson, the former chairman of the board, in
the amount of  $797,000.  The Company has  retained a  guarantee  obligation  of
$500,000  on the loan AMISI  assumed  from the Company in  December  2001.  This
obligation  lasts for six  months or until  AMISI  renews  their note with Texas
State Bank, whichever comes first.


Results of Operations

         The  Company  has  undergone  significant  changes  in debt  structure,
assets,  and  business  strategy  in the past year.  Since the asset  sales,  as
described in other sections of this report,  the Company has consisted solely of
what had been the subsidiary holding,  International Isotopes Idaho Inc., or I4.
Commencing  with this annual  report the Company  financial  reporting  is based
primarily upon what had previously been the I4 subsidiary.  All of the financial
data from the former parent,  I3, has been  incorporated but has been summed and
reported  under  "discontinued  operations".  Costs  associated  with  corporate
administration  for all  periods  have  been  reported  as  part  of  continuing
operations.

Year ended December 31, 2001 compared to year ended December 31, 2000

         Revenues

         Total  revenues  were  $2,177,900  in 2001 as compared to $2,076,884 in
2000,  an increase  of  $101,016  or 4.9%.  The  increase  was  attributable  to
increasing  sales of medical  flood sources and processed  topaz  gemstone.  The
increased revenues from those products totally eclipsed the decrease in sales of
reactor-produced radioisotopes, which fell from $2,059,496 in 2000 to $1,393,181
in 2001, a decrease of 32%. The  decrease was  primarily  the result of stopping
iridium-192  and nickel-63 sales due to the termination of the contract with the
DOE contractor for hot cells operation. In 2001the revenues from the sale of HSA
cobalt were $428,562  compared to $800,158 in 2000. The decrease of $371,596 was
attributable to increased pressure from foreign  suppliers.  In 2001 the revenue
from sale of gemstone processing was $323,948 as compared to $17,388 in 2000. In
2001 the revenues from sale of medical flood sources was $436,179 compared to $0
in 2000. The increases in gemstone and medical flood sources revenue compared to
the  decrease  in reactor  isotopes is  illustrative  of the  changing  business
strategy and product mix the Company has undergone in the past year.

         Cost of revenues

         Cost of revenues for 2001 was $1,424,111  compared to $930,536 in 2000,
an  increase of $493,575 or 53%.  Approximately  $253,000 of this  increase  was
attributable  to costs  incurred  in the later  part of 2000  related to reactor
isotope  production and hot cell  operations  contract with the DOE  contractor.
That  contract was  terminated in March 2001,  but all prior  expenses had to be
paid  current  by  April  15,  2001.  The  increase  was  also  attributable  to
approximately  $225,000 of costs  incurred  for the  start-up  of medical  flood
source manufacturing in the beginning of 2001.


                                       18
<PAGE>

         Operating costs and expenses

         Total  operating  costs  and  expenses  for 2001  were  $1,797,385,  as
compared to  $7,150,192  in 2000, a decrease of  $5,352,807 or 75%. The decrease
was attributable to the change in corporate  structure,  a reduction in contract
labor expense and consulting  services as a result of  terminating  the contract
with the DOE laboratory contractor.

         Other income (expense)

         Interest income was $2,613 in 2001 as compared to $0 in 2000. The small
increase was  attributable  to the  establishment  of a $130,000  certificate of
deposit for use as financial  assurance  for  decommissioning,  an NRC licensing
requirement.

         Interest  Expense was $3,114 in 2001 compared to $113,549 in 2000.  The
reduction  was  attributable  to deferrals  in interest  payments to Texas State
Bank.

         Discontinued Operations

         The net loss from  discontinued  operations  was  ($1,774,118)  in 2001
compared  to  ($34,866,327)  in  2000.  The  $33,092,209  reduction  in loss was
attributed to reductions in the impairments in long-lived assets and losses from
the  discontinued  segment.  The impairment of long-lived  assets was $0 in 2001
compared to $17,975,043  in 2000 since the impairment was a one time  adjustment
made  prior  to the  sale of  assets  in  2001.  The  loss  from  operations  of
discontinued  segments was  ($2,325,282)  in 2001 compared to  ($16,891,284)  in
2000.  The  reduction  in  loss  was  attributable  to  the  discontinuation  of
operations  of the  Radiopharmacy,  breachytherapy  seed  production,  and Linac
operations.  The Company had a gain of approximately $551,000 on the disposal of
the discontinued operations during 2001.


Year ended December 31, 2000 compared to year ended December 31, 1999

         Revenues

         Total  revenues  were  $2,076,884  in 2000 as compared to $2,553,389 in
1999,  a  decrease  of  $476,505  or  19%.  The  majority  of the  decrease  was
attributable  reductions in sales of several  radioisotopes.  Strontium-89 sales
decreased  from  $102,197 in 1999 to $4,500 in 2000,  a decrease of $97,697,  or
96%. The decrease was  attributable to a termination of the sales agreement with
the single customer who purchased this  radioisotope.  Nickel-63 sales decreased
from  $376,690 in 1999 to $151,855 in 2000,  a decrease of $224,835 or 60%.  The
decrease was  attributable  to a large  one-time sale that had been completed in
1999.  Cobalt-60  sales  decreased  from $936,506 in 1999 to $800,158 in 2000, a
decrease of $136,348 or 15%.  This  decrease was  attributable  to the effect of
foreign sales competition.

         Cost of revenues

         Cost of revenues decreased to $930,536 in 2000 from $1,100,952 in 1999,
a decrease  of $170,416  or 15%.  Most of the  decrease  was  attributable  to a
corresponding decrease in radioisotope production.

         Operating costs and expenses

         Operating  expense for 2000 was $7,150,192 as compared to $4,730,659 in
1999,  an increase of  $2,419,533  or 51%.  The  majority of this  increase  was
attributable to increased  charges from the DOE contractor on the support of the
hot  cells  and  reactor  isotope   production  and  an  increase  in  corporate
administration.


                                       19
<PAGE>

         Other income (expense)

         Interest expense increased to $113,549 in 2000 from $20,534 in 1999, an
increase of $93,015 or 453%. The increase was attributable to the increased debt
incurred by the Company.

         Discontinued Operations

         The net loss from  discontinued  operations  (including  impairment  of
long-lived  assets) was ($34,866,327) in 2000 compared to ($10,798,850) in 1999,
an increase of $24,067,477 or 223%. The increased loss in 2000 was  attributable
to a  $17,975,043  impairment  made on long  -lived  assets and an  increase  of
$6,092,434 in losses attributed to operations of the discontinued  segment.  The
majority of costs associated with the  discontinued  segment related to start-up
activities of the  radiopharmacy,  Linac,  and  breachytherapy  seed  production
operations.

Forward Looking Information and Risk Factors

         The Company or its representatives may make forward looking statements,
oral or written,  including statements in this Report's Management's  Discussion
and Analysis of Financial  Condition and Results of  Operations,  press releases
and filings with the Commission,  regarding  estimated future operating results,
planned capital  expenditures  (including the amount and nature thereof) and the
Company's  financing  plans,  if any,  related  thereto,  and  other  plans  and
objectives  for future  operations.  There can be no  assurance  that the actual
results or developments  anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected effects on its business
or  operations.  Among the  factors  that could cause  actual  results to differ
materially  from the Company's  expectations  are general  economic  conditions,
competition,  government  regulations and other factors set forth among the risk
factors noted below or in the description of the Company's business in Item 1 of
this Report,  as well as factors  contained in the  Company's  other  securities
filings.

         Generally,  forward looking statements include words or phrases such as
"management  believes,"  the "Company  anticipates,"  the "Company  expects" and
words and  phrases  of  similar  import.  Forward  looking  statements  are made
pursuant to the Private Securities Litigation Reform Act of 1995.

         All subsequent oral and written forward looking statements attributable
to the Company or persons acting on its behalf are expressly  qualified in their
entirety by these  factors.  The Company  assumes no obligation to update any of
these statements.

International  Isotopes  has  incurred  and may  continue to incur  losses.  The
Company has incurred  net losses for most fiscal  periods  since its  inception.
From inception  (November 1995) through December 31, 2001 the Company  generated
$15,064,521  in revenues and had an  accumulated  deficit  (including  preferred
stock dividends and returns) in the amount of $87,190,470.  However, although we
cannot  provide any assurance we believe the Company's  asset sales and start of
new manufacturing  operations will produce  sufficient  revenue to meet our 2002
cash flow and operational needs.

We may need  additional  financing to continue  operations.  Following the asset
sales  completed  as of December  31, 2001 the Company has a $345,295  note with
Texas  State  Bank  which  matures  in April  2002.  The note is  secured by the
Company's Waxahachie  property,  valued at approximately  $400,000.  The Company
also has an outstanding  debt of $1,053,020 on a $1.1 million  revolving line of
credit  account,  also with Texas State Bank. That note matures in June 2002 and
is  secured  with 80% of  accounts  receivable  and 50% of fixed  assets  of the
Company.  The sale of remaining  Company assets (Linac  equipment and Waxahachie
property)  will be  applied  to pay down  these  notes and renew the term on the
revolving  line of credit.  If our asset  sale(s) are not  completed  before the
maturity dates of these  respective notes we will have to negotiate an extension
to their terms. The Company also has a ten-year note for $797,000 at 7% interest
to a former Company  Chairman of the Board.  Principal and interest  payments on
this note are to be paid annually based upon net profits of the Company  (annual
principal payment to equal 30% of net pre-tax  profits).  The Company also has a
long-term  note  payable of $70,477 to the Eastern  Idaho  Economic  Development
Council secured by an irrevocable letter of credit.


                                       20
<PAGE>

Remaining Company Obligations on the loan to AMISI and potential decommissioning
responsibility  for the Linac  facility.  The Company  has  retained a guarantee
obligation  of $500,000 on the loan AMISI  assumed  from the Company in December
2001. This obligation lasts for six months or until AMISI renews their note with
Texas  State  Bank.,   whichever  comes  first.  The  Company  also  retains  an
obligation,  under the same terms of time or renewal,  for  decommissioning  the
Shady  Oaks/LINAC  facility  should  AMISI  default on payment or not meet Texas
State Bank requirements for note renewal.  The Company has estimated the cost of
this  decommissioning  to be no  more  than  $500,000  but  would  be  partially
supported   by  AMISI's   forfeiture   of  their   $183,000   surety   bond  for
decommissioning.  Renewal  of the note to AMISI is subject  to the  approval  of
terms by Texas State Bank and is required to be completed before July 27, 2002.

We will continue to be dependent upon our remaining  facilities and equipment to
function properly in order to provide  consistent,  timely shipments of products
that meet our customers' specifications.  If we experience equipment failures or
breakdowns we may be unable to satisfy our customers,  which could result in the
cancellation of contracts and the loss of revenues.

There is no long term  contract in place with the DOE  Contractor  for continued
HSA Cobalt  production.  The  Company's  contract for  exclusive  use of the DOE
reactor for isotope production and the Company's responsibility for operation of
the hot cells facility has been terminated. Instead the company is putting short
term specific "work for non-government sponsor agreements" in place with the DOE
contractor to continue sales of HSA cobalt  irradiated at the reactor  facility.
We expect that long-term agreement will be negotiated in 2002, however, there is
no assurance these contracts will be equitable or continuing.

Operational hazards (i.e.,  spills,  faults,  ventilation  failure,  etc.) could
result in the spread of contamination within our facility and require additional
funding to correct. An irrevocable, automatic renewable letter of credit against
a $130,000  Certificate  of Deposit at Texas State Bank has been used to provide
the financial  assurance required by the Nuclear  Regulatory  Commission for the
Idaho facility license.  If a contamination  event resulted in greater liability
to us we  would  have to  borrow  money or fund the  liability  from our  future
revenue.

Government regulation could adversely affect our business. Operations within the
Company's  facility  are  subject  to the  U.S.  Nuclear  Regulatory  Commission
regulations  and  Food  and  drug  Administration.  Medical  flood  sources  are
regulated by the Texas  Department of Health as a sealed  source.  To the extent
these regulations are or become  burdensome,  our business  development could be
adversely affected.

We are dependent  upon key  personnel.  Our ongoing  operations are dependent on
Steve T. Laflin,  President and Chief Executive  Officer.  The Company is highly
dependent upon this person and the loss of this individual could have a material
adverse effect on us. There is a $2 million dollar key man life insurance policy
on Mr. Laflin and 5 year employment  agreement  extending through February 2007.
The Company has revised and reissued the stock incentive  program to assist with
offering  incentives and retaining key personnel.  The revised stock  incentives
program will, however,  have to be ratified by a vote of the stockholders during
the next annual meeting. In addition,  there is no assurance the Company will be
able to retain our existing personnel or attract additional qualified employees.
Loss of any of these  relationships  would  result in a  significant  decline in
revenue.

