UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB

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

                  For the fiscal period ended December 31, 2002

                                       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 (X) NO ( )

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-KSB or any  amendment to
this Form 10-KSB. (X)

The  aggregate  market  value of the shares of common stock at March 7, 2003 was
$3,823,245.

As of March 7, 2003 the number of shares  outstanding of common stock,  $.01 par
value was 95,581,135 shares.



<PAGE>

                           INTERNATIONAL ISOTOPES INC.

                                   FORM 10-KSB

                              PRELIMINARY STATEMENT

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  in 1995 to  produce,
market,  and  distribute  a broad  range  of  products  used in  diagnostic  and
therapeutic nuclear medicine,  research,  and industry.  Because of difficulties
encountered with start up of the Company's Radioisotope  Production Facility and
Linear  Accelerator  (LINAC) in 1999 and 2000 it became  necessary to change the
Company  strategy,  mission,  and objectives.  Consistent with that new business
strategy,  in 2001 the  Company  moved its  headquarters  and  consolidated  all
operations  to  Idaho,  put  two  new  contract   manufacturing  and  processing
agreements  in place,  and sold most of the Company  assets in Texas  associated
with discontinued operations  (Radioisotope  Production Facility and LINAC). The
remainder  of 2001 and part of 2002 were  transition  periods for the Company in
which   we   established   manufacturing   capability   for   nuclear   medicine
reference/calibration  standards and  processing  capability  for gemstones that
have undergone treatment for color enhancement.


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, 2002.



                                       2
<PAGE>


                          INTERNATIONAL ISOTOPES INC.

                                  FORM 10-KSB

                               TABLE OF CONTENTS

                                                                       Page No.
Part I.

Item 1.   Business ...................................................     4
Item 2.   Properties .................................................     6
Item 3.   Legal Proceedings ..........................................     7
Item 4.   Submission of Matters to a Vote of Securities-Holders ......     7

Part II.

Item 5.   Market for the Registrant's Common Equity and
            Related Stockholder Matters ..............................     7
Item 6.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations ......................     8
Item 7.   Financial Statements........................................    12
Item 8.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure ......................    13

Part III.

Item 9.   Directors and Executive Officers of Registrant .............    13
Item 10.  Executive Compensation .....................................    13
Item 11.  Security Ownership of Certain Beneficial Owners
            and Management ...........................................    13
Item 12.  Certain Relationships and Related Transactions .............    14
Item 13.  Exhibits, Financial Statement Schedule
            and Reports on Form 8-K ..................................    14
Item 14.  Controls and Procedures ....................................    14
Power of Attorney ....................................................    15
Signatures ...........................................................    15




                                       3
<PAGE>


                                     PART I

Item 1.  BUSINESS

General

International Isotopes Inc. (I3) was established as a Texas corporation in 1995.
The Company was  initially  formed to produce,  market,  and  distribute a broad
range of products used in diagnostic and therapeutic nuclear medicine,  research
and  industry.  In 1998 the Company  acquired a subsidiary,  subsequently  named
International  Isotopes  Idaho  Inc.,which  specialized in sales of isotopes and
providing  hot cell services  through a contract  with the  Department Of Energy
(DOE) Idaho  Operations  and using the Advanced Test Reactor  (ATR).  Because of
difficulties  encountered with start up of the Company's Radioisotope Production
Facility  and Linear  Accelerator,  and the high cost of  conducting  commercial
operations in the midst of a DOE laboratory, the Company underwent a substantial
change in mission and strategy during 2000 and 2001. This change resulted in the
sales of the Radioisotope  Production  Facility and Linear  Accelerator in Texas
and  termination of the commercial  isotope  production  contract with the DOE's
prime-operating  contractor in Idaho. In June of 2001, the Company relocated its
corporate  headquarters to Idaho to continue the subsidiary's  operations as the
new, primary focus and mission of the Company.

In support of our new mission and strategy,  in 2001 new contract  manufacturing
and  processing  agreements  were put in place,  a new  operating  facility  was
obtained  and  licensed  through  the  Nuclear  Regulatory  Commission,  and new
contracts put in place with the DOE's  prime-operating  contractor for continued
reactor  production of high specific  activity cobalt.  These new agreements now
fully  support the  Company's  business  products and  services,  which  include
manufacturing nuclear medicine reference and calibration  standards,  processing
gemstones that have undergone treatment for color enhancement,  and large volume
production of high specific activity (HSA) cobalt. We have been able to continue
steady  growth  in  the  amount  of  revenues   generated  from  these  business
activities. We expect continued growth and the addition of new products in 2003,
which  management  feels will produce  sufficient  cash to meet our  operational
needs.  However,  prospective  investors are cautioned regarding the speculative
nature  of any  forward-looking  projections.  Also see  "Item  6,  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.


Company Licensing, Capabilities, and Qualifications

We  have  a  fully  implemented   Quality  Assurance  program  which  meets  the
requirements  of  ANSI/ASME  NQA-1 and 10 CFR  830.120.  In order to support the
production of Nuclear Medicine  calibration and reference  standards the Company
is also a  participating  member of the  National  Institute  of  Standards  and
Technology/ Nuclear Energy Institute's  (NIST/NEI) Measurement Assurance Program
(MAP) for the  radiopharmaceutical  industry. This program participation ensures
that we can provide  analytical  methods and  standards  necessary  for accurate
radioactivity  measurement.  The  Company  is also a  registered  Food  and Drug
Administration  (FDA) medical device  manufacturer  for Class I medical devices,
including Nuclear Sealed Calibration Sources (892.1400) and Nuclear Flood Source
Phantoms (892.1380).


Industry Overview and Target Markets

The  industries  and  markets  that  require or involve  the use of  radioactive
material are diverse. Our current operations involve products that are used in a
wide variety of applications  and in various  markets.  First, our HSA cobalt is
supplied as bulk material,  which is subsequently assembled into medical devices
by our  customer.  Second,  we are a contract  manufacturer  of several  nuclear
medicine  reference and  calibrations  standards used for operational  checks of
various  imaging and  measurement  systems for nuclear  medicine.  And third, we
support the special  packaging and  measurement of gemstones that have undergone
irradiation for color enhancement.

We conduct our operations in Idaho Falls,  Idaho.  Although the cobalt,  nuclear
medicine  calibration  and reference  standards,  and gemstone  products  appear
diverse,  they share the common links of being radioactive  materials  requiring
extensive process quality control. Therefore, the Company is required to have an
operating license from the Nuclear  Regulatory  Commission and specially trained
staff with rigorously  employed  quality  standards to produce and process these
materials.


                                       4
<PAGE>

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 Elekta's Leksell 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.  We manage 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 by us 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.  We  are  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 our  Idaho  Falls  facility  for
processing.

Nuclear medicine calibration and reference standards manufacturing - The Company
is an exclusive contract  manufacturer to RadQual LLC for several of these types
of standards.  There are approximately 6,000 nuclear medicine centers around the
U.S.  and the number of these  centers is  expected to grow at an annual rate of
about 5%. Each of these centers has a variety of measurement and imaging systems
that require frequent use of calibration and reference standards to ensure their
proper  operation.   Because  of  the  relatively  short  lived  nature  of  the
radioactivity  used in these  standards,  the  customers are required to replace
them approximately once every 12 to 18 months.

Gemstone Processing - The Company has an exclusive contract with Quali-Tech Inc.
for processing  gemstones.  The  processing  involves  special  packaging of the
gemstones  in  containers,  which  allow them to undergo  irradiation  for color
enhancement. The processing we perform entails initial receipt of the gemstones,
packaging the gemstones for irradiation, managing the transport of the stones to
and from the reactor facility,  and then completing 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 we had  solved  container  construction
problems and implemented a new technology to repair  containers.  As a result we
have been able to double the number of containers  available for  irradiation of
the  gemstones.  During  2002,  however,  the  general  slowdown  of the economy
impacted  the  market  demand  for  gemstones  and  thus the  Company's  revenue
resulting from processing did not meet expectations.


