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, 2003

                                       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 Company's revenue for 2003 was $2,070,592.

The aggregate market value of the shares of common stock held by  non-affiliates
of the Company at March 18, 2004 was $6,963,494.

As of March 18, 2004 the number of shares  outstanding of common stock, $.01 par
value was 141,424,502 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 as a Texas corporation in
1995 to produce,  market,  and  distribute  a broad  range of  products  used in
diagnostic and therapeutic nuclear medicine,  research,  and industry.  In 2001,
the Company  changed its mission and  business  strategy  somewhat to focus upon
other radioisotope products, manufacture calibration and reference standards for
nuclear medicine,  and provide general radiological  measurement  capability for
processed gemstones. In 2003, the Company put two new supply agreements in place
for Lu-177 and I-131  radioisotopes  and expanded their  processing  facility to
include processing and distribution capability for these isotopes in 2004.

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, 2003.





                                       2
<PAGE>


                          INTERNATIONAL ISOTOPES INC.
                                  FORM 10-KSB


                               TABLE OF CONTENTS

                                                                        Page No.
Part I.

Item 1.   Business .....................................................     4
Item 2.   Properties ...................................................     7
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 ...............................     8
Item 6.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations .......................     9
Item 7.   Financial Statements..........................................    14
Item 8.   Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure .......................    15
Item 8A   Controls and Procedures.......................................    15


Part III.

Item 9.   Directors and Executive Officers of Registrant ...............    15
Item 10.  Executive Compensation .......................................    15
Item 11.  Security Ownership of Certain Beneficial Owners
             and Management ............................................    15
Item 12.  Certain Relationships and Related Transactions ...............    15
Item 13.  Exhibits, Financial Statement Schedule
             and Reports on Form 8-K ...................................    16
Item 14.  Principal Accountant Fees and Services .......................    16
Power of Attorney ......................................................    17
Signatures .............................................................    17



                                       3
<PAGE>


PART I

Item 1.  BUSINESS

General Business and Products Description

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 as a Texas corporation in
1995 to produce,  market,  and  distribute  a broad  range of  products  used in
diagnostic and therapeutic nuclear medicine, research, and industry. In 2001, we
changed  our  mission  and  business  strategy  somewhat  to  focus  upon  other
radioisotope  products,  manufacture  calibration  and  reference  standards for
nuclear medicine,  and provide general radiological  measurement  capability for
processed  gemstones.  In 2003,  we put two new supply  agreements  in place for
Lu-177 and I-131  radioisotopes and expanded our processing  facility to include
processing and  distribution  capability  for these new isotopes.  The following
paragraphs provide some additional details on our various business areas.

Radioisotope Products

We  offer  a  selection  of  radioisotopes   and   radiochemicals   for  various
applications   including  clinical  research,   life  sciences,  and  industrial
applications.  In the past  these  isotopes  have  included  Cobalt-60  (Co-60),
Cobalt-57 (Co-57),  Cesium-137  (Cs-137),  and Barium-133  (Ba-133),  which were
typically  sold  as  radiochemicals  to be used in the  manufacture  of  various
reference or  calibration  standards  for industry or  medicine.  The  Cobalt-60
isotope  produced  by the  Company  is unique  in that it is very high  specific
activity material.  This high specific activity material can only be produced in
a few  nuclear  reactors  around  the  world  such as the  Department  of Energy
Advanced Test Reactor at the Idaho  National  Laboratory,  to which we currently
have  access.  This high  activity  cobalt is sold in bulk to  General  Electric
Nuclear who in turn fabricates sealed sources for the Leksell gamma knife.

During  2003 we put two new  supply  agreements  in place  with two  independent
producers  to supply  the  additional  isotopes  of  Lutetium-177  (Lu-177)  and
Iodine-131 (I-131)  radiochemical.  Lutetium-177 is currently being investigated
in several different clinical applications  including treatment of colon cancer,
metastic  bone cancer,  Non-Hodgkin's  Lymphoma,  and lung cancer.  In published
cancer statistics,  it is estimated that there are over half a million new cases
of these cancers  occurring  each year in the U. S. and nearly two million cases
worldwide.  Clinical  research  with  Lutetium-177  has been ongoing for several
years  and the  isotope  has  demonstrated  certain  chemical  and  radiological
properties  which  make it  potentially  very well  suited  as a cancer  therapy
product.  We are  obtaining  our  Lutetium-177  through  an  agreement  with the
University  of  Missouri  Research  Reactor  (MURR),  which  has been a  leading
developer of radioisotopes  suitable for patient trials and has also been a very
reliable production source for these isotopes.