We are  dependent  on various  third  parties in  connection  with our  business
operations.  The  production of HSA Cobalt is dependent  upon the  Department of
Energy,  and its prime  operating  contractor,  who  controls  the  reactor  and
laboratory operations. The gemstone production is tied to an exclusive agreement
with  Quali  Tech Inc.  who in turn has a contract  with The Topaz  Group,  Inc.
Medical flood source  manufacturing  is conducted  under and exclusive  contract
with RadQual, LLC. who in turn has agreement in place with several companies for
marketing and sales. Each of our competitors has significantly greater financial
resources  than us and that could create a  competitive  advantage for them over
us.


                                       21
<PAGE>

We are subject to competition from other  companies.  Each of the business areas
of the Company  have direct  competition  from other  businesses.  HSA cobalt is
supplied by other reactor facilities around the world. Medical flood sources are
being produced by several other manufacturers in the U.S. and overseas. There is
at least one other processor of Gemstone in Europe.


New Accounting Standards

         In July 2001, the Financial  Accounting  Standards  Board (FASB) issued
Statement  of  Financial   Accounting   Standards   (SFAS)  No.  141,   Business
Combinations,  and SFAS No. 142 Goodwill and Other Intangible  Assets.  SFAS No.
141 requires that the purchase  method of accounting be used and establishes new
standards on the recognition of certain identifiable  intangible assets separate
from goodwill for all business combinations  initiated after June 30, 2001. SFAS
No. 142 will require that goodwill and intangible  assets with indefinite useful
lives no longer  be  amortized,  but  instead  tested  for  impairment  at least
annually.  SFAS No. 142 will also require that  intangible  assets with definite
useful lives be amortized over their respective  estimated useful lives to their
estimated residual values.

         We are required to adopt the provisions of SFAS No. 141 immediately and
SFAS No. 142  effective  January 1, 2002,  except that  goodwill and  intangible
assets  determined  to have an  indefinite  useful  life that are  acquired in a
purchase  business  combination  completed  after  June  30,  2001  will  not be
amortized,  but will continue to be evaluated for impairment in accordance  with
the  accounting  literature  in effect  prior to the  issuance  of SFAS No. 142.
Goodwill  and  intangible  assets  acquired in business  combinations  completed
before July 1, 2001 will continue to be amortized  through December 31, 2001. At
December 31, 2001, our unamortized goodwill and intangibles was zero as a result
of the impairment charge recorded.

         In July 2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations."  This Standard is effective for fiscal years beginning
after June 15, 2002, and provides  accounting  requirements for asset retirement
obligations  associated  with  tangible  long-lived  assets.  We  have  not  yet
determined the effects of this Standard on our financial statements.


Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Company is exposed to market risk from changes in interest rates on
its long-term debt.  However,  the Company has two variable  interest rate loans
and the Company does not use derivative financial  instruments to manage overall
borrowing  costs or reduce  exposure to adverse  fluctuations in interest rates.
The  impact  on the  Company's  borrowing  costs and cash  flows of a  one-point
interest rate change on the outstanding  balance of the variable rate debt as of
December 31, 2001 would be approximately $14,000.



Item 8. FINANCIAL STATEMENTS

The following financial statements are included herewith:

Report of Independent Certified Public Accountants (Hansen, Barnett & Maxwell)

Independent Auditors' Report (KPMG LLP)

Consolidated Balance Sheets of the Company as of December 31, 2001 and 2000

Consolidated  Statements  of Operations  for the years ended  December 31, 2001,
2000 and 1999

Consolidated Statements of Stockholders' Equity for the years ended December 31,
1999, 2000 and 2001

Consolidated  Statements  of Cash Flows for the years ended  December  31, 2001,
2000 and 1999

Notes to Consolidated Financial Statements


                                       22
<PAGE>

Item  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

         On October 12, 2001,  pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 the Company  filed a Form 8-K  identifying  a change in the
Company's  Certifying  Accountants.  KPMG LLP previously served as the principal
accountants  for the  Company.  On  September  6, 2001,  the Company  elected to
terminate  that firm's  appointment  effective  after the audit of the Company's
consolidated financial statements as of the year ended December 31, 2000 and the
issuance of the report thereon.  The Company  announced it had decided to retain
Grant Thornton LLP as principal accountants.  The decision to change accountants
was approved by the Company Audit committee of the Board of Directors, the Board
of  Directors,  and was  ratified  by a vote of the  shareholders  at the annual
meeting on November  2, 2001.  In  connection  with the audits of the two fiscal
years ended December 31, 2000 there were no  disagreements  with KPMG LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing  scope or  procedures  which  disagreements  if not  resolved  to their
satisfaction  would have caused them to make reference in connection  with their
opinion to the subject matter of the disagreement.

         On March 29, 2002 Grant Thornton  informed the Company it was declining
to accept the engagement as the Company's principal  accountants.  There were no
disagreements with Grant Thornton LLP on any matter of accounting  principles or
practices,  financial statement disclosure,  or auditing scope or procedures. On
April 1, 2002,  after approval by the Company's  Audit committee of the Board of
Directors and the Board of Directors,  the Company retained Hansen, Barnett, and
Maxwell as the  Company's  Principal  Accountants.  On April 5, 2002 pursuant to
Section 13 or 15(d) of the Securities  Exchange Act of 1934, the Company filed a
Form 8-K identifying  the change in the Company's  Certifying  Accountants.  The
Company's  selection  of  Hansen,   Barnett,  and  Maxwell  will  be  posed  for
ratification by a vote of the shareholders at the 2002 annual meeting.



PART III.

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         The  information  set forth under the captions  "Election of Directors"
and  "Executive  Officers of the  Company"  of the  Company's  definitive  Proxy
Statement  for the Company's  2002 Annual  Meeting of  Shareholders  (the "Proxy
Statement") is incorporated  herein by reference.  The Company's Proxy Statement
will be filed by the Company with the SEC not later than 120 days after December
31, 2001, the close of our fiscal year.


Item 11.  EXECUTIVE COMPENSATION

         The  information set forth under the captions  "Executive  Compensation
and Other Matters" of the Company's Proxy  Statement is  incorporated  herein by
reference.  The Company's  Proxy Statement will be filed by the Company with the
SEC not later than 120 days after  December  31,  2001,  the close of our fiscal
year.


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information set forth under the captions "Outstanding Capital Stock
and Stock  Ownership of  Directors,  Certain  Executive  Officers and  Principal
Shareholders"  of the  Company's  Proxy  Statement  is  incorporated  herein  by
reference.  The Company's  Proxy Statement will be filed by the Company with the
SEC not later than 120 days after  December  31,  2001,  the close of our fiscal
year.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information set forth under the captions "Certain  Transactions" of
the Company's Proxy Statement is incorporated herein by reference. The Company's
Proxy  Statement  will be filed by the  Company  with the SEC not later than 120
days after December 31, 2001, the close of our fiscal year.


                                       23
<PAGE>

PART IV

Item 14.  EXHIBITS AND REPORTS ON FORM 8-K

         The  following  documents  are filed or  incorporated  by  reference as
exhibits to this Report:

3.1      Restated  Articles of  Incorporation  of the Company  (incorporated  by
         reference  to Exhibit 3.1 to the  Company's  Registration  Statement on
         Form SB-2 (Registration No. 333-26269)).

3.2      Bylaws of the Company  (incorporated by reference to Exhibit 3.2 to the
         Company's   Registration  Statement  on  Form  SB-2  (Registration  No.
         333-26269)).

4.1      Specimen of Common  Stock  Certificate  (incorporated  by  reference to
         Exhibit  4.1 to the  Company's  Registration  Statement  on  Form  SB-2
         (Registration No. 333-26269)).

10.1     Copy of the Company's 2002 Long Term Incentive Plan, including forms of
         nonqualified  Stock Option Agreement,  Incentive Stock Option Agreement
         and Restrictive  Stock Option  Agreement  (incorporated by reference to
         Exhibit  10.1 to the  Company's  Registration  Statement  on Form  SB-2
         (Registration No. 333-26269)).

21.      List of  subsidiaries  of the Company  (incorporated  by  reference  to
         Exhibit  21 to  the  Company's  Registration  Statement  on  Form  SB-2
         (Registration No. 333-26269)).

23.      Power of Attorney (included as part of signature page).

Reports on Form 8-K

         The Company  filed a Form 8-K January 29, 2001 with respect to a notice
of  noncompliance of NASDAQ Rule 4310(c)(4) and the appointment of David M. Camp
as  chairman  of the  board of  directors;  on April 2,  2001  with  respect  to
definitive agreements to sell the Radiophamaceutical  Manufacturing Facility and
brachytherapy  seed  assets;  on May 8,  2001  with  respect  to the sale of the
Radiopharmaceutical  Manufacturing Facility to NeoRx Corporation and the sale of
the brachytherapy seed assets to Imagyn Medical,  Inc.; on October 12, 2001 with
respect to the Company's  selection of Grant Thornton as the Company's  auditing
firm in place of KPMG LLP;  and on January 16, 2002 with respect the purchase of
the  Series  A  Preferred  stock  by a group  of  investors  and  the  Company's
repurchase of 2817 shares of Preferred Series B stock.



                                POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS that each of International Isotopes Inc,
a Texas corporation,  and the undersigned directors and officer of International
Isotopes Inc, hereby constitutes and appoints Steve Laflin its, or his, true and
lawful  attorney-in-fact  and agent, for it or him and in its or his name, place
and stead, in any and all capacities,  with full power to act alone, to sign any
and all  amendments  to this  report,  and to file  each such  amendment  to the
Report, with all exhibits thereto, and any and all other documents in connection
therewith,  with the Securities and Exchange  Commission,  hereby  granting unto
said  attorney  in-fact and agent full power and authority to do and perform any
and all acts and  things  requisite  and  necessary  to be done in and about the
premises as fully to all  intents and  purposes as it or he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
may lawfully do or cause to be done by virtue hereof.


                                       24
<PAGE>

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

                                      International Isotopes Inc.


                                      By: /S/ Steve Laflin
                                          -------------------------------
                                          Steve Laflin
                                          President and Chief Executive Officer




                                       25
<PAGE>




                                   SIGNATURES

         In accordance  with the  requirements  of the Exchange Act, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


May 17, 2002              By:  /s/ Dr. Ralph Richart
                               ----------------------------
                               Dr. Ralph Richart
                               Chairman of the Board of Directors

May 17, 2002              By:  /s/ Steve L. Laflin
                               ----------------------------
                               Steve L. Laflin
                               President, Chief Executive Officer and Director

May 17, 2002              By:  /s/ Christopher Grosso
                               ----------------------------
                               Christopher Grosso
                               Director

May 17, 2002              By:  /s/ Randall O'Kane
                               ----------------------------
                               Randall O'Kane
                               Director

May 17, 2002              By:  /s/ Keith Allberg
                               ----------------------------
                               Keith Allberg
                               Director





                                       26
<PAGE>



INTERNATIONAL ISOTOPES, INC.

FINANCIAL STATEMENTS

TABLE OF CONTENTS


                                                                   Page No.

Report of Independent Certified Public Accountants
     (Hansen, Barnett & Maxwell)..................................    28

Independent Auditors' Report (KPMG LLP)...........................    29


FINANCIAL STATEMENTS

Consolidated Balance Sheets of the Company
     as of December 31, 2001 and 2000.............................    30

Consolidated Statements of Operations for the years ended
     December 31, 2001, 2000 and 1999.............................    31

Consolidated Statements of Stockholders' Equity for the years
     ended December 31, 1999, 2000 and 2001.......................    32

Consolidated Statements of Cash Flows for the years ended
     December 31, 2001, 2000 and 1999.............................    33

Notes to Consolidated Financial Statements .......................    35



                                       27
<PAGE>


HANSEN, BARNETT & MAXWELL                               (801) 532-2200
A Professional Corporation                            Fax (801) 532-7944
CERTIFIED PUBLIC ACCOUNTANTS                       5 Triad Center, Suite 750
                                                Salt Lake City, Utah 84180-1128
                                                        www.hbmcpas.com





               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and the Stockholders
International Isotopes Inc.

We have audited the  accompanying  consolidated  balance sheet of  International
Isotopes  Inc.  and  subsidiaries  as of  December  31,  2001  and  the  related
consolidated statements of operations,  stockholders' equity (deficit), and cash
flows for the year then ended. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the 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  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of  International
Isotopes Inc. and  subsidiaries as of December 31, 2001 and the results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 in the
financial statements,  the Company has suffered substantial and recurring losses
from operations and negative cash flows from operating activities. These factors
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's plan in regard to these matters is also described in Note
2. The  financial  statements do not include any  adjustments  that might result
from the outcome of this uncertainty.