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.  The two  domestic  reactor  sources are the
University  of  Missouri  Research  Reactor  and the High Flux  Isotope  Reactor
located in Oak Ridge Tennessee.  There are,  however,  numerous foreign reactors
actively producing high and low specific activity cobalt. While the logistics of
international  transport  of cobalt  presents  some  competitive  barriers,  the
Company must always consider the potential  threat these other suppliers pose to
our HSA cobalt business.

Nuclear  medicine  calibration  and  reference  standards  - The  Company is the
smallest of three major producers of these sources within the U.S. The Company's
customer (RadQual,  LLC) has increased the number of authorized distributors and
plans to make further expansion into the market in 2003.  However,  there can be
no assurance of increased sales.



                                       5
<PAGE>

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 that support this business with other companies overseas.


Government Regulation

The  Company has  obtained a license  from the  Nuclear  Regulatory  Commission,
Region IV that permits use and possession of by-product  material.  The scope of
this license  includes  calibration  and reference  standard  manufacturing  and
distribution,  radioactive gemstone  processing,  environmental sample analysis,
and  various  research  and  development  activities.  The scope and  activities
permitted  by this  license are broad enough that it is not expected to restrict
any  anticipated  business  activities  in the coming year.  The Company is also
registered  as a medical  device  manufacturer  through  the U.S.  Food and Drug
Administration (FDA).

Regulation of Radioisotope  Production and Radioactive Waste. The manufacture of
radioisotopes,   nuclear  medicine  calibration  and  reference  standards,  and
processing  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  nuclear  medicine
calibration  and reference  standards are licensed as Sealed Sources through the
State of Texas Department of Health. The Company's  production facility does not
handle  "special  nuclear  materials"  (i.e.  nuclear  fuels and  weapons  grade
uranium, thorium and plutonium) and, therefore, is not designated as a "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
Nuclear Regulatory Commission,  Region IV, regulates the disposal of radioactive
waste for facilities  operating in Idaho. The radioactive waste we produce falls
into the category of low-level 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 the
Food and Drug Administration.


Employees

The Company  possesses a  significant  depth of  radiological  safety and Health
Physics  professionals  and  technicians  with experience in both government and
commercial  operating  sectors.  In addition,  we have developed a wide array of
capabilities  directly  related to manufacture and  distribution of our products
and miscellaneous service work for the nuclear industry.


Item  2.    PROPERTIES

The Company has two 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 by the Nuclear  Regulatory  Commission and is being used for
processing of topaz  gemstones and contract  manufacturing  of nuclear  medicine
calibration and reference standards.

The  Company's  115 acres of property in  Waxahachie,  Texas was purchased by an
individual in early 2003 in  consideration  for the assumption by the individual
of our remaining bank indebtedness related to the property. The Company has some
remaining LINAC  components being held for sale that are expected to be disposed
of in 2003.  Following  these  transactions,  all of the Company's  property and
assets will be located in Idaho.



                                       6
<PAGE>

Item 3.   LEGAL PROCEEDINGS

The Company is not a party to any 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 June 26, 2002. The purpose of
the meeting was to review Company  performance  and present 3  propositions  for
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 Hansen  Barnett  & Maxwell  as  independent  certified  public
accountants of the Company for the fiscal year ending  December 31, 2002; and 3)
to approve the Company's  Amended and Restated Long Term Incentive Plan. 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 May 22,  2002.  A total of 86.4% of the  Common  shares  voted  and all three
propositions were passed by at least 70% of the shares then outstanding.


                                    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".  Since the second quarter of 2001 the Company's stock has not been
listed on Nasdaq and has been traded solely over the counter in the Pink Sheets.
High and low sales prices reported by the respective  trading sectors during the
periods indicated are shown below:

         Fiscal Year         Quarter       High       Low

           2001                1st        $0.35      $0.09
           2001(1)             2nd        $0.09      $0.06
           2001(2)             2nd        $0.13      $0.04
           2001                3rd        $0.09      $0.03
           2001                4th        $0.05      $0.02

           2002                1st        $0.15      $0.02
           2002                2nd        $0.13      $0.05
           2002                3rd        $0.09      $0.05
           2002                4th        $0.06      $0.03


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

On December 31, 2002, there were over 310 holders of record of the Common Stock.
The closing  price on December 31, 2002 , of a share of common stock was $ 0.05.
We have never paid any cash  dividends on our 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.  It is unlikely that we
will pay any dividends to shareholders for the foreseeable future.



                                       7
<PAGE>

Recent Sales of Unregistered Securities

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 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 both series of 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 (5,000 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  valued by the  Company  at $0.20 per share.
During 2002 most of the Holders of the Series B Preferred  Stock  agreed to sell
3,800 of their preferred shares in return for 19,000,000  shares of common stock
valued by the  Company  at $0.20 per share,  reducing  the  remaining  number of
outstanding Preferred Series B shares to 850.


Item 6.  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.

International Isotopes Inc. (I3) was established as a Texas corporation in 1995.
The Company was initially formed to produce, market and distribute a broad range
of products used in diagnostic and therapeutic  nuclear  medicine,  research and
industry.  In  1998  the  Company  acquired  a  subsidiary,  subsequently  named
International  Isotopes Idaho Inc.,  which  specialized in sales of isotopes and
providing  hot cell services  through a contract  with the  Department Of Energy
(DOE) Idaho  Operations  and using the Advanced Test Reactor  (ATR).  Because of
difficulties  encountered with start up of the Company's Radioisotope Production
Facility  and Linear  Accelerator,  and the high cost of  conducting  commercial
operations in the midst of a DOE laboratory, the Company underwent a substantial
change in mission and strategy during 2000 and 2001. This change resulted in our
sale of the Radioisotope Production Facility and Linear Accelerator in Texas and
termination  of our  commercial  isotope  production  contract  with  the  DOE's
prime-operating  contractor in Idaho. In June of 2001 we relocated our corporate
headquarters  to Idaho  to  continue  the  subsidiary's  operations  as the new,
primary focus and mission of the Company.

In support of our new mission and strategy,  in 2001 new contract  manufacturing
and  processing  agreements  were put in place,  a new  operating  facility  was
obtained  and  licensed  through  the  Nuclear  Regulatory  Commission,  and new
contracts were executed with the DOE's prime-operating  contractor for continued
reactor  production of high specific  activity cobalt.  These new agreements now
fully  support  our  business  products & services  that  include  manufacturing
nuclear medicine reference and calibration standards,  processing gemstones that
have undergone  treatment for color enhancement,  and large volume production of
high specific activity (HSA) cobalt. We have been able to continue steady growth
in revenues generated from these new products and expect that these revenues, as
well as revenues from products expected in 2003, will produce sufficient cash to
meet  our  operational  needs.  However,  prospective  investors  are  cautioned
regarding the speculative nature of any forward-looking statements.



                                       8
<PAGE>

Liquidity and Capital Resources

On December 31, 2002 we had cash and cash  equivalents  of $441,904  compared to
$293,969 at December 31, 2001.  For the year ended  December 31, 2002,  our cash
flows included net cash provided by operating  activities of $167,636,  net cash
used in  financing  activities  of  $105,518  and  cash  provided  by  investing
activities of $85,817.

The Company  incurred a loss  applicable to common  shareholders of $199,695 for
the year ended December 31, 2002 and has an  accumulated  deficit of $87,390,165
since inception.  Prior to 2002 the Company  principally  funded  operations and
plant and equipment  expenditures from proceeds from public and private sales of
equity as well as through asset sales.  We have also borrowed  funds under short
and long-term borrowing  arrangements.  As of December 31, 2002, the Company had
net  borrowings of  $1,046,520 in our 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 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,  our former
chairman of the board,  in the amount of $909,738.  We also have a $100,000 loan
from  Texas  State  Bank and an  $80,000  note  from  several  of our  principal
stockholders.  These  loans and notes  mature on April 30, 2003 and we expect to
use cash proceeds from HSA cobalt sales to pay off these loans and notes.


Results of Operations

All of 2001 and part of 2002 were transition  years for the Company during which
time  the  Company  completed  asset  sales  associated  with  the  discontinued
operations  segment and put new  manufacturing  agreements and  capabilities  in
place  for  nuclear  medicine  reference/calibration  standards  and  processing
gemstones.  Although total revenues for the Company in 2002 were nearly the same
as 2001  levels,  there has been a  significant  change in the  sources of those
revenues.  Examining  these  changes  helps to  illustrate  the magnitude of the
change in the Company mission over the past year.

Year ended December 31, 2002 compared to year ended December 31, 2001


Revenues

Total  revenues  were  $2,181,704  in 2002 as compared to $2,177,900 in 2001, an
increase  of $3,804 or 0.2%.  Although  the net  increase  in revenue was small,
there was a significant  change in the sources of revenue for the Company during
in these periods.  Sales of reactor-produced  iridium  radioisotope and hot cell
services  fell from  $896,000  in 2001 to $0 in 2002 as the  Company  terminated
those business areas.  This revenue  reduction was completely  compensated  for,
however, by increases in the Company's sales of nuclear medicine calibration and
reference standards,  processed gemstone, and HSA cobalt, which grew by $988,477
over 2001 sales.


Cost of revenues

Cost of revenues  for 2002 was  $1,071,690  compared to  $1,424,111  in 2001,  a
decrease  of  $352,421  or 25%.  Most  of this  reduction  was  attributable  to
curtailment  of lower  margin  iridium  production  and the hot cell  operations
contract with the DOE contractor.



                                       9
<PAGE>

Operating costs and expenses

Total  operating  costs and  expenses for 2002 were  $1,402,664,  as compared to
$1,797,385 in 2001, a decrease of $394,721 or 22%. The decrease was attributable
to  the  change  in  corporate  structure  from  discontinued  operations  and a
reduction  in  contract  labor  expense and  consulting  services as a result of
terminating  the contract  with the DOE  laboratory  contractor.  Even with this
improvement in operating costs, management still noted $338,555 of restructuring
expense in 2002 which it  considers  as  "one-time"  expenses  still  related to
past-discontinued  operations and the historic corporate  activities  associated
with those operations.


Other income (expense)

Interest  income was  $7,909 in 2002 as  compared  to $2,613 in 2001.  The small
increase was  attributable  to the  establishment  of a $140,000  certificate of
deposit for use as financial  assurance  for  decommissioning,  an NRC licensing
requirement.  Other income in 2002 was $115,485 as compared to $0 for 2001. Most
of the Other  Income  received  by the  Company in 2002  resulted  from  royalty
payments  associated with a short term obligation from Imagyn Medical  following
our asset sale of the brachytherapy  business to them in 2001. Less than $15,000
of remaining royalty payments is expected from Imagyn in 2003.

Interest  Expense was $181,196 in 2002 compared to $3,114 in 2001.  The increase
of $178,082 was attributable to the cessation of deferrals in interest  payments
to Texas State Bank and one  individual.  During 2002 the Company resumed making
regular interest payments on all notes and loans.


Continuing Operations

The net loss from continuing  operations was $350,453 in 2002 compared to a loss
of $1,044,097  in 2001.  The $693,644  decrease in net losses was  attributed to
$115,485 in Other Income,  described in the preceding section,  and increases in
sales  of  nuclear  medicine   calibration   reference  standards  and  gemstone
processing with relatively fixed base operating expenses.


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 our 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 our  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.  With the
exception of 2002, we have incurred net losses for most fiscal periods since our
inception.  From inception (November 1995) through December 31, 2002 the Company
generated  $17,246,225  in revenues and had an  accumulated  deficit  (including
preferred stock  dividends and returns) in the amount of  $87,390,165.  However,
although we cannot  provide any  assurance  we believe the  Company's  continued
growth in our new  business  areas will produce  sufficient  revenue to meet our
2003 cash flow and operational needs.


                                       10
<PAGE>

We may need additional financing to continue operations. As of December 31, 2002
we have an  outstanding  debt of $1,046,520 on a $1.1 million  revolving line of
credit account with Texas State Bank. That note matures on December 31, 2003 and
is secured  with 80% of our  accounts  receivable  and 50% of our fixed  assets.
Seventy-five  percent (75%) of the cash resulting from the sale of any remaining
Linac  equipment  must be applied to the principal of this note.  Sales of about
$260,000 of this  equipment  are expected in 2003.  We will have to negotiate an
extension  of terms  on this  note at the end of 2003.  The  Company  also has a
ten-year  note for $909,738 at 7% interest to our former  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).  At December 31, 2002,  the note holder agreed to defer the April 2003
principal  payment.  The Company  also has a $100,000  line of credit with Texas
State Bank and an $80,000 note with several of our principal shareholders,  both
of which  mature on April 30,  2003.  We plan to use the cash  receipt of cobalt
sales in early 2003 to pay off these notes and loans.

Remaining  Company  Obligations  on the Texas State Bank Loan for the Waxahachie
Property.  The  Company  and Texas  State  Bank have  agreed to have the loan of
$345,295 assumed by an individual in consideration of our sale of the Waxahachie
property.  Liability for this loan would, however,  revert to the Company should
this individual default on the assumed note.

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  has put short  term  specific  "work for
non-government  sponsor agreements" in place with the DOE contractor to continue
sales of HSA cobalt  irradiated  at the Idaho reactor  facility.  We expect that
these agreements will continue,  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 $147,000  Certificate  of Deposit at Texas State Bank has been used to provide
the financial  assurance required by the Nuclear  Regulatory  Commission for our
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 our
Idaho facility are subject to the U.S.  Nuclear  Regulatory  Commission and Food
and Drug Administration regulations.  Nuclear medicine calibration and reference
standards are licensed and  regulated.  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. We have a $2 million dollar key man life insurance  policy
on Mr.  Laflin and a 5-year  employment  agreement  with him  extending  through
February 2007. The Company has revised our employee stock options to assist with
offering  incentives  and  retaining  key  personnel.  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 Idaho reactor and
laboratory operations. Our gemstone production is tied to an exclusive agreement
with  Quali  Tech Inc.  Nuclear  medicine  calibration  and  reference  standard
manufacturing is conducted under and exclusive contract with RadQual, LLC who in
turn has  agreements  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.



                                       11
<PAGE>

We are subject to competition from other  companies.  Each of the business areas
of the  Company  has direct  competition  from other  businesses.  HSA cobalt is
supplied  by  other  reactor  facilities  around  the  world.  Nuclear  medicine
calibration  and  reference  standards  are  being  produced  by  several  other
manufacturers in the U.S. and overseas, and there is at least one other gemstone
processor in Europe. Each of our competitors has significantly greater financial
resources  than us and that could create a  competitive  advantage for them over
us.


New Accounting Standards

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.  The Company  implemented
SFAS No. 144 effective January 1, 2002. The adoption of this standard has had no
material effect on the Company's financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections."
Among other provisions,  the statement  modifies the criteria  classification of
gains and losses on debt  extinguishments  such that they are not required to be
classified  as  extraordinary  items  if  they  do not  meet  the  criteria  for
classification as extraordinary items in APB Opinion No. 30. The Company elected
to adopt this standard during the year ended December 31, 2002.

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal activities". The statement requires companies to recognize
costs associated with exit or disposal  activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan.  Examples of costs
covered by the standard  include lease  termination  costs and certain  employee
plan severance  costs that are  associated  with a  restructuring,  discontinued
operation,  plant closing, or other exit or disposal activity.  The Company will
be  required  to apply this  statement  prospectively  for any exit or  disposal
activities  initiated  after December 31, 2002. The adoption of this standard is
not expected to have a material  effect on the Company's  financial  position or
results of operations.