                                          HANSEN, BARNETT & MAXWELL

Salt Lake City, Utah
April 11, 2002



                                       28
<PAGE>


                          Independent Auditors' Report


The Board of Directors
International Isotopes Inc.:



We have audited the  accompanying  consolidated  balance sheet of  International
Isotopes  Inc.  and  subsidiaries  as of  December  31,  2000,  and the  related
consolidated  statements of operations,  stockholders' equity (deficit) and cash
flows  for the years  ended  December  31,  2000 and  1999.  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the 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 our audits  provide a reasonable
basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of  International
Isotopes Inc. and subsidiaries as of December 31, 2000, and the results of their
operations  and their cash flows for the years ended December 31, 2000 and 1999,
in conformity with accounting principles generally accepted in the United States
of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  note 2 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from  operations and has net capital  deficiency that raises  substantial  doubt
about its ability to continue as a going concern.  Management's  plans in regard
to these  matters  are also  described  in note 2.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

                                             KPMG LLP

April 27, 2001
Dallas, Texas




                                       29
<PAGE>

<TABLE>
<CAPTION>

                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets


                                                                                  December 31,
                                                                          ----------------------------
                    Assets                                                    2001            2000
 ----------------------------------------------------                     ------------    ------------
<S>                                                                       <C>             <C>
Current assets:
    Cash and cash equivalents                                             $    293,969    $    642,554
    Accounts receivable                                                        138,531         373,513
    Assets held for sale (Note 2)                                              729,531      25,085,806
    Inventories (Note 4)                                                     2,537,519       2,587,992
    Prepaids and other current assets                                          287,074         304,636
                                                                          ------------    ------------
      Total current assets                                                   3,986,624      28,994,501

Property, plant and equipment, net (Note 6)                                    280,036         455,541

Intangibles and other assets                                                         -         134,777
                                                                          ------------    ------------
      Total assets                                                        $  4,266,660    $ 29,584,819
                                                                          ============    ============


    Liabilities, Redeemable Convertible Preferred
          Stock and Stockholders' Deficit
-----------------------------------------------------
Current liabilities
    Accounts payable                                                      $    181,694    $  4,459,814
    Checks written in excess of cash in bank                                   101,714               -
    Accrued liabilities                                                        448,529         939,254
    Current portion of lease obligations                                             -       1,531,883
    Current installments of mortgage and notes payable (Note 5)              2,720,610      16,972,971
                                                                          ------------    ------------
      Total current liabilities                                              3,452,547      23,903,922

Non-current portion of lease obligations                                             -       2,025,763
Mortgage and notes payable, excluding current installments (Note 5)             45,182          67,989
                                                                          ------------    ------------
      Total liabilities                                                      3,497,729      25,997,674
                                                                          ------------    ------------
Redeemable convertible preferred stock, net
    (liquidation value of $17,467,000) (Note 8)                             17,117,755      17,337,954
                                                                          ------------    ------------
Stockholders' deficit (Note 8)
    Preferred stock, $0.01 par value; 5,000,000 shares authorized;
        17,467 shares issued and outstanding                                         -               -
    Common stock, $0.01 par value; 250,000,000 shares authorized;
        issued and outstanding 26,581,135 at December 31, 2001
      and  10,611,411 shares at December 31, 2000                              265,812         106,115
    Additional paid-in capital                                              70,575,834      69,190,246
    Accumulated deficit                                                    (87,190,470)    (83,047,170)
                                                                          ------------    ------------
      Total stockholders' deficit                                          (16,348,824)    (13,750,809)
                                                                          ------------    ------------
      Total liabilities, redeemable convertible preferred stock
        and stockholders' deficit                                         $  4,266,660    $ 29,584,819
                                                                          ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       30
<PAGE>

<TABLE>
<CAPTION>

                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations

                                                                      Years ended December 31,
                                                           ----------------------------------------------
                                                              2001              2000             1999
                                                           -----------       -----------      -----------
<S>                                                       <C>               <C>              <C>
Revenue:
   Sales of product                                        $ 2,177,900       $ 2,076,884      $ 2,553,389

Cost of revenue:
   Cost of products                                          1,424,111           930,536        1,100,952
                                                           -----------       -----------      -----------
     Gross profit                                              753,789         1,146,348        1,452,437
                                                           -----------       -----------      -----------
Operating costs and expenses:
   Salaries, contract labor and product development            521,753         1,579,317        1,297,682
   General, administrative and consulting                    1,275,632         5,570,875        3,432,977
                                                           -----------       -----------      -----------
     Total operating expenses                                1,797,385         7,150,192        4,730,659
                                                           -----------       -----------      -----------
     Operating loss                                         (1,043,596)       (6,003,844)      (3,278,222)

Other income (expense):
   Interest income                                               2,613                 -                -
   Interest expense                                             (3,114)         (113,549)         (20,534)
                                                           -----------       -----------      -----------
     Loss from continuing operations                        (1,044,097)       (6,117,393)      (3,298,756)
                                                           -----------       -----------      -----------
Discontinued operations
   Impairment of long-lived assets (note 2)                          -       (17,975,043)               -
   Loss on disposal of discontinued operations
     including provision of $2,325,282 for operating
     losses during the phase-out period (less
     applicable taxes of $0)                                (1,774,118)                -                -
   Loss from discontinued operations                                 -       (16,891,284)     (10,798,850)
                                                           -----------       -----------      -----------
     Loss from discontinued operations                      (1,774,118)      (34,866,327)     (10,798,850)
                                                           -----------       -----------      -----------
      Net loss                                              (2,818,215)      (40,983,720)     (14,097,606)

Preferred stock dividend, deemed dividend
   and accretion of discount                                (1,325,085)      (14,884,922)      (2,356,111)
                                                           -----------       -----------      -----------

Net loss applicable to common shareholders                 $(4,143,300)     $(55,868,642)    $(16,453,717)
                                                           ===========       ===========      ===========

Net loss per common share continuing
   operations - basic and diluted                              $ (0.15)          $ (2.17)         $ (0.70)
Net loss per common share discontinued
   operations - basic and diluted                                (0.11)            (3.60)           (1.33)
                                                           -----------       -----------      -----------

Net loss per common share - basic and diluted                  $ (0.26)          $ (5.77)         $ (2.03)
                                                           ===========       ===========      ===========

Weighted average common shares outstanding -
   basic and diluted                                        15,976,551         9,686,303        8,110,521
                                                           ===========       ===========      ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       31
<PAGE>

<TABLE>
<CAPTION>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
            Consolidated Statements of Stockholders' Equity (Deficit)
                  Years ended December 31, 1999, 2000 and 2001

                                                                                                                          Total
                                                                              Additional   Receivable                  Stockholders'
                                                           Common Stock        Paid-in        From      Accumulated      Equity
                                                        Shares      Amount     Capital    Stockholders    Deficit       (Deficit)
                                                      ----------   --------  -----------  ------------  ------------   ------------
<S>                                                    <C>         <C>       <C>           <C>          <C>            <C>
Balance, January 1, 1999                               7,351,625   $ 73,515  $35,687,396   $ (640,000)  $(10,724,811)  $ 24,396,100

Net effect of repurchase agreement with MAC Tech                                (869,559)                                  (869,559)
Issuance of warrants                                                           1,330,450                                  1,330,450
Issuance of warrants for services                                                 37,967                                     37,967
Beneficial conversion effect of Series A redeemable
    convertible preferred stock                                                1,930,450                  (1,930,450)             -
Common stock issued in private placement               1,084,410     10,844   10,043,853                                 10,054,697
Issuance of common stock for services                     98,039        980      999,020                                  1,000,000
Accretion of issuance costs on
    redeemable convertible preferred stock                                                                  (322,925)      (322,925)
Issuance of common stock to officer                       35,000        350      172,462                                    172,812
Redeemable convertible preferred stock dividend                                                             (102,736)      (102,736)
Net loss                                                                                                 (14,097,606)   (14,097,606)
                                                      ----------   --------  -----------   ----------   ------------   ------------
Balance December 31, 1999                              8,569,074     85,689   49,332,039     (640,000)   (27,178,528)    21,599,200

Common stock issued in private placement               1,054,652     10,547    5,367,630                                  5,378,177
Net effect of repurchase agreement with MAC Tech                              (1,266,442)                                (1,266,442)
Issuance of warrants related to Series B Preferred
  Stock                                                                        3,283,582                                  3,283,582
Issuance of warrants for services                                                  6,033                                      6,033
Issuance of common stock for services                    144,000      1,440      506,060                                    507,500
Beneficial conversion effect of Series B redeemable
     convertible preferred stock                                               5,213,582                  (5,213,582)             -
Increase of the number of warrants and adjustment
    of the conversion price associated with the
    Series A redeemable convertible preferred stock                            4,228,331                  (4,228,331)             -
Accretion of issuance costs on
    redeemable convertible preferred stock                                                                (4,607,065)    (4,607,065)
Redeemable convertible preferred stock dividend          384,631      3,847      707,097                    (835,944)      (125,000)
Purchase of shares in conjunction with Employee Stock
     Purchase Plan                                        13,304        134       33,792                                     33,926
Conversion of Series B redeemable convertible
     preferred stock                                     445,750      4,458    1,778,542                                  1,783,000
Foregiveness of notes receivable from stockholders                                            640,000                       640,000
Net loss                                                                                                 (40,983,720)   (40,983,720)
                                                      ----------   --------  -----------   ----------   ------------   ------------
Balance December 31, 2000                             10,611,411    106,115   69,190,246            -    (83,047,170)   (13,750,809)

Redeemable convertible preferred stock dividend       15,594,724    155,947      639,338                    (795,285)             -
Accretion of issuance costs on
    redeemable convertible preferred stock                                                                  (529,800)      (529,800)
Conversion of Series B redeemable convertible
     preferred stock                                     375,000      3,750      746,250                                    750,000
Net loss                                                                                                  (2,818,215)    (2,818,215)
                                                      ----------   --------  -----------   ----------   ------------   ------------
Balance December 31, 2001                             26,581,135   $265,812  $70,575,834   $        -   $(87,190,470)  $(16,348,824)
                                                      ==========   ========  ===========   ==========   ============   ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       32
<PAGE>

<TABLE>
<CAPTION>

                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows

                                                                            Years ended December 31,
                                                                 ----------------------------------------------
                                                                    2001              2000             1999
                                                                 ------------      ------------    ------------
<S>                                                             <C>               <C>             <C>
Cash flows from operating activities:
   Net loss                                                      $ (2,818,215)     $(40,983,720)   $(14,097,606)
   Adjustments to reconcile net loss to net cash used in
   operating activities
     Depreciation and amortization                                     72,306         4,260,900       1,945,355
     Gain on disposal of discontinued operations                     (551,164)                -               -
     Gain on foregiveness of debt                                  (1,197,330)                -               -
     Loss on disposed property, plant and equipment                   167,986                 -         205,380
     Issuance of common stock for services                                  -           507,500         172,462
     Warrants issued for services received                                  -             6,033          38,317
     Forgiveness of receivable from stockholder                             -           640,000               -
     Impairment of investment                                               -            49,100               -
     Impairment of long-lived assets                                        -        17,975,043               -
     Changes in operating assets and liabilities:
        Accounts receivable                                           234,982           391,854        (524,934)
        Prepaids and other current assets                              17,562           348,147         (34,456)
        Assets held for sale                                                -                 -         321,153
        Inventories                                                    50,473          (166,558)       (676,967)
        Accounts payable and accrued liabilities                   (3,571,515)        2,617,862       1,081,345
                                                                 ------------      ------------    ------------
         Net cash used in operating activities                     (7,594,915)      (14,353,839)    (11,569,951)
                                                                 ------------      ------------    ------------
Cash flows from investing activities:
   Purchase of property, plant and equipment                          (64,788)       (2,389,851)     (6,597,992)
   Proceeds from assets held for sale                              17,609,218                 -               -
                                                                 ------------      ------------    ------------
         Net cash provided by (used in) investing activites        17,544,430        (2,389,851)     (6,597,992)
                                                                 ------------      ------------    ------------
Cash flows from financing activities:
   Settlement of contingent consideration - MAC Isotopes, Inc.              -        (1,266,442)       (869,559)
   Proceeds from issuance of redeemable
     convertible preferred stock and warrants                               -         9,404,996       9,400,000
   Proceeds from issuance of common stock
     and common stock subscriptions                                         -         5,412,103      10,054,697
   Checks written in excess of cash in bank                           101,714                 -               -
   Payments on capital leases                                      (3,557,646)       (1,592,151)       (573,369)
   Proceeds from issuance of debt                                   1,053,020         3,670,593               -
   Principal payments on notes payable                             (7,895,188)       (1,108,155)     (3,122,494)
   Payments of preferred stock dividends                                    -          (125,000)       (102,736)
                                                                 ------------      ------------    ------------
         Net cash (used in) provided by financing activities      (10,298,100)       14,395,944      14,786,539
                                                                 ------------      ------------    ------------

Net decrease in cash and cash equivalents                            (348,585)       (2,347,746)     (3,381,404)
Cash and cash equivalents at beginning of year                        642,554         2,990,300       6,371,704
                                                                 ------------      ------------    ------------
Cash and cash equivalents at end of year                         $    293,969      $    642,554    $  2,990,300
                                                                 ============      ============    ============
</TABLE>
                                   (Continued)