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition  and  Disclosure."  This statement  amends Statement No.
123, Accounting for Stock-Based Compensation,  to provide alternative methods of
transition  for an entity that  voluntarily  changes to the fair value method of
accounting for stock-based employee compensation.  It also amends the disclosure
provisions  of  Statement  No. 123 to  require  prominent  disclosure  about the
effects on reported net income of an entity's  accounting  policy decisions with
respect to stock-based  employee  compensation.  Statement No. 148 also requires
disclosure  about those effects in interim  financial  information.  The Company
will adopt the disclosure  requirements  of Statement No. 148 beginning with its
quarter ended March 31, 2003.


Item 7.    FINANCIAL STATEMENTS

The following financial statements are included herewith:

Report of Independent Certified Public Accountants

Consolidated Balance Sheets as of December 31, 2002 and 2001

Consolidated  Statements of Operations for the years ended December 31, 2002 and
2001

Consolidated Statement of Stockholders' Deficit for the years ended December 31,
2001 and 2002

Consolidated  Statements of Cash Flows for the years ended December 31, 2002 and
2001

Notes to Consolidated Financial Statements



                                       12
<PAGE>


Item 8.   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's 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 was ratified by a vote of
the shareholders at the annual meeting on June 26, 2002.


                                   PART III.


Item 9.  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 2003 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, 2002,  the
close of our fiscal year.


Item 10.  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, 2002, the close of our fiscal year.


Item 11.  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,  2002,  the close of our fiscal
year.



                                       13
<PAGE>

Item 12.  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, 2002, the close of our fiscal year.


Item 13.  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. (1)

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.)

99.1    Certification  under  section 906 of the  Sarbanes-Oxley  Act (18 u.s.c.
        section 1350). (1)

 --------------------
 (1)  Filed herewith


Reports on Form 8-K

The Company  filed a Form 8-K 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.

The Company filed a Form 8-K on April 5, 2002 pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, identifying Hansen Barnett & Maxwell as the
Company's Certifying Accountants.


Item 14.  CONTROLS AND PROCEDURES

(a)     The Company  maintains  controls and procedures  designed to ensure that
information  required to be disclosed  in the reports that the Company  files or
submits  under  the  Securities  Exchange  Act of 1934 is  recorded,  processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission.  Based upon their evaluation of those
controls  and  procedures  performed  within 90 days of the filing  date of this
report,  the chief executive officer and the principal  financial officer of the
Company  concluded that the Company's  disclosure  controls and procedures  were
adequate.

(b)     Changes in internal controls. The Company made no significant changes in
its internal controls or in other factors that could significantly  affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and principal financial officer.



                                       14
<PAGE>

                                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.

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 T. Laflin
                                        -------------------------------
                                        Steve T. Laflin
                                        President and Chief Executive Officer



                                   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.


March 7, 2003           By:  /s/ Dr. Ralph Richart
                             ----------------------------
                             Dr. Ralph Richart
                             Chairman of the Board of Directors


March 7, 2003           By:  /s/ Steve T. Laflin
                             ----------------------------
                             Steve T. Laflin
                             President, Chief Executive Officer and Director


March 7, 2003           By:  /s/ Christopher Grosso
                             ----------------------------
                             Christopher Grosso
                             Director


March 7, 2003           By:  /s/ Randall O'Kane
                             ----------------------------
                             Randall O'Kane
                             Director



                                       15
<PAGE>


                      CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Steve T. Laflin, certify that:

        1.      I  have   reviewed   this  annual   report  on  Form  10-KSB  of
                International Isotopes, Inc (the registrant);

        2.      Based on my  knowledge,  this annual report does not contain any
                untrue  statement  of a  material  fact  necessary  to make  the
                statements made, in light of the circumstances  under which such
                statements  were made, not misleading with respect to the period
                covered by this annual report;

        3.      Based on my  knowledge,  the  financial  statements,  and  other
                financial  information  included in this annual  report,  fairly
                present  in  all  material  respects  the  financial  condition,
                results of  operations  and cash flows of the  registrant as of,
                and for, the periods presented in this annual report;

        4.      The registrant's other certifying officers and I are responsible
                for  establishing  and  maintaining   disclosure   controls  and
                procedures  (as defined in Exchange Act Rules 13a-14 and 15d-14)
                for the registrant and we have:

                a)     designed  such  disclosure  controls  and  procedures  to
                       ensure  that   material   information   relating  to  the
                       registrant,  including its consolidated subsidiaries,  is
                       made  known  to  us  by  others  within  those  entities,
                       particularly  during  the  period  in which  this  annual
                       report is being prepared;

                b)     evaluated   the   effectiveness   of   the   registrant's
                       disclosure controls and procedures as of a date within 90
                       days prior to the filing date of this annual  report (the
                       "Evaluation Date"); and

                c)     presented in this annual report our conclusions about the
                       effectiveness  of the disclosure  controls and procedures
                       based on our evaluation as of the Evaluation Date;

        5.      The registrant's other certifying officers and I have disclosed,
                base on our most recent evaluation, to the registrant's auditors
                and the audit committee of  registrant's  board of directors (or
                persons performing the equivalent function):

                a)     all  significant  deficiencies in the design or operation
                       of internal  controls  which could  adversely  affect the
                       registrant's  ability to record,  process,  summarize and
                       report   financial  data  and  have  identified  for  the
                       registrant's auditors any material weaknesses in internal
                       controls; and

                b)     any  fraud,  whether  or  not  material,   that  involves
                       management or other employees who have a significant role
                       in the registrant's internal controls; and

        6.      The registrant's other certifying  officers and I have indicated
                in this  annual  report  whether or not there  were  significant
                changes in  internal  controls  or in other  factors  that could
                significantly affect internal controls subsequent to the date of
                our most recent  evaluation,  including any  corrective  actions
                with regard to significant deficiencies and material weaknesses.

 Date:  March 7, 2003

 /S/ Steve T. Laflin
 -------------------------------------
 Steve T. Laflin
 President, Chief Executive Officer



                                       16
<PAGE>

                      CHIEF FINANCIAL OFFICER CERTIFICATION

I, Steve T. Laflin, certify that:

        1.      I  have   reviewed   this  annual   report  on  Form  10-KSB  of
                International Isotopes, Inc (the registrant);

        2.      Based on my  knowledge,  this annual report does not contain any
                untrue  statement  of a  material  fact  necessary  to make  the
                statements made, in light of the circumstances  under which such
                statements  were made, not misleading with respect to the period
                covered by this annual report;

        3.      Based on my  knowledge,  the  financial  statements,  and  other
                financial  information  included in this annual  report,  fairly
                present  in  all  material  respects  the  financial  condition,
                results of  operations  and cash flows of the  registrant as of,
                and for, the periods presented in this annual report;

        4.      The registrant's other certifying officers and I are responsible
                for  establishing  and  maintaining   disclosure   controls  and
                procedures  (as defined in Exchange Act Rules 13a-14 and 15d-14)
                for the registrant and we have:

                d)     designed  such  disclosure  controls  and  procedures  to
                       ensure  that   material   information   relating  to  the
                       registrant,  including its consolidated subsidiaries,  is
                       made  known  to  us  by  others  within  those  entities,
                       particularly  during  the  period  in which  this  annual
                       report is being prepared;

                e)     evaluated   the   effectiveness   of   the   registrant's
                       disclosure controls and procedures as of a date within 90
                       days prior to the filing date of this annual  report (the
                       "Evaluation Date"); and

                f)     presented in this annual report our conclusions about the
                       effectiveness  of the disclosure  controls and procedures
                       based on our evaluation as of the Evaluation Date;

        5.      The registrant's other certifying officers and I have disclosed,
                base on our most recent evaluation, to the registrant's auditors
                and the audit committee of  registrant's  board of directors (or
                persons performing the equivalent function):

                c)     all  significant  deficiencies in the design or operation
                       of internal  controls  which could  adversely  affect the
                       registrant's  ability to record,  process,  summarize and
                       report   financial  data  and  have  identified  for  the
                       registrant's auditors any material weaknesses in internal
                       controls; and

                d)     any  fraud,  whether  or  not  material,   that  involves
                       management or other employees who have a significant role
                       in the registrant's internal controls; and

        6.      The registrant's other certifying  officers and I have indicated
                in this  annual  report  whether or not there  were  significant
                changes in  internal  controls  or in other  factors  that could
                significantly affect internal controls subsequent to the date of
                our most recent  evaluation,  including any  corrective  actions
                with regard to significant deficiencies and material weaknesses.

 Date:  March 7, 2003

 /S/ Steve T. Laflin
 -------------------------------------
 Steve T. Laflin
 Chief Financial Officer


                                       17
<PAGE>


                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

                              FINANCIAL STATEMENTS

                               TABLE OF CONTENTS


                                                                        Page No.

Report of Independent Certified Public Accountants....................     F-1

FINANCIAL STATEMENTS

Consolidated Balance Sheets
  as of December 31, 2002 and 2001....................................     F-2

Consolidated Statements of Operations for the years ended
  December 31, 2002 and  2001.........................................     F-3

Consolidated Statements of Stockholders' Deficit for the years ended
  December 31, 2001 and 2002..........................................     F-4

Consolidated Statements of Cash Flows for the years ended
  December 31, 2002 and 2001..........................................     F-5

Notes to Consolidated Financial Statements ...........................     F-7




                                       18
<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 sheets of International
Isotopes Inc and  subsidiaries  as of December 31, 2002 and 2001 and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years 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 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  that  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, 2002 and 2001 and the results
of their  operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.




                                              HANSEN, BARNETT & MAXWELL

Salt Lake City, Utah
January 17, 2003


                                       F-1
<PAGE>
<TABLE>
<CAPTION>
                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets


                                                                   December 31,
                      Assets                                  2002             2001
 -------------------------------------------------        ------------     ------------
<S>                                                       <C>              <C>
Current assets:
    Cash and cash equivalents                             $    441,904     $    293,969
    Accounts receivable                                        218,923          138,531
    Assets held for sale (Note 2)                              607,531          122,000
    Inventories (Note 3)                                     2,279,828        2,537,519
    Prepaids and other current assets                          128,830          287,074
                                                          ------------     ------------
      Total current assets                                   3,677,016        3,379,093

Property, plant and equipment, net (Note 4)                    236,053          280,036

Assets held for sale (Note 2)                                     --            607,531

                                                          ------------     ------------
      Total assets                                        $  3,913,069     $  4,266,660
                                                          ============     ============


  Liabilities, Redeemable Convertible Preferred
         Stock and Stockholders' Deficit
-------------------------------------------------
Current liabilities
    Accounts payable                                      $    257,776     $    181,694
    Checks written in excess of cash in bank                      --            101,714
    Accrued liabilities                                        342,091          448,529
    Note payable related to assets held for sale
       (Note 2 and 5)                                          345,295             --
    Current installments of mortgage and notes
       payable (Note 5)                                      1,226,520        2,720,610
                                                          ------------     ------------
      Total current liabilities                              2,171,682        3,452,547

Mortgage and notes payable, excluding current
   installments (Note 5)                                       909,738           45,182
                                                          ------------     ------------
      Total liabilities                                      3,081,420        3,497,729
                                                          ------------     ------------

Mandatorily redeemable preferred stock, $0.01 par
   value; 5,000,000 shares authorized; 850 and 17,467
   shares issued and outstanding, respectively;
   liquidation value of $850,000                               850,000       17,117,755
                                                          ------------     ------------

Stockholders' deficit (Note 6)
    Common stock, $0.01 par value; 250,000,000 shares
      authorized; 95,581,135 and 26,581,135 shares
      issued and outstanding, respectively                     955,812          265,812
    Additional paid-in capital                              86,416,002       70,575,834
    Accumulated deficit                                    (87,390,165)     (87,190,470)
                                                          ------------     ------------
      Total stockholders' deficit                              (18,351)     (16,348,824)
                                                          ------------     ------------
      Total liabilities, redeemable convertible
        preferred stock and stockholders' deficit         $  3,913,069     $  4,266,660
                                                          ============     ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       F-2
<PAGE>
<TABLE>
<CAPTION>
                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations

                                                            Years ended December 31,
                                                             2002             2001
                                                         ------------     ------------
<S>                                                      <C>              <C>
Revenue:
   Sales of product                                      $  2,181,704     $  2,177,900

Cost of revenue:
   Cost of products                                         1,071,690        1,424,111
                                                         ------------     ------------
     Gross profit                                           1,110,014          753,789
                                                         ------------     ------------
 Operating costs and expenses:
   Salaries and contract labor                                469,704          521,753
   General, administrative and consulting                     594,405        1,275,632
   Restructuring charges                                      338,555             --
                                                         ------------     ------------
     Total operating expenses                               1,402,664        1,797,385
                                                         ------------     ------------
     Operating loss                                          (292,650)      (1,043,596)

Other income (expense):
   Other income                                               115,484             --
   Interest income                                              7,909            2,613
   Interest expense                                          (181,196)          (3,114)
                                                         ------------     ------------
     Loss from continuing operations                         (350,453)      (1,044,097)

Discontinued operations
   Gain (Loss) on disposal of discontinued operations
     including provision of $0 and $2,325,282 for
     operating losses during the phase-out period (less
     applicable taxes of $0)                                  500,000       (1,774,118)
                                                         ------------     ------------
     Net income (loss)                                        149,547       (2,818,215)

Preferred stock dividend, deemed dividend
   and accretion of discount                                 (349,242)      (1,325,085)
                                                         ------------     ------------

Net loss applicable to common shareholders               $   (199,695)    $ (4,143,300)
                                                         ============     ============
Net loss per common share continuing
   operations - basic and diluted                        $      (0.01)    $      (0.15)
Net income (loss) per common share discontinued
   operations - basic and diluted                                0.01            (0.11)
                                                         ------------     ------------

Net loss per common share - basic and diluted            $      (0.00)    $      (0.26)
                                                         ============     ============
Weighted average common shares outstanding -
   basic and diluted                                       86,654,052       15,976,551
                                                         ============     ============
</TABLE>
          See accompanying notes to consolidated financial statements.