                                       33
<PAGE>

<TABLE>
<CAPTION>

                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows

                                    Continued

                                                                            Years ended December 31,
                                                                 -----------------------------------------------
                                                                     2001              2000             1999
                                                                 ------------      ------------    -------------
<S>                                                              <C>               <C>               <C>
Supplemental disclosure of cash flow activities:
   Cash paid for interest, net of amounts capitalized            $  1,036,143      $  2,029,476    $     567,986
                                                                 ============      ============    =============
Supplemental disclosure of noncash financing and
   investing transactions:

   Debt assumed by purchaser of Shady Oaks facility              $  7,433,000      $          -    $           -
                                                                 ============      ============    =============

   Common stock issued on conversion of preferred stock          $    750,000      $          -    $           -
                                                                 ============      ============    =============

   Common stock issued for payment of preferred dividends        $    795,285      $          -    $           -
                                                                 ============      ============    =============

   Accretion of issuance costs on preferred stock                $    529,800      $  4,607,065    $     322,925
                                                                 ============      ============    =============

   Common stock issued for prepayment of royalties               $          -      $          -    $   1,000,000
                                                                 ============      ============    =============

   Capital expenditures included in accounts payable             $          -      $    102,360    $     103,235
                                                                 ============      ============    =============

   Acquistion of equipment through capital leases                $          -      $    749,814    $   3,963,285
                                                                 ============      ============    =============
</TABLE>
           See accompanying notes to consolidated financial statements


                                       34
<PAGE>



                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000




NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

         International  Isotopes Inc (the Company) was  incorporated in Texas in
         November 1995. The Company acquired the technology, proprietary designs
         and  intellectual  property  for the  design and  assembly  of a proton
         linear  accelerator  (LINAC) to produce  radioisotopes  used in nuclear
         medicine for the detection and treatment of various forms of cancer and
         other diseases.  The Company also owns 100% of the  outstanding  common
         shares of Gazelle Realty,  Inc. and International  Isotopes Idaho, Inc.
         (I4). Gazelle Realty, Inc. owned 20 acres of land on which the facility
         for the LINAC has been  constructed  and 1.6 acres of land on which the
         administration,  manufacturing,  and research and development  building
         was constructed. During 1997, all the property owned by Gazelle Realty,
         Inc. was transferred to the Company.

         Prior to initial  production  in late 1999,  the  Company  had  devoted
         substantially all of its efforts,  since inception,  to the acquisition
         and   construction   of  the  LINAC   project   and   related   assets,
         pharmaceutical   production   and  to   raising   capital   and   other
         organizational  activities.  The  operating  revenues to date have been
         limited to the sales of accelerator components purchased from the State
         of  Texas,   product  development   income,   initial  sales  of  I-125
         brachytherapy  seeds and sales of reactor  produced  products  from I4.
         Additionally,  the Company has derived operating capital from the sales
         of assets.  The Company has  financed  its  operations  in part through
         private  placements  of its equity  securities  and its initial  public
         offering (the "Offering") which occurred on August 19, 1997.

         Discontinued  Operations - In late 2000, the Company determined that it
         would be  required to pursue  strategic  alternatives  to sell  certain
         assets in order to continue operations. It was determined that it would
         be necessary to dispose of: the Woodrow  Spencer  office and  warehouse
         located  in  Denton,  Texas;  the   Radiopharmaceutical   Manufacturing
         Facility in Denton,  Texas; the brachytherapy  seed business in Denton,
         Texas;  real estate located in Waxahachie,  Texas; and the Radioisotope
         Production Facility in Denton,  Texas. Each of these  facilities/assets
         was  evaluated  for  impairment  and  all  were  written  down  to  net
         realizable  value and an  adjustment  of  $17,975,043  was  recorded at
         December 31, 2000 and was  reported in the December 31, 2000  financial
         statements.

         As  discussed  in Note 2, during  January  2001 the sale of the Woodrow
         Spencer facility was completed. In April 2001 the Company completed the
         sale  of  the   Radiopharmaceutical   Manufacturing  Facility  and  the
         Brachytherapy  seed business.  The sale of the Radioisotope  Production
         Facility  ("LINAC") closed in December 2001. At December 31, 2001, 2000
         and  1999,  the  operations   associated  with  these   facilities  and
         activities have been  reclassified as  discontinued  operations.  Costs
         associated  with corporate  functions for each of these years have been
         categorized as part of general and  administrative  and are included in
         continuing  operations.  Interest expense associated  directly with the
         discontinued   operations   has  been   categorized   as   discontinued
         operations.  Interest expense associated with continuing  operations is
         reported separately. Included in the loss from discontinued operations,
         for the year ended  December 31, 2001, is a gain on the  forgiveness of
         debt of  approximately  $1,200,000 that resulted from a settlement with
         vendors accepting a discounted  amount as payment.  Total revenues from
         discontinued operations were approximately  $1,167,000,  $4,200,000 and
         $1,136,000 in 2001, 2000 and 1999 respectively. The loss on disposal of
         discontinued  operations of $1,774,118  for the year ended December 31,
         2001 includes a provision of $2,325,282 for operating  losses  incurred
         during the phase-out  period.  See Note 2 for proceeds from disposal of
         assets during 2001.



                                       35
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


         The only  operating  assets of the Company  are those of  International
         Isotopes Idaho Inc. (I4) located in Idaho Falls,  Idaho (the Company is
         still holding for resale certain real estate valued at $409,531 located
         in Waxahachie,  Texas; and  miscellaneous  equipment located in Denton,
         Texas with a carrying value of  approximately  $320,000.) All operating
         activities  associated  with I4 are reported as continuing  operations.
         Corporate  administrative  costs  are also  categorized  as  continuing
         operations.

         Principles of  Consolidation - The  consolidated  financial  statements
         include the accounts of the Company and its wholly  owned  subsidiaries
         Gazelle  Realty,  Inc.  and  International  Isotopes  Idaho,  Inc.  All
         significant intercompany accounts and transactions have been eliminated
         in consolidation

NOTE 2 - SALE OF ASSETS AND LIQUIDITY

         The Company has an accumulated  deficit of approximately  $87.2 million
         since  inception and has  principally  funded  operations and plant and
         equipment  expenditures from proceeds of public and private  placements
         of equity and through short and long-term  borrowing  arrangements.  In
         late 2000, the Company  determined  that it would be required to pursue
         strategic  alternatives  to sell  certain  assets in order to  continue
         operations.

         On January  16,  2001,  the Company  completed  the sale of the Woodrow
         Spencer  office and  warehouse  facility  located in Denton,  Texas for
         proceeds  of  $950,000,  less  closing  costs of  $63,811.  Through  an
         impairment charge of $209,773,  the facility had been written down to a
         net book value of $886,189 at December 31,  2000.  The Company used the
         proceeds to reduce its revolving line of credit by $863,890  (including
         interest of $23,400) and fund  operating  expenses  with the  remaining
         amounts.

         On  April  20,   2001,   the   Company   completed   the  sale  of  the
         Radiopharmaceutical   Manufacturing   Facility  to  NeoRx   Corporation
         ("NeoRx")  for  proceeds of $12.0  million,  less  settlement  costs of
         $225,000,  and  warrants to  purchase  800,000  shares of NeoRx  common
         stock.  (The warrants were given no value due to the exercise  price of
         the warrants being less than the market value on the date the agreement
         was entered into.) This facility had a net book value of $11,304,724 at
         December 31, 2000. The Company used the proceeds to repay advances made
         by NeoRx in the  amount  of  $861,060,  reduce  its note  payable  to a
         commercial lender by $1,296,469 (including interest of $36,578), reduce
         its  revolving  line of credit by  $2,614,023  (including  interest  of
         $45,857),  reduce its capital lease obligations by $3,291,289,  repay a
         portion of the note payable to William  Nicholson,  the former Chairman
         of the  Board,  in the  amount of  $348,000  and fund  other  operating
         expenses.  The Company  transferred  the NeoRx warrants to the Series A
         and B preferred  shareholders  in exchange for certain  concessions  in
         their  certificates of designation.  See Note 8 for a discussion of the
         concessions made by the Series A and B preferred shareholders.

         On April 27, 2001, the Company  completed the sale of its brachytherapy
         seed assets to Imagyn  Medical  Technologies,  Inc.  ("Imagyn") for net
         cash proceeds of $5.0 million,  less settlement costs of $100,000.  The
         seed business through an impairment charge of $416,294 had been written
         down to a net book  value of  $5,000,000  at  December  31,  2000.  The
         Company  used the proceeds to repay  advances and expenses  incurred by
         Imagyn in the  amount of  $108,786  and  reduce  its note  payable to a
         commercial lender by $4,645,582 (including interest of $25,768), reduce
         its capital  lease  obligations  by $145,632  and fund other  operating
         expenses.

         On December  14,  2001,  the Company  completed  the sale of the Linear
         Accelerator  Facility for $8,251,849.  In this transaction,  the buyers
         assumed  Company debt of  $7,433,000  and paid  interest of $318,848 on
         behalf of the Company. The Company incurred additional closing costs of
         $272,025.  The Linear Accelerator Facility through an impairment charge
         of $15,889,765  had been written down to a net book value of $7,164,160
         at December 31, 2000.  Associated  with the sale and the  assumption of
         debt by the  purchaser,  the  Company  will  retain  an  obligation  of
         $500,000 on that loan for six months or until  purchaser  renews  their
         note with Texas State  Bank.  The Company  also  retains an  obligation
         (also  for  six  months  or  until  purchaser   renews  the  note)  for
         decommissioning  the Shady Oaks/LINAC  facility should AMISI default on
         payment or not meet Texas State Bank requirements for note renewal.


                                       36
<PAGE>


                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


         At December 31, 2001 and 2000,  excess components and equipment through
         an  impairment  charge  of  $358,453  have been  written  down to a net
         realizable value of $320,000.

         At December  31,  2001 and 2000,  the  Company  continues  to carry its
         Waxahachie real estate at $409,531.  The Company  believes the proceeds
         from the sale of this property will be in excess of its net book value.

         Subsequent to the sales of assets described above, the Company consists
         solely  of the I4  Idaho  operations  and the size  and  nature  of the
         business is substantially less in scope than in prior years. Concurrent
         with the  discontinuance of operations in Texas, the Company focused on
         generating  revenues  from the newly  completed  contracts for contract
         manufacturing  medical flood sources,  processing Topaz Gemstones,  and
         continuing to produce High Specific  Activity  (HSA)  cobalt-60  from a
         Department of Energy (DOE) test reactor (ATR).

         Business  Condition  -  Since  inception,   the  Company  has  suffered
         recurring  losses.  During the years ended December 31, 2001,  2000 and
         1999, the Company had losses before preferred  dividends of $2,818,215,
         $40,983,720,  and  $14,097,606,  respectively.  During the years  ended
         December 31, 2001, 2000 and 1999, the Company's operations used cash in
         operating  activities  of  $7,594,915,   $14,353,839  and  $11,569,951,
         respectively.   The  net  loss  before  preferred   dividends  includes
         discontinued operations for the years ended December 31, 2001, 2000 and
         1999 of $1,774,118,  $34,866,327, and $10,798,850,  respectively. As of
         December 31, 2001,  the remaining  operating  assets of the Company are
         those of I4, which  incurred  significant  operating  losses during the
         years ended  December  31, 2001,  2000 and 1999.  These  matters  raise
         substantial  doubt about the  Company's  ability to continue as a going
         concern. With the continuation of I4 operations,  management expects to
         generate  sufficient cash flows to meet  operational  needs during 2002
         through financing and operating capital; however, there is no assurance
         that these cash flows will occur. The accompanying financial statements
         do not  include any  adjustments  relating  to the  recoverability  and
         classification   of  asset   carrying   amounts   or  the   amount  and
         classification  of liabilities  that might result should the Company be
         unable to continue as a going concern.


NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

(a)      Financial Instruments and Cash Equivalents

         The  Company's  financial  instruments  consist  of  cash  equivalents,
         accounts  receivable and payable and notes payable.  The carrying value
         of these financial instruments approximates fair value because of their
         short-term  nature  or  because  they  bear  interest  at  rates  which
         approximate market rates.

         Cash and cash equivalents of $293,969 and $642,554 at December 31, 2001
         and 2000,  respectively,  consist of operating  accounts,  money market
         accounts and certificates of deposit.  For purposes of the consolidated
         statements  of cash flows,  the  Company  considers  all highly  liquid
         financial  instruments with original maturities of three months or less
         at date of purchase to be cash equivalents.