                                       F-3
<PAGE>
<TABLE>
<CAPTION>
                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
                 Consolidated Statement of Stockholders' Deficit
                     Years ended December 31, 2002 and 2001


                                                                                        Additional                        Total
                                                                Common Stock             Paid-in      Accumulated     Stockholders'
                                                            Shares         Amount        Capital        Deficit          Deficit
                                                         ------------   ------------   ------------   ------------    ------------
<S>                                                      <C>            <C>            <C>            <C>             <C>
Balance January 1, 2001                                    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)

Accretion of issuance costs on
    redeemable convertible preferred stock                       --             --             --         (349,242)       (349,242)
Redemption of 10,000 shares Series A redeemable
    convertible preferred stock for common stock
    valued at $.20 per share                               50,000,000        500,000      9,500,000           --        10,000,000
Redemption of 2,817 shares Series B redeemable
    convertible preferred stock at $30.82 per
    share, total redemption $86,832                              --             --        2,730,168           --         2,730,168
Redemption of 3,800 shares Series B redeemable
    convertible preferred stock for common stock
    valued at $.20 per share                               19,000,000        190,000      3,610,000           --         3,800,000
Net income                                                       --             --             --          149,547         149,547
                                                         ------------   ------------   ------------   ------------    ------------
Balance December 31, 2002                                  95,581,135   $    955,812   $ 86,416,002   $(87,390,165)   $    (18,351)
                                                         ============   ============   ============   ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       F-4
<PAGE>
<TABLE>
<CAPTION>
                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows

                                                                  Years ended December 31,
                                                                   2002             2001
                                                               ------------     ------------
<S>                                                            <C>              <C>
Cash flows from operating activities:
   Net earnings (loss)                                         $    149,547     $ (2,818,215)
   Adjustments to reconcile net loss to net cash used in
   operating activities
     Depreciation                                                    80,166           72,306
     Gain on disposal of discontinued operations                       --           (551,164)
     Gain on release/foregiveness of debt of discontinued
        operations                                                 (500,000)      (1,197,330)
     Loss on disposed property, plant and equipment                    --            167,986
     Changes in operating assets and liabilities:
        Accounts receivable                                         (80,392)         234,982
        Prepaids and other current assets                           158,244           17,562
        Inventories                                                 257,691           50,473
        Accounts payable and accrued liabilities                    102,380       (3,571,515)
                                                               ------------     ------------
         Net cash provided by (used in) operating activities        167,636       (7,594,915)
                                                               ------------     ------------
Cash flows from investing activities:
   Purchase of property, plant and equipment                        (36,183)         (64,788)
   Proceeds from assets held for sale                               122,000       17,609,218
                                                               ------------     ------------
         Net cash provided by investing activites                    85,817       17,544,430
                                                               ------------     ------------
Cash flows from financing activities:
   Cash paid for redemption of 2,817 shares Series B
     redeemable convertible preferred stock                         (86,832)            --
   Checks written in excess of cash in bank                        (101,714)         101,714
   Payments on capital leases                                          --         (3,557,646)
   Proceeds from issuance of debt                                   232,257        1,053,020
   Principal payments on notes payable                             (149,229)      (7,895,188)
                                                               ------------     ------------
         Net cash used in financing activities                     (105,518)     (10,298,100)
                                                               ------------     ------------

Net change in cash and cash equivalents                             147,935         (348,585)
Cash and cash equivalents at beginning of year                      293,969          642,554
                                                               ------------     ------------
Cash and cash equivalents at end of year                       $    441,904     $    293,969
                                                               ============     ============
</TABLE>

                                   (Continued)


                                       F-5
<PAGE>
<TABLE>
<CAPTION>
                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows

                                    Continued

                                                                  Years ended December 31,
                                                                   2002            2001
                                                                -----------     -----------
<S>                                                             <C>             <C>
Supplemental disclosure of cash flow activities:
   Cash paid for interest                                       $   101,748     $ 1,036,143
                                                                ===========     ===========

Supplemental disclosure of noncash financing and
   investing transactions:

   Common stock issued on conversion of preferred stock         $13,800,000     $   750,000
                                                                ===========     ===========

   Difference in redemption value and liquidation value of
      preferred stock redeemed for cash                         $ 2,730,168     $      --
                                                                ===========     ===========

   Accretion of issuance costs on preferred stock               $   349,242     $   529,800
                                                                ===========     ===========

   Conversion of accrued interest to note payable               $   132,736     $      --
                                                                ===========     ===========

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

   Common stock issued for payment of preferred dividends       $      --       $   795,285
                                                                ===========     ===========
</TABLE>

           See accompanying notes to consolidated financial statements



                                       F-6
<PAGE>


                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001




NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

International  Isotopes Inc (the Company) was  incorporated in Texas in November
1995. The Company owns 100% of the outstanding  common shares of Gazelle Realty,
Inc. and International  Isotopes Idaho, Inc. (I4).  Gazelle Realty,  Inc. has no
assets. The only assets of the Company are those of I4.

Nature of Operations - The Company is a supplier of High Specific Activity (HSA)
cobalt.  This  material is used  primarily in external  beam  radiation  medical
devices such as Elekta's  Leksell Gamma Knife. The Company is also involved with
nuclear medicine calibration and reference standards manufacturing.  The Company
has an  exclusive  contract  with  RadQual  LLC for  several  of these  types of
standards. The Company is also involved in gemstone processing.  The Company has
an exclusive  contract  with  Quali-Tech  Inc.  for  processing  gemstones.  The
processing involves special packaging of the gemstones in containers which allow
them to undergo  irradiation for color enhancement.  The 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 $345,296 located in Waxahachie, Texas; and miscellaneous equipment located in
Denton, Texas with a carrying value of approximately $262,235.)

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.

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  closed in December 2001. At
December 31, 2001, the operations from these facilities and activities have been
classified  as  discontinued  operations  for all  periods  presented.  Interest
expense associated directly with the discontinued operations has been classified
as discontinued 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.


Significant Accounting Policies

(a)     Financial Instruments and Cash Equivalents

        The  Company's  financial  instruments  consist  of notes  payable.  The
        carrying value of these financial  instruments  approximates  fair value
        because they bear interest at rates which approximate market rates.



                                       F-7
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


        Cash and cash  equivalents of $441,904 and $293,969 at December 31, 2002
        and 2001,  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.

        At December  31, 2002 the Company  has  pledged  cash of  $147,157.  The
        certificate of deposit is pledged as security on a letter of credit. The
        letter of credit  required as part of the licensing  agreement  with the
        Nuclear Regulatory Commission ("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.

        At December  31,  2002,  the Company  had  $253,784 of cash  deposits in
        excess of federally insured limits.

(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  $80,166  and  $72,306  for the  years  ended
        December 31, 2002 and 2001, 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 accounting  principles  generally accepted
        in the United States of America.  Actual results could differ from those
        estimates.



                                       F-8
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


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

        Long-lived assets 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.

(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.  One of the  Company's  board  members  is a
        principal in one of the significant customers.

        At  December  31,  2002,  sales to  these  three  significant  customers
        accounted  for  $977,055,  $659,866  and  $491,587  of total  sales.  At
        December 31, 2001,  sales to these same three  customers  accounted  for
        $574,853, $428,563 and $118,273 of total sales.

(h)     Shipping and Handling Costs

        The Company  expenses all shipping and handling costs incurred.  For the
        years ended  December 31, 2002 and 2001, the Company  expensed  $139,616
        and $126,888 as shipping and handling costs. These costs are reported as
        general,  administrative  and  consulting  costs  on  the  statement  of
        operations.

(i)     Stock Option Plan

        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").



                                       F-9
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


        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, 2002 and
        2001:


                                                       2002           2001
                                                    -----------    -----------

        Net loss applicable to common
           shareholders, as reported                $  (199,695)   $(4,143,300)

        Deduct:  Total stock-based employee
           compensation expense determined under
           fair value based method for all awards,
           net of related tax effects                  (168,911)       (23,184)
                                                    -----------    -----------
        Pro forma net loss per common share         $  (368,606)   $(4,166,484)
                                                    ===========    ===========

        Loss per share, basic and diluted:
          As reported                               $     (0.00)   $     (0.26)
                                                    ===========    ===========
          Pro forma                                 $     (0.00)   $     (0.26)
                                                    ===========    ===========

(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  issuable  common shares  outstanding
        during  the  year.  Net loss per  common  share is  calculated  for both
        continuing and discontinued operations.

        As of December 31, 2002 and 2001,  there were  17,027,326  and 6,390,376
        options  and  warrants  and 850 and  17,467  shares  of  Series  A and B
        redeemable  convertible  preferred stock outstanding,  respectively 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 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. The Company  implemented  SFAS No. 144 effective  January 1, 2002.
        The  adoption  of  this  standard  has  had no  material  effect  on the
        Company's financial position or results of operations.