                                       37
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


         At December  31, 2001 the Company  has pledged  cash of  $217,614.  The
         pledged  cash  is  comprised  of  two  certificates  of  deposit.  Both
         certificates  are pledged as  security on letters of credit.  The first
         certificate  of deposit for $85,000 is collateral on a letter of credit
         required as part of the Eastern Idaho Economic Development Council note
         payable.  The second  certificate of deposit for $132,614 is collateral
         for a letter of credit required as part of the licensing agreement with
         the NRC. Among other things, the licensing agreement calls for a letter
         of  credit  to  provide  a level of  financial  assurance  to  maintain
         licensing with the NRC.

(b)      Property, Plant and Equipment

         Depreciation  on property,  plant and  equipment is computed  using the
         straight-line  method over the estimated  useful life of the asset. The
         ranges of estimated useful lives are as follows:

                                                      Years
                                                      -----
                          Furniture & fixtures        3 - 5
                          Plant and improvements        5
                          Production equipment          5

         Depreciation  expense  was  $72,306,  $37,121 and $11,754 for the years
         ended December 31, 2001, 2000 and 1999, respectively.

(c)      Inventories

         Inventories  are  carried  at the  lower  of  cost or  market.  Cost is
         determined using the first in, first out method.

(d)      Income Taxes

         Income taxes are accounted  for under the asset and  liability  method.
         Deferred tax assets and  liabilities  are recognized for the future tax
         consequences   attributable   to  differences   between  the  financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases and operating  loss and tax credit  carryforwards.
         Deferred  tax assets and  liabilities  are measured  using  enacted tax
         rates  expected to apply to taxable  income in the years in which those
         temporary  differences  are expected to be  recovered  or settled.  The
         effect on deferred tax assets and  liabilities  of a change in tax rate
         is recognized in income in the period that includes the enactment date.

(e)      Use of Estimates

         Management   of  the  Company  has  made  a  number  of  estimates  and
         assumptions relating to the reporting of assets and liabilities and the
         disclosure  of  contingent  assets and  liabilities  at the date of the
         consolidated  financial statements and reported amounts of revenues and
         expenses  during the  reporting  period to prepare  these  consolidated
         financial  statements in conformity with generally accepted  accounting
         principles. Actual results could differ from those estimates.

(f)      Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

         Long-lived assets and certain identifiable intangibles are reviewed for
         impairment  whenever events or changes in  circumstances  indicate that
         the carrying amount of an asset may not be recoverable.  Recoverability
         of assets to be held and used is measured by comparison of the carrying
         amount of an asset to future net cash flows expected to be generated by
         the asset. If such assets are considered to be impaired, the impairment
         to be recognized is measured by the amount that the carrying  amount of
         the assets  exceed the fair value of the assets.  Assets to be disposed
         of are reported at the lower of the carrying  amount or fair value less
         costs to sell.


                                       38
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


         A summary of the impairment charge recorded at December 31, 2000, is as
         follows:

               Linear Accelerator Facility           $15,889,765
               Woodrow Spencer Facility                  209,773
               Brachytherapy Seed Business               416,294
               Excess equipment held for sale            358,453
               Goodwill                                1,100,758
                                                     -----------
                                                     $17,975,043
                                                     -----------


(g)      Revenue Recognition

         Revenue is recognized when products are shipped.  No warranty  coverage
         or right of return provisions are provided to customers.

         The Company has three  significant  customers  and relies  heavily on a
         limited  number  of  suppliers.   Although  management  believes  other
         suppliers and other marketing/customer  opportunities could be pursued,
         it  believes  a change in its  limited  vendor or  customer  base could
         adversely affect operating results by causing a delay in production and
         a possible loss of sales.  Two of the Company's  board members are also
         principals in one of the significant customers.

(h)      Stock Option Plan

         The  Company   accounts   for   stock-based   compensation   using  the
         intrinsic-value  based  method and  provides pro forma net loss and pro
         forma loss per share disclosures for employee stock option grants as if
         the fair-value based method defined in SFAS No. 123 had been applied.

         Under  the  intrinsic-value  based  method,  if the  exercise  price of
         employee  stock  options  equals or  exceeds  the  market  price of the
         underlying  stock on the date of  grant,  no  compensation  expense  is
         recorded.

(i)      Goodwill

         Goodwill represents the excess of the aggregate purchase price over the
         fair value of net assets  acquired and is amortized on a  straight-line
         basis. The Company assesses the recoverability of this intangible asset
         by determining  whether the  amortization of the goodwill  balance over
         its  remaining  life  can  be  recovered  through  undiscounted  future
         operating cash flows of the acquired operation.  The amount of goodwill
         impairment,  if any, is measured based on projected  discounted  future
         operating  cash  flows  compared  to the  carrying  value of  goodwill.
         Goodwill  impairment  during 2000 resulted in a charge to operations of
         $1,100,758.  All  goodwill  was written off through the  impairment  in
         2000.


                                       39
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


(j)      Net Loss Per Common Share-Basic and Diluted

         Basic loss per share is computed on the basis of the  weighted  average
         number of common shares  outstanding  during the year. Diluted loss per
         share, which is computed on the basis of the weighted average number of
         common shares and all potentially  dilutive  common shares  outstanding
         during  the  year,  is the same as basic  loss per  share for the years
         ended December 31, 2001, 2000 and 1999, as all common stock options and
         warrants and convertible preferred shares were anti-dilutive.  Net loss
         per common share is calculated  for both  continuing  and  discontinued
         operations.

         As of December 31, 2001, 2000 and 1999, there were 6,390,376, 8,181,876
         and 957,400 options and warrants  outstanding  respectively,  and as of
         December 31, 2001, 2000 and 1999, there were a total of 17,467,  18,217
         and 10,000  shares of Series A and B redeemable  convertible  preferred
         stock that were not included in the computation of diluted net loss per
         common  share as their effect  would have been  anti-dilutive,  thereby
         decreasing the net loss per common share.

(k)      Recent Accounting Pronouncements

         In June 2001, FASB issued SFAS No. 142,  "Goodwill and Other Intangible
         Assets."  SFAS No.  142  changes  the  current  accounting  model  that
         requires amortization of goodwill, supplemented by impairment tests, to
         an accounting  model that is based solely upon impairment  tests.  SFAS
         No.  142  also  provides   guidance  on  accounting  for   identifiable
         intangible  assets  that  may  or may  not  require  amortization.  The
         provisions  of SFAS No. 142  related to  accounting  for  goodwill  and
         intangible  assets will be generally  effective  for the Company at the
         beginning of 2002, except that certain  provisions  related to goodwill
         and other  intangible  assets are effective  for business  combinations
         completed  after  July 1,  2001.  The  Company  does not  believe  this
         statement will have any impact to the Company.

         In June  2001,  the FASB  issued  SFAS No.  143  "Accounting  for Asset
         Retirement Obligations." SFAS No.143 addresses financial accounting and
         reporting for obligations  associated with the retirement of intangible
         long-lived  assets and associated asset retirement  costs. SFAS No. 143
         requires  that the fair value of a  liability  for an asset  retirement
         obligation  be  recognized  in the period in which it is incurred.  The
         asset  retirement  obligations  will  be  capitalized  as a part of the
         carrying amount of the long-lived  asset. SFAS No. 143 applies to legal
         obligations  associated  with the retirement of long-lived  assets that
         result  from the  acquisition,  construction,  development  and  normal
         operation of long- lived  assets.  SFAS No. 143 is effective  for years
         beginning after June 15, 2002,  with earlier  adoption  permitted.  The
         Company  does not believe  this  statement  will have any impact to the
         Company.

         In August  2001,  the FASB  issued SFAS No.  144,  "Accounting  for the
         Impairment or Disposal of Long-Lived  Assets." SFAS No. 144 establishes
         a single  accounting  model for long-lived  assets to be disposed of by
         sale and the recognition of impairment of long-lived  assets to be held
         and used.  SFAS No. 144 is effective for fiscal years  beginning  after
         December 15, 2001, with an earlier adoption encouraged.  The Company is
         evaluating the impact of adopting SFAS No. 144 but believes it will not
         have a  material  effect on the  Company's  results  of  operations  or
         financial position.

(l)      Reclassifications

         Certain 2000 and 1999 amounts  have been  reclassified  to conform with
         the 2001  presentation.  These  reclassifications  had no effect on the
         previously reported loss.


                                       40
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 4 - INVENTORIES

         Inventories consist of the following at December 31, 2001 and 2000:

                                             2001             2000
                                          ----------       ----------
                Raw materials             $  290,019       $  288,344
                Finished goods                20,571           83,742
                Work in progress           2,226,929        2,215,906
                                          ----------       ----------
                                          $2,537,519       $2,587,992
                                          ==========       ==========

NOTE 5 - ACQUISITIONS

         On April  24,  1998,  the  Company  completed  the  acquisition  of MAC
         Isotopes,  Inc. from its parent  corporation,  MACTEC,  Inc., of Golden
         Colorado,  and then merged MAC  Isotopes  into  International  Isotopes
         Idaho  Inc, a newly  formed  subsidiary  of the  Company.  The  Company
         exchanged  $500,000  in cash and  159,416  shares of its Common  Stock,
         valued at $3,173,973 for 100% of the stock in MAC Isotopes.  MACTEC had
         the  option to sell 50% of the  shares  back to the  Company on each of
         April 23,  1999 and April 24,  2000 for a purchase  price of $19.91 per
         share. If the Company did not repurchase the shares, Auric Partners, of
         which William Nicholson,  a director of the Company,  was a partner, is
         required to purchase the shares.  If Auric  purchased  the shares,  the
         Company was  obligated  to issue to Auric  warrants to purchase  common
         stock of the Company in  sufficient  quantity and at an exercise  price
         that would compensate it for the difference between $19.91 and the then
         current market price of the Company's stock.

         In April 1999,  MACTEC exercised the right to sell 50% of the shares of
         common  stock at a price of $19.91 per share.  The Company  facilitated
         the sale of the MACTEC  common  stock at the market  price of $9.00 per
         share and paid MACTEC the difference of $10.91 per share or $896,559 in
         cash. In April 2000,  the Company  advanced to MACTEC  $1,586,908,  for
         final  reimbursement  for  decreases  in the market value of the common
         stock. The payments were recorded as a reduction to additional  paid-in
         capital.  In August  2000,  MACTEC  sold on the open  market the 79,708
         shares of common stock and paid the excess  proceeds of $320,466 to the
         Company.

         As part of the  Company's  process of  determining  whether to continue
         operations, a detailed cash flow projection was performed for I4. Based
         on these  projections,  the Company determined that the future net cash
         flows  expected  to be  generated  from these  operations  would not be
         sufficient  to  recover  the  goodwill  related  to  the  MACTEC,  Inc.
         acquisition.  Accordingly in 2000,  the Company  recorded an impairment
         charge of  $1,100,758 to write off the recorded  goodwill  balance that
         was not expected to be recovered from future operations.

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

         Property,  plant and equipment is summarized as follows at December 31,
         2001 and 2000:

                                                         2001           2000
                                                       ---------      ---------
     Furniture and fixtures                             $ 33,240       $ 35,261
     Plant and improvements                               10,574          6,379
     Production equipment                                331,498        449,149
                                                       ---------      ---------
                                                         375,312        490,789
     Less accumulated depreciation and amortization      (95,276)       (35,248)
                                                       ---------      ---------
     Property, plant & equipment, net                  $ 280,036       $455,541




                                       41
<PAGE>


                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 7 - MORTGAGE AND NOTES PAYABLE

         Mortgage and notes payable as of December 31, 2001 and 2000, consist of
         the following:
<TABLE>
<CAPTION>

                                                              2001           2000
                                                          ----------     -----------
<S>                                                      <C>            <C>
Promissory notes due to NeoRx Corporation totaling
$900,000.  Notes bear interest at Prime plus 2.00%
(11.5% at December 31, 2000).  The notes were settled
as part of the NeoRx sale.                                $        -     $   900,000

Variable rate (9.25% at December 31, 2000) note
payable to a bank. As discussed in Note 2, this note
was settled with the asset sales and the Company
remains contingently liable on the $500,000.  The
Company will retain an obligation of $500,000
(non-interest bearing) on that loan for six months or
until purchaser renews their note with Texas State Bank      500,000      13,929,874

Fixed rate note payable to Eastern Idaho Economic
Development Council bearing interest at 3% per annum
and is secured by an irrevocable letter of credit,
adjusted annually to match the remaining principal
balance (included in cash is a certificate of deposit
for $85,000 as collateral).  The face amount of the
note is $100,000.  Principal and interest are payable
in monthly installments of approximately $2,213 per
month with the final payment due on September 15, 2004.       70,477          94,095

Fixed rate 7%  promissory note with revolving line to
a bank, secured by equipment, accounts receivable and
inventory.  Maximum amount available on the line is
$1,100,000, interest is due monthly, note is due June
14, 2002.                                                  1,053,020               -

Note payable to a bank, secured by Waxahachie real
estate, interest at prime plus 1% (5.75% at December
31, 2001), principal and interest due April 2002.            345,295         951,005

Note payable due to fomer chairman of the board for
the amount of $1,145,000 bearing interest at 9.6%.
Principal and interest of $118,346 were past due
December 31, 2001.                                           797,000       1,165,986
                                                          ----------     -----------
Total mortgage and notes payable to banks                  2,765,792      17,040,960
Less current maturities                                   (2,720,610)    (16,972,971)
                                                          ----------     -----------
Mortgage and notes payable to banks, excluding current
installments                                              $   45,182     $    67,989
                                                          ==========     ===========
</TABLE>

The aggregate annual maturities of mortgage and notes payable as of December 31,
2001 are as follows:
<TABLE>
<CAPTION>

 Years Ending December 31:
<S>                                                                      <C>
 2002                                                                    $ 2,720,610
 2003                                                                         25,554
 2004                                                                         19,628
                                                                         -----------
 Total                                                                   $ 2,765,792
                                                                         ===========
</TABLE>


                                       42
<PAGE>


                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


         On December 4, 2000 and  December 26,  2000,  the Company  executed two
         promissory notes with NeoRx for $500,000 and $400,000,  respectively. A
         portion  of the  $500,000  paid to the  company  was to be  applied  as
         payment  in full  of all  outstanding  amounts  owed  by  NeoRx  to the
         Company.  Any excess amounts due under the promissory  note were due in
         full by April 30, 2001 and bear interest at Prime plus 2.00% per annum.
         The  $400,000  was due in full by April 30, 2001 and bears  interest at
         Prime plus 2.00% per annum.  The notes were issued in conjunction  with
         and  subject to the terms of the  letter of intent to  acquire  certain
         assets of the Company.  On April 20, 2001,  the  transaction to acquire
         certain of the Company's  assets closed and the cash proceeds  remitted
         to the Company were net of amounts  outstanding  under these promissory
         notes.

         On October 9, 1998, the Company  executed two  promissory  notes with a
         commercial  lender for the purpose of refinancing  existing  short-term
         debt  and to  provide  a line of  credit  based  on  eligible  accounts
         receivable.  The financing  included a $15,000,000 note to be repaid in
         monthly  installments  of  principal  and  interest  in the  amount  of
         $154,379  through  November 2003 at which time the remaining  principal
         balance  would be due. In 2001  proceeds from the sale of assets and an
         assumption of debt (Note 2) were used to pay off this note.

         On August 3,  2000,  the  Company  executed a loan  agreement  with the
         Eastern Idaho  Economic  Development  Council for  $100,000.  Under the
         terms of this agreement,  the loan bears interest at 3% and payments in
         the amount of  $2,091are  due  monthly  beginning  October 15, 2000 and
         continuing through September 15, 2004.  Additionally,  the Company must
         maintain  minimum levels of employment in Eastern Idaho  throughout the
         term of the note.  As  collateral  for this loan,  the  Company  has an
         irrevocable  letter of credit  with a bank for  $85,000.  The letter of
         credit is secured by a certificate of deposit in the same amount and is
         recorded as part of restricted cash.

         At December 31, 2000, the Company had a revolving line of credit with a
         maximum availability of $5,000,000.  The interest rate, currently 6.0%,
         is one percent over the prime rate as listed by the Wall Street Journal
         and resets every six months.  During 2001,  as part of the asset sales,
         this  loan  was  restructured  and  was  paid  down  to  $345,295.   As
         restructured,  security on this loan  consists of the  Waxahachie  real
         estate. This note comes due in April of 2002.

         In May 2000, the Company  executed a promissory  note with the chairman
         of the Board in the amount of $1,000,000.  The note bears interest at a
         rate of 9.6%  and is due May  2001.  In  September  2000,  the note was
         increased by $145,000 to $1,145,000.  During 2001,  $348,000 was repaid
         on this loan reducing the principal to $797,000.

NOTE 8 - STOCKHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

         Redeemable Convertible Preferred Stock

         Under the terms of the original  Articles of Incorporation  and By-Laws
         in effect at December 31,  1996,  the Company was  authorized  to issue
         5,000,000  shares of  Preferred  Stock,  par value $1.00 per share.  No
         shares of $1.00 par Preferred Stock were issued.  Restated  Articles of
         Incorporation  and By-Laws  adopted by the Company  effective March 20,
         1997,  changed  the par value of  Preferred  Stock to $0.01 and revised
         certain voting rights. Under the Restated Articles of Incorporation and
         By-Laws,  Preferred  Stock may be issued in series from time to time at
         the  discretion  of the Board of  Directors.  The Board of Directors is
         authorized  to set the  distinguishing  characteristics  of each series
         prior to  issuance,  including  the  granting of limited or full voting
         rights,  rights to payment of dividends and amounts payable in event of
         liquidation, dissolution or winding up of the Company.

         In May 1999 and  October  1999,  the  Company  issued a total of 10,000
         shares  (5,000 in May 1999 and 5,000 in October  1999) of 5% cumulative
         redeemable  convertible  $0.01 par value  $1,000  face value  preferred
         stock ("Series A Preferred  Stock")  together with 410,000  warrants to
         purchase  common stock at $11.86 per share,  for aggregate  proceeds of
         $10,000,000,  before  issuance  costs of  $600,000.  The  warrants  are
         exercisable at any time for a three-year period from the date of grant.
         Dividends  are 5% per annum  payable  in cash or  common  stock (at the
         Company's  option)  beginning October 15, 1999 for the May issuance and
         January 15,  2000 for the October  issuance  and  continuing  quarterly
         thereafter  through May 20, 2002 for the May 1999  issuance and October
         15, 2002 for the October 1999  issuance.  If paid in common stock,  the
         number  of  shares  is based on the  average  market  price  for the 10
         trading  days  immediately  preceding  the  dividend  payment date (the
         "Average  Price").  As of December 31, 1999,  the Company had paid cash
         dividends on the Preferred Stock of $102,736.



                                       44
<PAGE>


                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


         The warrants  associated  with the Series A Preferred Stock were valued
         as of the dates issued. On May 20, 1999,  205,000 warrants were issued.
         The resulting value,  using  Black-Scholes  model with the value of the
         underlying  stock being $11.67,  exercise  price of $11.86,  volatility
         rate of 60%,  risk  free  rate of 5.6%  and  contractual  life of three
         years,  was $5.17 per  warrant  or  $1,059,850.  On October  15,  1999,
         another  205,000  warrants  were issued.  The  resulting  value,  using
         Black-Scholes model with the value of the underlying stock being $5.63,
         exercise  price of $11.86,  volatility  rate of 60%,  risk free rate of
         5.6% and  contractual  life of three  years,  was $1.32 per  warrant or
         $270,600.  The  total  warrant  value,  $1,330,450,   was  recorded  to
         additional  paid-in  capital and to discount on redeemable  convertible
         preferred stock, which discount is being accreted to Series A Preferred
         Stock from the date of issuance to the date of mandatory  redemption of
         the Series A Preferred Stock.

         After  consideration  of the warrant value,  the Preferred  Stock has a
         "beneficial  conversion feature" of $1,930,450 that has been recognized
         as an additional  return to the holders through a charge to accumulated
         deficit and an increase to additional paid-in capital.

         The Series A Preferred Stock was mandatorily redeemable on May 20, 2002
         in cash or common stock at the then  Average  Price,  at the  Company's
         option. In March,  2001, the holders of Series A Preferred Stock agreed
         to a modification in terms, which removed their early redemption rights
         and  certain  adjustments  to  their  conversion  price.  The  Series A
         Preferred  Stock was then  convertible to common stock at a fixed price
         of $2.00 per share,  subject to  adjustment in the case of stock splits
         or stock dividends. As consideration for those concessions, the Company
         distributed to the holders of Series A Preferred  Stock an aggregate of
         439,150  warrants to purchase  NeoRx  common stock that the Company had
         received  in  connection  with  the  sale  of  the  Radiopharmaceutical
         Manufacturing Facility to NeoRx.

         On June 15, 2000, the Company  completed a private  placement of 10,000
         shares of 7% cumulative  redeemable  convertible $0.01 par value $1,000
         face value preferred stock ("Series B Preferred  Stock")  together with
         2,500,000  warrants to purchase  common  stock at $4.00 per share,  for
         aggregate  proceeds of $10 million,  before issuance costs of $595,000.
         Dividends  are 7% per annum  payable  in cash or  common  stock (at the
         Company's option) beginning September 1, 2000 and continuing  quarterly
         thereafter through June 1, 2003.

         The Company  assigned an aggregate  value of $3,283,582 to the warrants
         ($1.31  per share)  using an option  pricing  model with the  following
         assumptions:  market value of underlying stock of $4.50 on the issuance
         date,  exercise price of $4.00 per share,  volatility of 60%, risk-free
         interest  rate of  6.50%,  and  contractual  term of three  years.  The
         warrant  value  was  recorded  to  additional  paid-in  capital  and to
         discount on redeemable  convertible  preferred stock, which discount is
         being accreted to the Series B Preferred  Stock over 5 1/2 months,  the
         earliest redemption period.

         After   consideration   of  the  warrant  value  and  the  in-the-money
         conversion  price at the commitment  date, the Series B Preferred Stock
         has a  "beneficial  conversion  feature"  of  $5,213,582  that has been
         recognized as an additional  return to the holders  through a charge to
         accumulated deficit and an increase to additional paid-in capital.  The
         beneficial conversion feature is considered an additional return to the
         preferred  stockholders in the  determination of net loss applicable to
         the common shareholders.



                                       45
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000

         The Series B Preferred Stock was mandatorily redeemable on May 31, 2003
         in cash or common stock at the then  Average  Price,  at the  Company's
         option.  When  originally  issued,  holders of Series B Preferred Stock
         could  require  early  redemption on December 1, 2000 and June 1, 2001.
         Other   mandatory   redemption   events  included  change  in  control,
         suspension or delisting from NASDAQ,  the BSE or any subsequent  market
         on which the common stock is listed for five consecutive  days,  breach
         by the Company of any  representations,  warranties or other conditions
         in the preferred stock purchase agreement,  and other events. In March,
         2001, the holders of Series B Preferred  Stock agreed to a modification
         in terms,  which  removed  their  early  redemption  rights and certain
         adjustments to their conversion price. The Series B Preferred Stock was
         then  convertible  to common  stock at a fixed price of $2.00 per share
         subject to adjustment  in the case of stock splits or stock  dividends.
         As consideration for those concessions,  the Company distributed to the
         holders of Series B Preferred Stock an aggregate of 360,850 warrants to
         purchase NeoRx common stock that the Company had received in connection
         with  the sale of the  Radiopharmaceutical  Manufacturing  Facility  to
         NeoRx.  The NeoRx  warrants were valued using the  intrinsic  method of
         accounting resulting in no value being assigned to the warrants.

         The  conversion  price  applicable to the Company's  Series A Preferred
         Stock issued in May and October 1999 was altered,  in  accordance  with
         its terms,  upon the  issuance of the Series B Preferred  Stock on June
         15, 2000.  Under it terms,  the Company was required to alter the price
         used to  calculate  the  number  of  common  shares  issuable  upon the
         conversion  of the  Series A  Preferred  Stock  to  Common  Stock.  The
         conversion  price  was  reduced  to $4.00  from a floor of $7.00  and a
         ceiling of $11.86.  This change  caused an increase in the value of the
         beneficial conversion feature in the amount of $1,250,000 that has been
         recognized as an additional  return to the holders  through a charge to
         accumulated deficit and an increase to additional paid-in capital.  The
         beneficial  conversion  feature  provided  to the  Series  A  preferred
         stockholders  has also been included in the  determination  of net loss
         applicable to common  shareholders.  Additionally,  with respect to the
         holders of the Series A Preferred  Stock,  the Company was  required to
         increase  the number of warrants to purchase  common  stock  granted to
         them from 410,000 to 1,215,650 and decrease the warrant  exercise price
         to $4.00 from $11.86.  These changes caused an increase in the value of
         the warrants from  $1,330,450,  calculated at the original  issuance of
         the warrants, to $2,340,127.  The revised value was calculated using an
         option pricing model with the market value of the  underlying  stock of
         $4.50,  exercise  price of $4.00,  volatility  rate of 60%, a risk free
         interest rate of 6.5% and the contractual term of the warrants which is
         three years.  This  increase in warrant  value of  $1,009,677  has been
         recognized  as  an   additional   return  to  the  Series  A  preferred
         stockholders through a charge to accumulated deficit and an increase to
         additional paid-in capital.  The incremental  warrant value provided to
         the  Series A  preferred  stockholders  has also been  included  in the
         determination of net loss applicable to common shareholders.