        In  April  2002,  the FASB  issued  SFAS No.  145,  "Rescission  of FASB
        Statements  No. 4, 44 and 64,  Amendment of FASB  Statement  No. 13, and
        Technical  Corrections." Among other provisions,  the statement modifies
        the criteria  classification of gains and losses on debt extinguishments
        such that they are not required to be classified as extraordinary  items
        if they do not meet the criteria  for  classification  as  extraordinary
        items in APB Opinion No. 30. The Company  elected to adopt this standard
        during the year ended December 31, 2002. . The adoption of this standard
        has had no  material  effect  on the  Company's  financial  position  or
        results of operations.



                                      F-10
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


        In July  2002,  the FASB  issued  SFAS No.  146,  "Accounting  for Costs
        Associated  with Exit or Disposal  activities."  The statement  requires
        companies to recognize costs associated with exit or disposal activities
        when they are  incurred  rather than at the date of a  commitment  to an
        exit or disposal plan. Examples of costs covered by the standard include
        lease  termination  costs and certain employee plan severance costs that
        are  associated  with a  restructuring,  discontinued  operation,  plant
        closing,  or  other  exit or  disposal  activity.  The  Company  will be
        required to apply this statement  prospectively for any exit or disposal
        activities  initiated  after  December  31,  2002.  The adoption of this
        standard  is not  expected  to have a material  effect on the  Company's
        financial position or results of operations.

        In December 2002,  the FASB issued  Statement No. 148,  "Accounting  for
        Stock-Based  Compensation-Transition  and  Disclosure."  This  statement
        amends Statement No. 123,  Accounting for Stock-Based  Compensation,  to
        provide alternative methods of transition for an entity that voluntarily
        changes to the fair value method of accounting for stock-based  employee
        compensation.  It also amends the disclosure provisions of Statement No.
        123 to require  prominent  disclosure  about the effects on reported net
        income of an  entity's  accounting  policy  decisions  with  respect  to
        stock-based  employee  compensation.  Statement  No.  148 also  requires
        disclosure  about those effects in interim  financial  information.  The
        Company adopted the disclosure  requirements of Statement No. 148 in the
        accompanying financial statements.

(l)     Reclassifications

        Certain  2001 amounts  have been  reclassified  to conform with the 2002
        presentation.  These  reclassifications  had no effect on the previously
        reported net loss.


NOTE 2 - SALE OF ASSETS AND LIQUIDITY

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,  (before settlement costs of $225,000) and warrants to purchase 800,000
shares of NeoRx common  stock.  (The  warrants were deemed to have no fair value
due to the exercise price of the warrants being greater 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 7 for a discussion of
the concessions made by the Series A and B preferred shareholders.



                                      F-11
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


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 on behalf  of the  Company  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  Radioisotope
Production  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
Radioisotope  Production  Facility  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  retained an  obligation of $500,000 on the
loan assumed by the buyers for six months or until the  purchaser  renewed their
note with Texas State Bank. Offsetting this obligation was a receivable from the
buyer which was fully allowed  against.  The Company also retained an obligation
(also for six months or until  purchaser  renewed the note) for  decommissioning
the Radioisotope  Production Facility should the buyer default on payment or not
meet  Texas  State  Bank  requirements  for note  renewal.  During  2002,  these
contingent  liabilities  were  terminated  with the  renewal  of the note by the
purchaser;  the Company recognized the $500,000 relief of this commitment during
the year ended December 31, 2002.

In addition to the disposal of the above mentioned facilities, the Company wrote
off $134,776 in certain  intangible  assets that no longer  existed  after these
disposals.

At December 31, 2001,  excess  components  and  equipment  had been written down
through an impairment charge to a net realizable value of $384,235. During 2002,
excess  components  carried  at  $122,000  were  sold.  The  balance  of  excess
components and equipment held for sale at December 31, 2002 is $262,235.

At December 31, 2002, the Company  continues to carry its Waxahachie real estate
at $345,296. The Company has an offer to sell this property for an assumption of
the related debt which is also $345,296.

Business  Condition  -The  Company has a history of  recurring  losses to common
shareholders with an accumulated deficit of $87,390,165 at December 31, 2002 and
a net loss  applicable  to common  shareholders  of  $199,265  for the year then
ended.  The Company also has a stockholders'  deficit of $18,351.  However,  the
Company had increased it working  capital by $1,578,788  over the prior year and
generated positive cash flows from operations of $167,636.

During the year ended  December 31, 2002,  the Company  completed its efforts to
wind down the discontinued  Texas operations.  In connection with these efforts,
the Company incurred certain non recurring  charges relating to professional and
other  services in the amount of $338,555 and non  recurring  charges to cost of
revenues in the amount of $41,442 relating to obsolete  inventory items. Had the
Company not experienced these charges it would have shown income from operations
of $29,544.



                                      F-12
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


The Company has secured a contract for the sale of HSA cobalt-60 to be delivered
during 2003.  The Company has  received  notice from RadQual that it has secured
new distributors for its nuclear  medicine  calibration and reference  standards
("flood  source") and  anticipates  a 33%  increase in sales  during  2003.  The
Company  has  received  notice  from Quali  Tech,  Inc that they  anticipate  an
approximate 34% increase in the processing of topaz gem stones during 2003.

With  these  new  contracts  and the  Company's  ability  to  focus  on its core
continuing operations, management anticipates the Company being able to generate
net income to common shareholders and positive cash flows sufficient to meet its
operational  needs during  2003.  However,  there is no assurance  that this net
income or cash flows will occur.


NOTE 3 - INVENTORIES

Inventories consist of the following at December 31, 2002 and 2001:

                                        2002             2001
                                     ----------       ----------
         Raw materials               $  294,662       $  290,019
         Finished goods                  13,615           20,571
         Work in progress             1,971,551        2,226,929
                                     ----------       ----------
                                     $2,279,828       $2,537,519
                                     ==========       ==========


NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

Property,  plant and equipment is summarized as follows at December 31, 2002 and
2001:

                                                  2002            2001
                                                ---------       ---------
          Furniture and fixtures                $  39,641       $  33,240
          Plant and improvements                   21,270          10,574
          Production equipment                    349,240         331,498
                                                ---------       ---------
                                                  410,151         375,312
          Less accumulated depreciation          (174,098)        (95,276)
                                                ---------       ---------
          Property, plant & equipment, net      $ 236,053       $ 280,036
                                                =========       =========




                                      F-13
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


NOTE 5 - MORTGAGE AND NOTES PAYABLE

Mortgage  and notes  payable as of December  31,  2002 and 2001,  consist of the
following:

                                                           2002         2001
                                                        ----------   ----------
Revolving line of credit with a bank, bearing
  interest at 7%, interest payments due monthly,
  secured by equipment, accounts receivable and
  inventory, due April 2003.                            $  100,000   $    --

Short-term note payable to certain investors,
  bearing interest at 5%, principal and interest
  due April 15, 2003.                                       80,000        --

Variable rate note payable to a bank, as discussed in
  Note 2, this note was settled with the asset sales
  and the Company remained contingently liable on
  $500,000.  During 2002, the Company was released from
  all liability on this note with Texas State Bank.          --         500,000

Fixed rate note payable to Eastern Idaho Economic
  Development Council bearing interest at 3% per annum.
  The note was paid in full in November 2002.                --          70,477

Variable rate (7% at December 31, 2002) 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 December 31, 2003.                1,046,520    1,053,020

Note payable to a bank, secured by Waxahachie real
  estate, interest at 9.5%, principal and interest due
  January 25, 2003.                                        345,295      345,295

Note payable to the former chairman of the board,
  interest accrues at 7% and is payable annually on
  April 1, principal payments are due annually on
  April 1 consisting of 30% of prior year net income,
  no principal payments are due until April 2004.          909,738      797,000
                                                        ----------   ----------

Total mortage and notes payable to banks                 2,481,553    2,765,792
Less; current maturities                                (1,571,815)  (2,720,610)
                                                        ----------   ----------
Mortgage and notes payable to banks, excluding current
  installments                                          $  909,738   $   45,182
                                                        ==========   ==========

The aggregate annual maturities of mortgage and notes payable as of December 31,
2002 are as follows:

   Years Ending December 31:
   ------------------------
   2003                                        $ 1,571,815
   2004                                            909,738
                                               -----------
   Total                                       $ 2,481,553
                                               ===========


                                      F-14
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


NOTE 6 - STOCKHOLDERS' EQUITY, REDEEMABLE CONVERTIBLE PREFERRED STOCK, OPTIONS
         AND WARRANTS

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.