         The  conversion  price  applicable to the Company's  Series A Preferred
         Stock issued in May and October 1999 was again  altered,  in accordance
         with its  terms,  on  August  22,  2000  upon the 180 day  reset of the
         exercise  price  of  warrants  issued  with  common  stock  during  the
         February,  2000  private  placement.  Under its terms,  the Company was
         required  to alter the price  used to  calculate  the  number of common
         shares  issuable upon the conversion of the Series A Preferred Stock to
         Common  Stock.  The  conversion  price was reduced to $3.38 from $4.00.
         This  change  caused  an  increase  in  the  value  of  the  beneficial
         conversion feature in the amount of $1,834,320 that has been recognized
         as an additional  return to the holders through a charge to accumulated
         deficit and an increase to additional  paid-in capital.  The beneficial
         conversion feature provided to the Series A preferred  stockholders has
         also been  included  in the  determination  of net loss  applicable  to
         common shareholders.  Additionally,  with respect to the holders of the
         Series A Preferred  Stock,  the Company  was  required to increase  the
         number of  warrants  to  purchase  common  stock  granted  to them from
         1,215,650 to 1,438,640 and decrease the warrant exercise price to $3.38
         from  $4.00.  These  changes  caused  an  increase  in the value of the
         warrants from  $2,340,127,  calculated at the original  issuance of the
         warrants  and  previously  adjusted  by  the  Series  B  issuance,   to
         $2,474,461.  The revised value was  calculated  using an option pricing
         model with the value of the underlying  stock of $4.00,  exercise price
         of $3.38, volatility rate of 60%, a risk free interest rate of 6.5% and
         the contractual term of the warrants. This increase in warrant value of
         $134,334 has been  recognized as an  additional  return to the Series A
         preferred  stockholders  through a charge to accumulated deficit and an
         increase to additional paid-in capital.  The incremental  warrant value
         provided to the Series A preferred  stockholders has also been included
         in the determination of net loss applicable to common shareholders.



                                       46
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000

         In March 2001, the holders of the Series A Preferred  Stock agreed to a
         modification in terms,  which removed their early redemption rights and
         certain  adjustments to their conversion  price. The Series A Preferred
         Stock was then  convertible  to common  stock at a fixed price of $2.00
         per share,  subject to  adjustment in the case of stock splits or stock
         dividends. In connection with this modification,  the exercise price of
         the Series A Preferred  Stock  warrants  were also reduced to $2.00 per
         warrant.  Because the underlying stock value of the common stock at the
         date of adjustment was less than the new exercise price,  the repricing
         of the  warrants  resulted  in no  additional  value  to the  Series  A
         Preferred Stockholders.

         As consideration for those concessions,  the Company distributed to the
         holders  of the  Series A  Preferred  Stock  an  aggregate  of  439,150
         warrants to purchase  NeoRx  common stock that the Company had received
         in connection  with the sale of the  Radiopharmaceutical  Manufacturing
         Facility to NeoRx.  The NeoRx  warrants were valued using the intrinsic
         method  of  accounting  resulting  in no value  being  assigned  to the
         warrants.

         During April 2000, the Company disbursed  $125,000 to satisfy it Series
         A  redeemable  preferred  stock  dividend.  For all other  Series A and
         Series B redeemable  convertible preferred stock dividends in 2000, the
         Company  elected to issue  common  stock in payment  for the  quarterly
         dividends.  The Company  satisfied these dividend payments by issuing a
         total of  384,631  shares  of common  stock  with an  average  price of
         approximately $1.85 per share.

         During  2001,  with the  exception  of the July 15 and the  October  15
         Series  A  Preferred  dividends  which  were  waived  by the  preferred
         shareholders,  the  Company  for  all  other  Series  A  and  Series  B
         redeemable  convertible  preferred stock dividends in 2001,  elected to
         issue common stock as payment for the quarterly dividends.  The Company
         satisfied  these  dividend  payments  by issuing a total of  15,594,724
         shares of common  stock.  The  preferred  shareholders  have waived all
         future  dividends  for  both  the  Series  A and  Series  B  redeemable
         convertible preferred stock.

         On October 20,  2000,  holders of 1,783  shares of Series B  redeemable
         convertible preferred stock, with a face value of $1,783,000, converted
         their  preferred  stock  to  445,750  shares  of  common  stock  at the
         conversion price of $4.00 per share. In addition,  on October 20, 2000,
         the Company elected to pay prorated  dividends on the converted  shares
         of $17,097, by issuing 6,104 shares of common stock at $2.80 per share.



                                       47
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000

         During April and June of 2001,  certain  holders of Series B redeemable
         preferred  stock  converted 750 shares of preferred  stock into 375,000
         shares of common stock valued at $750,000 or $2.00 per common share.

         Common stock

         During  1997,  the Company  issued  common  stock in exchange for notes
         receivable.  The full recourse  notes were due December 31, 2000. As of
         December  31,  2000,  the  Company  forgave all notes  receivable  from
         stockholders. As a result, during 2000 the Company recorded a charge in
         the amount of $640,000 to general and  administrative  expenses  (which
         has since been reclassified as discontinued operations).

         During  January 1999,  the Company  issued in a private  placement,  10
         units  consisting  each of 16,000  shares of  common  stock and  16,000
         warrants.  The warrants  expired  November 2001. The private  placement
         resulted in net proceeds to the Company of $1,938,845  after  deducting
         placement  fees and issuance  costs of $61,155.  During April 1999, the
         Company issued in a private  placement,  924,410 shares of common stock
         and 924,410 warrants. The warrants are exercisable at any time during a
         three-year  period ending April 2002 at an exercise price of $10.00 per
         share. The private placement resulted in net proceeds to the Company of
         $8,115,852  after  deducting  placement  fees  and  issuance  costs  of
         $296,279.  The total  proceeds  of these  common  stock  issuances  was
         $10,054,697.

         On October 1, 1999,  the Company  issued,  as a prepayment of royalties
         for I-125  brachytherapy seed sales, 98,039 shares of common stock. The
         fair  market  value of the  common  stock on the date of  issuance  was
         $10.20 per share or $1,000,000 in aggregate.

         On  November  8,  1999,  the  Company  issued,  as  an  inducement  for
         employment, 35,000 shares of common stock. The fair market value of the
         common stock on the date of issuance was $4.94 per share or $172,812 in
         aggregate.  This stock  issuance was recorded as  compensation  expense
         when issued.

         In February 2000, the Company  issued in a private  placement  units of
         its securities to accredited investors.  Each unit consisted of 1 share
         of common  stock at $5.50 per share and a warrant to purchase  one half
         of an  additional  share at $5.50 per  share.  The  Company  sold units
         representing  1,054,652 shares of common stock and warrants to purchase
         an  additional  527,326  shares to  accredited  investors for aggregate
         consideration  of  approximately  $5,801,000,  before issuance costs of
         approximately $423,000. Net proceeds to the Company were $5,378,177.

         In August 2000,  the Company  issued  stock,  in two  transactions,  to
         certain employees as compensation for services provided.  On August 18,
         2000 the  Company  issued  14,000  shares of common  stock at $4.06 per
         share for a total  value of  $56,875.  On August 23,  2000 the  Company
         issued  5,000  shares  of  common  stock at $3.88 per share for a total
         value of $19,375. On October 4, 2000, the Company issued 100,000 shares
         to Stonegate  Securities for services  provided in connection  with the
         private  placement  of common stock and warrant that closed in February
         2000.  The stock was issued at $3.88 per share for total  consideration
         of $387,500.  On October 26, 2000,  the Company issued 25,000 shares of
         common stock at a value of $1.75 per share for a total value of $43,750
         to an employee as  compensation  for  services  provided.  Common stock
         issued for services in 2000 was valued at $507,500.

         On  November  2, 2001,  at the  annual  meeting  of  stockholders,  the
         stockholders  ratified an amendment  authorizing  250,000,000 shares of
         common stock.


                                       48
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000

         Stock Option Plan

         In January 1997, the Company  adopted a Stock Incentive Plan (the Plan)
         pursuant  to which the  Company's  Board of  Directors  may grant stock
         options to  officers,  key  employees,  and  consultants.  The Plan was
         amended  in 2000 to  authorize  grants of  options  to  purchase  up to
         1,000,000 shares of authorized but unissued common stock. Stock options
         are granted  with an exercise  price of not less than 85% of the quoted
         market  value of the common stock at the date of grant.  The  Company's
         options  generally have a three-year  vesting period and a maximum term
         of three years.

         The Company  accounts for stock options  issued to directors,  officers
         and  employees  under  Accounting  Principles  Board Opinion No. 25 and
         related  interpretations ("APB 25"). Under APB 25, compensation expense
         is recognized if an option's  exercise price on the measurement date is
         below the fair value of the Company's  common  stock.  For options that
         provide  for  cashless  exercise  or  that  have  been  modified,   the
         measurement  date is  considered  the date the options are exercised or
         expire.  Those  options  are  accounted  for as variable  options  with
         compensation  adjusted each period based on the difference  between the
         market value of the common stock and the exercise  price of the options
         at the end of the period. The Company accounts for options and warrants
         issued to non-employees at their fair value in accordance with SFAS No.
         123, "Accounting for Stock-Based Compensation" ("SFAS 123").

         A summary of the stock options  issued under the  Company's  Plan is as
         follows:

         Year Ended December 31, 1999

                                                               Weighted-Average
         Fixed Options                              Shares      Exercise Price
         --------------------------------          --------     --------------
         Outstanding at beginning of year           394,400        $    9.33
         Granted                                    429,700             5.38
         Forfeited                                 (136,700)            9.52
                                                   --------        ---------
         Outstanding at end of year                 687,400        $    6.86
                                                   ========        =========



         Year Ended December 31, 2000

                                                               Weighted-Average
         Fixed Options                              Shares      Exercise Price
         --------------------------------          --------     --------------
         Outstanding at beginning of year           687,400        $    6.86
         Granted                                    376,600             4.75
         Forfeited                                 (194,500)            7.71
                                                   --------        ---------
         Outstanding at end of year                 869,500        $    5.57
                                                   ========        =========




                                       49
<PAGE>


                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


         Year Ended December 31, 2001

                                                               Weighted-Average
         Fixed Options                             Shares       Exercise Price
         --------------------------------         ---------     --------------
         Outstanding at beginning of year           869,500        $    5.57
         Granted                                  1,000,000             0.08
         Forfeited                                 (869,500)            5.57
                                                  ---------        ---------
         Outstanding at end of year               1,000,000        $    0.08
                                                  =========        =========



         The following table  summarizes  information  about fixed stock options
         under the Plan outstanding at December 31, 2001:

<TABLE>
<CAPTION>

                                            Options Outstanding            Options Exerciseable
                        Options          Weighted-        Weighted        Number         Weighted-
                     Outstanding at       Average         Average      Exercisable at    Average
 Range of Exercise    December 31,       Remaining        Exercise      December 31,     Exercise
      Prices             2001         Contractual Life     Price           2001           Price
--------------------------------------------------------------------------------------------------
           <S>            <C>               <C>            <C>               <C>             <C>
           $ 0.076        1,000,000         9.32 years     $ 0.076           $500,000        0.076
</TABLE>


         The fair value of each option  grant is  estimated on the date of grant
         using  the  Black-Scholes  option  pricing  model  with  the  following
         assumptions:


                                            2001          2000           1999
                                          --------      --------       --------

        Expected dividend yield                 -             -              -
        Risk-free interest rate               4.4%          6.0%           5.8%
        Expected volatility                   153%           75%     77% - 103%
        Expected life                      3 years       3 years        3 years
        Weighted average fair value          $0.03         $2.59          $2.32




                                       50
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000

         The Company applies APB Opinion No. 25 and related  Interpretations  in
         accounting for the Plan. No  compensation  cost has been recognized for
         its  stock   options  in  the   accompanying   consolidated   financial
         statements.  Had the Company determined  compensation cost based on the
         fair value at the grant date for its stock  options under SFAS No. 123,
         the Company's net loss  applicable  to common  shareholders  would have
         been increased to the pro forma amounts  indicated  below for the years
         ended December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>

                                           2001               2000               1999
                                        -------------------------------------------------
<S>                                     <C>               <C>                <C>
Net loss applicable        As reported  $(4,143,300)      $(55,868,642)      $(16,453,717)
to common shareholders                  ===========       ============       ============

                           Pro forma    $(4,166,484)      $(56,747,027)      $(16,752,465)
                                        ===========       ============       ============

Net loss per basic         As reported  $     (0.26)      $      (5.77)      $      (2.03)
and diluted share:                      ===========       ============       ============

                           Pro forma    $     (0.26)      $      (5.86)      $      (2.07)
                                        ===========       ============       ============
</TABLE>


         Warrants

         On September 20, 1999, the Company engaged Stonegate  Securities,  Inc.
         ("Stonegate") to serve as its  non-exclusive  financial  advisor and to
         furnish investment-banking services to the Company. The Company paid an
         initial  fee of $5,000 on October 1, 1999,  and a second fee of $25,000
         on October 26, 1999.  Beginning  November 15, 1999, a fee of $5,000 per
         month  began,  which  amount  shall be  payable at the  Company's  sole
         discretion,   subject  to  Stonegate's  satisfactory  performance.   In
         addition,  the  Company  delivered  to  Stonegate  warrants to purchase
         50,000 shares of common stock at $11.86 per share,  vesting as follows.
         Warrants to purchase 15,000 shares vested immediately upon ratification
         of the  agreement  by the  Company's  board of  directors.  Warrants to
         purchase 10,000 shares vested on January 15, 2000. Warrants to purchase
         25,000 shares were to vest at the Company's sole discretion, subject to
         Stonegate's satisfactory performance.  The Company recorded expenses of
         $6,033 and $37,967  during 2000 and 1999  respectively,  related to the
         vesting of these warrants. As of December 31, 2001 none of the warrants
         had  been  exercised.  The  original  term  of  the  engagement  was  a
         twenty-four month period from the date of the agreement.  The agreement
         was terminated October 4, 2000 and the Company issued 100,000 shares of
         common  stock  in  full  settlement  of the  services  provided  to the
         Company.

         The following summarizes outstanding warrants at December 31, 2001:

<TABLE>
<CAPTION>

                         Outstanding at December 31, 2001          Exercisable at December 31, 2001
                         --------------------------------          --------------------------------
                                         Weighted Average                         Weighted Average
                                            Remaining                                 Remaining
 Exercise Prices         Warrants        Contractual Life          Warrants       Contractual Life
 --------------------------------------------------------------------------------------------------
<S>      <C>             <C>                <C>                  <C>                 <C>
 $3.38 - $5.50           4,465,966          0.90 years           $ 4,465,966         0.90 years
 $10.00                    924,410          0.05 years               924,410         0.05 years

</TABLE>


                                       51
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000

NOTE 9 - INCOME TAXES

         Income tax expense  (benefit)  differed  from the  amounts  computed by
         applying the U.S.  federal income tax rate of 34% to pretax losses as a
         result of the following:
<TABLE>
<CAPTION>

                                            2001              2000              1999
                                         ----------       ------------       -----------
<S>                                      <C>              <C>                <C>
Computed "expected tax benefit           $ (958,194)      $(13,934,465)      $(4,793,186)
Nondecuctible expenses and other              2,000             15,200            14,524
Prior year adjustment                             -                  -           (13,081)
Change in valuation allowance               956,194         13,919,265       $ 4,791,743
                                         ----------       ------------       -----------
     Total income tax expense            $        -       $          -       $         -
                                         ==========       ============       ===========
</TABLE>


         The tax effects of temporary  differences that give rise to significant
         portions  of the  Company's  deferred  tax assets  (liabilities)  as of
         December 31, 2001 and 2000 are presented below:

                                       2001                   2000
                                    -----------           ------------
Deferred tax assets:
Goodwill                            $         -           $    531,174
Startup costs                                 -              2,182,476
Property, plant and equipment           (50,000)               (95,038)
Net operating loss carryforward      23,235,504             13,988,233
Impairment charge                       121,874              5,737,597
Inventory reserve                             -                  6,742
                                    -----------           ------------
Deferred Tax Asset                   23,307,378             22,351,184
Less valuation allowance            (23,307,378)           (22,351,184)
                                    -----------           ------------
Net deferred taxes                  $         -           $          -
                                    ===========           ============


         The valuation  allowances for 2001 and 2000 have been applied to offset
         the deferred tax assets in recognition of the uncertainty that such tax
         benefits  will be realized.  The net change in valuation  allowance for
         the years ended  December 31, 2001,  2000,  and 1999 was an increase of
         $956,194,  $13,919,265  and  $4,791,743  respectively.  At December 31,
         2000,  the  Company  has a net  operating  loss  carryforward  for  tax
         purposes of approximately $68,000,000 that will begin expiring in 2018.


NOTE 10 - COMMITMENTS AND CONTINGENCIES

         Lease Commitments

         The  Company  leases  office  space,   certain  office   equipment  and
         production  equipment under operating  leases expiring at various dates
         through  2005.  Rental  expense  under such  leases for the years ended
         December 31, 2001,  2000 and1999 was $69,006,  $64,805,  and  $161,823,
         respectively, excluding discontinued operations.


                                       52
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


         Future  minimum lease  payments under  noncancelable  operating  leases
         (with  initial or  remaining  lease  terms in excess of one year) as of
         December 31, 2001 are:

                                                      Operating
         Years ending December 31                      Leases
         ------------------------                     ---------
         2002                                         $  68,080
         2003                                            65,941
         2004                                            64,972
         2005                                            16,215
         Thereafter                                           -
                                                      ---------
         Total minimum lease payments                 $ 215,208
                                                      =========


         Capital Leases

         At December 31, 2000, the Company had $3,557,646 outstanding in capital
         leases.  As part of the asset sales  described in Note 2, these capital
         lease  obligations  were  settled at the time of closing on these asset
         sales.

         Employment Contract

         The Company  has a five-year  employment  contract  with the  Company's
         president. The employment agreement extends through February 2007.

         Dependence on Third Parties

         The  production  of HSA  Cobalt is  dependent  upon the  Department  of
         Energy,  and its prime operating  contractor,  who controls the reactor
         and  laboratory  operations.  The  gemstone  production  is  tied to an
         exclusive  agreement  with Quali  Tech Inc.  who in turn has a contract
         with The Topaz  Group,  Inc.  Medical  flood  source  manufacturing  is
         conducted  under an exclusive  contract with RadQual,  LLC. who in turn
         has agreement in place with several companies for marketing and sales.

         Contingencies

         In March 2001, I4 terminated its commercial use  subcontract  agreement
         that was first  established in 1996 at the Idaho  National  Engineering
         and Environmental Laboratory. This contract had permitted access to the
         Idaho  research  reactor for isotope  production  but also  included an
         obligation  to  pay  for  the  operations  of a  DOE  owned  processing
         facility.  The  cost  of  supporting  those  operations  had  increased
         considerably  in the past several years to the point of no longer being
         a  profitable  operation  under  those  contractual  arrangements.  The
         termination  of this contract  will not effect the  Company's  plans to
         continue HSA cobalt  production as some material  remains in production
         in the DOE reactor  facility and this material can be shipped  directly
         from  the  reactor  site  to  the  customers  facilities'  without  any
         processing in the government laboratory.

         The Company conducts its operations in Idaho Falls, Idaho. Although the
         medical flood source and gemstone  products  appear  diverse they share
         the common link as being radioactive materials.  Therefore, the Company
         is required to have an operating  license  from the Nuclear  Regulatory
         Commission   ("NRC")  and  specially  trained  staff  to  handle  these
         materials.  The Company has an NRC operating  license and has, in fact,
         continued to amend this license  several  times during 2001 to increase
         the  amount of  material  permitted  within  the  facility.  Additional
         processing  capabilities  and license  amendments  could be implemented
         that would permit processing of other reactor produced radioisotopes by
         the Company but at the present  time this license does not restrict the
         volume of business operation  performed or projected to be performed in
         the coming year. An irrevocable,  automatic  renewable letter of credit
         against a $132,614  Certificate of Deposit at Texas State Bank has been
         used  to  provide  the  financial  assurance  required  by the  Nuclear
         Regulatory Commission for the Idaho facility license.


                                       53
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


         Associated  with the sale of the  Shady  Oaks  Linac  Facility  and the
         assumption of debt by the purchaser,  the Company retains an obligation
         of $500,000 on that loan for six months or until purchaser renews their
         note with Texas State  Bank.  The Company  also  retains an  obligation
         (also  for  six  months  or  until  purchaser   renews  the  note)  for
         decommissioning  the Shady  Oaks/LINAC  facility  should the  purchaser
         default on payment or not meet Texas State Bank  requirements  for note
         renewal.  Because an amount is not probable nor  estimable,  no reserve
         has been  established for the  decommissioning  of the Shady Oaks/Linac
         facility.


NOTE 11 - SUBSEQUENT EVENTS

         In January 2002 certain persons acting together as a group acquired all
         of  the  Company's  outstanding  shares  of  Series  A  5%  Convertible
         Redeemable  Preferred  Stock and  certain  common  stock  from its then
         current owners. The securities  acquired consisted of all 10,000 shares
         of Series A Preferred Stock and 2,087,837 shares of common stock.  Also
         in January 2002, the Company  reacquired 2,817 shares (or 37.7%) of the
         Company's  Series  B 7%  Convertible  Redeemable  Preferred  Stock  for
         $86,832.

         In February and March 2002 the Company gained approval from 100% of the
         holders of Series A and 80% of the holders of Series B Preferred  Stock
         to amend their respective  Certificates of Designation to eliminate the
         Series A 5% dividend and the Series B 7% dividend, change the mandatory
         redemption  date for the all  Preferred  Stock to May 2022,  and remove
         certain  default and penalty  provisions.  In addition,  the  Company's
         Board of  Directors  approved  a  purchase  offer of the Series A and B
         Preferred Stock (5000 common shares for each one share of Series A or B
         Preferred  Stock).  The same percentages of Series A and B holders have
         agreed to sell their preferred shares for common stock.

         All of the holders of the Series A Preferred Stock agreed to sell their
         10,000 preferred shares for 50,000,000  shares of common stock at $0.20
         per share. Holders of the Series B Preferred Stock agreed to sell their
         3,700 preferred  shares for 18,500,000  shares of common stock at $0.20
         per share.

         Effective  March 2002, the Company  amended and restated the 2000 Stock
         Incentive Plan. The 2002 Long-Term Incentive Plan (the Plan) authorizes
         grants of options to purchase up to 20,000,000 shares of authorized and
         unissued shares or issued and outstanding  shares of common stock.  The
         maximum  number of  options  granted  to each  employee  in one year is
         10,000,000.

         In February 2002, the Company granted an additional  13,000,000 options
         to purchase  shares of common stock with an exercise price of $0.02 per
         share,  which was equal to the closing market price of the common stock
         on the date of grant. These options vest through February 2005.

         In March 2002 the Company made a $20,000 payment to the former chairman
         of the board  and put a new  10-year  note in place  for the  remaining
         balance  owed.  The new note  amount was set at  $909,737  with  annual
         income based  payments  fixed at 7% interest  plus 30% of the Company's
         pretax net profits to be paid toward  principal on the note. The former
         chairman agreed to declare any previous notes or agreements as null and
         void.


                                       54
<PAGE>

                  INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000


NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The quarterly  information  from 2000 has been adjusted from the prior year 10-K
to reflect the impact of discontinued operations.

<TABLE>
<CAPTION>

                                                           Year Ended December 31, 2001
                                  ------------------------------------------------------------------------------
                                     First          Second            Third          Fourth
                                    Quarter         Quarter          Quarter         Quarter           Total
                                  -----------     ------------     -----------     ------------     ------------
<S>                               <C>             <C>              <C>             <C>              <C>
Revenues                          $   537,267     $    505,327     $   803,801     $    331,505     $  2,177,900
Profit (loss) from operations         (44,626)         (48,598)         13,027         (963,900)      (1,044,097)
Profit (loss) from
discontinued operations            (3,553,025)       2,186,495        (362,847)         (44,741)      (1,774,118)
                                  -----------     ------------     -----------     ------------     ------------
Net profit (loss)                 $(3,597,651)    $  2,137,897     $  (349,820)    $ (1,008,641)    $ (2,818,215)
                                  ===========     ============     ===========     ============     ============

Net profit (loss) applicable
to common shareholders            $(3,730,101)    $  2,005,447     $  (482,270)    $ (1,141,091)    $ (4,143,300)
                                  ===========     ============     ===========     ============     ============

Basic and diluted profit
(loss) per common share           $     (0.33)    $       0.14     $     (0.03)    $      (0.05)    $      (0.26)
                                  ===========     ============     ===========     ============     ============
</TABLE>



<TABLE>
<CAPTION>

                                                           Year Ended December 31, 2000
                                  ------------------------------------------------------------------------------
                                    First           Second            Third          Fourth
                                    Quarter         Quarter          Quarter         Quarter           Total
                                  -----------     ------------     -----------     ------------     ------------
<S>                               <C>             <C>              <C>             <C>              <C>
Revenues                          $   472,492     $    475,715     $   449,847     $    678,830     $  2,076,884
Loss from operations                 (729,035)        (538,624)     (1,779,140)      (2,957,045)      (6,003,844)
Loss from discontinued
operations                         (3,520,150)      (4,861,879)     (2,974,026)     (23,510,272)     (34,866,327)
                                  -----------     ------------     -----------     ------------     ------------
Net loss                          $(4,267,840)    $ (5,429,216)    $(4,789,681)    $(26,496,983)    $(40,983,720)
                                  ===========     ============     ===========     ============     ============

Net loss applicable to common
shareholders                      $(4,506,160)    $(13,587,692)    $(9,353,442)    $(28,421,348)    $(55,868,642)
                                  ===========     ============     ===========     ============     ============

Basic and diluted loss per
common share                      $     (0.48)    $      (1.41)    $     (0.97)    $      (2.91)    $      (5.77)
                                  ===========     ============     ===========     ============     ============
</TABLE>