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.

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. Although the Series A preferred  stockholders accepted these warrants for
their concessions, the warrants were determined to have no fair value.

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.



                                      F-15
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


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. Although the Series B preferred  stockholders accepted these warrants for
their concessions, the warrants were determined to have no fair value.

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.

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.

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 all the
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 (5,000 common shares for each one share of Series
A or B  Preferred  Stock).  The same  percentages  of Series A and B holders who
agreed to amend their  respective  certificates  of  designation  have agreed to
convert their preferred shares for common stock. During 2002, all of the holders
of the Series A Preferred  Stock and  certain  holders of the Series B Preferred
Stock agreed to exchange their 13,800 preferred shares for 69,000,000 new shares
of common stock of the Company at $0.20 per share, which was above market value.



                                      F-16
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


Common stock

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

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.  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
that can be granted to each employee in one year is 10,000,000.

In February 2002, the Company  granted an additional  13,000,000  options to key
employees 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.

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

                                                            Weighted-Average
 Fixed Options                                   Shares      Exercise Price
 --------------------------------              ----------    --------------
 Outstanding at December 31, 2000                 869,500     $       5.57
 Granted                                        1,000,000             0.08
 Forfeited                                       (869,500)            5.57
                                               ----------       ----------
 Outstanding at December 31, 2001               1,000,000             0.08
 Granted                                       13,000,000             0.02
                                               ----------       ----------
 Outstanding at December 31, 2002              14,000,000       $     0.02
                                               ==========       ==========



                                      F-17
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


The following table summarizes  information  about fixed stock options under the
Plan outstanding at December 31, 2002:

<TABLE>
<CAPTION>
                                        Options Outstanding              Options Exerciseable
                                   -----------------------------     -----------------------------
                   Options            Weighted-         Weighted         Number          Weighted-
 Range of       Outstanding at         Average          Average      Exercisable at       Average
 Exercise        December 31,         Remaining         Exercise      December 31,       Exercise
  Prices             2002          Contractual Life      Price            2002             Price
 ---------      --------------     ----------------     --------     --------------      ---------
<S>               <C>                 <C>                <C>            <C>               <C>
 $.02 -.08        14,000,000          9.1 years          $ 0.02         4,000,000         $ 0.03
</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:

                                          2002           2001
                                        --------       --------

 Expected dividend yield                       -              -
 Risk-free interest rate                    4.8%           4.4%
 Expected volatility                        148%           153%
 Expected life                          10 years        3 years
 Weighted average fair value
    per share                              $0.02          $0.03


Warrants

The following summarizes outstanding warrants at December 31, 2002:


                                                             Weighted-Average
                                                                 Exercise
          Fixed Warrants                        Shares             Price
 --------------------------------             -----------       -----------
 Outstanding at December 31, 2000                7,312,37       $      6.32
 Expired                                       (1,922,000)            10.00
                                              -----------       -----------
 Outstanding at December 31, 2001               5,390,376              5.01
 Expired                                       (2,363,050)             5.97
                                              -----------       -----------
 Outstanding at December 31, 2002               3,027,326       $      4.26
                                              ===========       ===========



                                      F-18
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001
<TABLE>
<CAPTION>
                     Outstanding at December 31, 2002      Exercisable at December 31, 2002
                     --------------------------------      --------------------------------
                                     Weighted Average                      Weighted Average
                                        Remaining                             Remaining
 Exercise Prices     Warrants        Contractual Life      Warrants        Contractual Life
 ---------------     ---------       ----------------      ---------       ----------------
<S>                  <C>                <C>                <C>                <C>
 $4.00               2,500,000          0.34 years         2,500,000          0.34 years
 $5.50                 527,326          0.02 years           527,326          0.02 years
                     ---------                             ---------
                     3,027,326                             3,027,326
                     =========                             =========
</TABLE>

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>
 $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
                     ---------                             ---------
                     5,390,376                             5,390,376
                     =========                             =========
</TABLE>

NOTE 7 - INCOME TAXES

The Company paid no federal or state  income  taxes during 2002 or 2001.  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:


                                                 2002            2001
                                             ------------    ------------
Income tax expense/(benefit)                 $     50,846    $   (958,194)
Nondecuctible expenses                                587           2,000
Loss of NOL due to change in ownership         22,683,486               -
Change in valuation allowance                 (22,734,919)        956,194
                                             ------------    ------------
     Total income tax expense                $          -    $          -
                                             ============    ============



                                      F-19
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


The tax effects of temporary  differences that give rise to significant portions
of the Company's  deferred tax assets  (liabilities) as of December 31, 2002 and
2001 are presented below:


                                                   2002            2001
                                                ---------      ------------
Deferred income tax asset
   Net operating loss carry forward             $ 450,585      $ 23,065,504
   Impairment charge                              121,874           291,874
                                                ---------      ------------
      Total deferred income tax asset             572,459        23,357,378
Valuation allowance                              (572,459)      (23,307,378)
                                                ---------      ------------
                                                     --              50,000
Deferred income tax liability - depreciation         --             (50,000)
                                                ---------      ------------
                                                $    --        $      --

The conversion of the redeemable  convertible preferred stock to common stock as
discussed in Note 6 was  considered a change in ownership  per Internal  Revenue
Code Section 382. This change in ownership has resulted in the limitation of the
net operating loss  carryforward  available for use by the Company.  At December
31, 2001, the Company had a net operating loss  carryforward of $67,839,717.  At
December 31, 2002,  the  Company's  net  operating  loss  carryforward  had been
limited to  $1,389,251.  Unused NOL will begin  expiring in 2023.  The valuation
allowances for 2002 and 2001 have been applied to offset the deferred tax assets
in recognition of the uncertainty that such benefits will be realized.


NOTE 8 - 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, 2002 and 2001 was
$69,180 and $70,383, respectively, excluding discontinued operations.

Future minimum lease payments under noncancelable operating leases (with initial
or remaining lease terms in excess of one year) as of December 31, 2002 are:

                                           Operating
Years ending December 31                    Leases
                                           ---------
   2003                                       65,941
   2004                                       64,972
   2005                                       16,215
                                           ---------
Total minimum lease payments               $ 147,128
                                           =========



                                      F-20
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


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  revenue  associated  with the sale of HSA  Cobalt is largely  dependent  on
General  Electric,  the Company's  sole  customer of this product.  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. A loss of any
of these  customers  or vendors  could  adversely  affect  operating  results by
causing a delay in production or a possible loss of sales.

Contingencies

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
2002 and 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 $147,157 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.


NOTE 9 - SUBSEQUENT EVENTS (Unaudited)

In January 2003,  the Company  entered into an agreement to sell the  Waxahachie
real  estate.  The sales price is $345,295.  The  purchaser is assuming the debt
associated  with this real estate,  however,  the Company  remains liable on the
note with Texas State Bank for the  remainder  of the term should the  purchaser
default on this note,  but would  regain  the real  estate if this event  should
occur.




                                      F-21
<PAGE>

                               TABLE OF EXHIBITS



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. (1)

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.)

99.1    Certification  under  section 906 of the  Sarbanes-Oxley  Act (18 u.s.c.
        section 1350) (1)

 ----------------------
 (1)  Filed herewith


                                       40
<PAGE>