Also in 2003,  we entered  into a  distribution  agreement  with a major  global
supplier of Iodine-131  radiochemical and plan on starting  distribution  within
all 50 states  beginning in the first  quarter of 2004.  Iodine-131 is currently
being used on a large  commercial  scale within the U.S. for the  treatment  and
diagnosis  of various  diseases of the thyroid such as Graves  disease,  thyroid
cancer,  and  hyperthyroidism.  Iodine-131  is  also  being  used  in a host  of
investigational  and clinical trials such as for the treatment of breast,  lung,
prostate, and ovarian cancers.

Calibration and Reference Standards

We are a contract  manufacturer  for a wide range of NIST traceable  calibration
standards and Quality  Assurance check sources for various nuclear  pharmacy and
SPECT related  equipment.  These items include flood sources,  dose calibrators,
rod sources, flexible and rigid rulers, spot markers and penpoint markers. I3 is
an exclusive contract manufacturer for Radqual LLC for these products. There are
over 5,000 nuclear  medicine centers around the country that require these types
of products on a regular basis.


                                       4
<PAGE>


General Measurement and Radiological Services

The Company provides a host of analytical,  measurement, and processing services
on a contract basis to clients.  Some of these services offered include detailed
radioactivity  analysis,  gamma assay, ICP analysis,  Type A package development
and testing,  and Health Physics consulting.  The largest single product service
in this area involves our packaging and post irradiation examination process for
gemstone that has undergone  irradiation for color  enhancement.  We have had an
exclusive contract with Quali-Tech Inc. since 2001 to provide this service.

Fluorine products

We initiated  evaluation and  acquisition in 2003 of seven patents related to an
entirely new product line for the Company - fluorine  extraction  process (FEP).
We closed this acquisition on January 30, 2004. The FEP patents and intellectual
property will be used for  production of several high purity  fluorine  products
and we will establish a new fluorine  products  division to capitalize upon this
technology.

High purity fluorine gases are in ever-increasing demand for ion-implantation or
chemical  vapor  deposition  processes  for   microelectronics   components  and
high-speed  silicon chip  manufacture.  The FEP fluorine  product is equal to or
greater than 99.99% pure with no  detectable  uranium in the product  gas.  This
makes our FEP products  ideally  suited to these  specialty  applications  where
ultra high purity  gases are  required.  In  addition,  we  anticipate  that the
production  costs of FEP  products  will be low in  comparison  with  ultra pure
fluorine products manufactured by other common commercial methods enabling us to
effectively compete with existing high purity fluorine product suppliers both on
cost and purity.

To support the start-up of FEP we have entered into a marketing  and  technology
consulting  agreement with  individuals  knowledgeable  and experienced with the
processing  technology  and market  applications  for FEP products and leased an
additional  industrial facility for production of FEP gases. We believe that the
market size and growth  outlook for high purity  fluorine  products is excellent
and should provide the Company an opportunity to grow our revenue  substantially
in coming years.

We believe  that  revenues  generated  from  these  business  activities  can be
expected to have a positive effect upon our projections for continued  growth in
2004 and should 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 are 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  and  is a  requirement  for  most  of  the  products
manufactured for nuclear medicine  reference and calibration  standards.  We are
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),  and have a fully
implemented  Quality Assurance program which meets the requirements of ANSI/ASME
NQA-1 and 10 CFR 830.120.

We have an operating license issued from the Nuclear Regulatory Commission which
defines  the types and amounts of  radioactive  materials  permitted  within our
facility.  In 2003  the  Company  completed  two  additional  revisions  to this
licensing to allow expanded  production of our new  radioisotopes,  Lutetium-177
and Iodine-131.


                                       5
<PAGE>


Industry Overview, Target Markets, and Competition

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.

Radioisotope  products  are  supplied  typically  in a bulk form and are  highly
competitive.  The  target  market's  for these  products  are  customers  who 1)
incorporate  them into  finished  industrial  or  medical  devices  2) use these
products in  clinical  trials for various  medical  applications,  or 3) further
process and include the material into a pharmaceutical  product for FDA approved
therapy or imaging.

Calibration  and  Reference  Standards  are required  for the daily  operational
checks and calibration of the  measurement or SPECT imaging  devices  frequently
used in nuclear  medicine.  This  calibration and quality  assurance  testing is
required as a routine part of the normal  operations of this equipment to ensure
its  reliability  and accuracy.  We exclusively  manufacture  these products for
Radqual LLC, which in turn sells the products to several distributors around the
U.S. We directly ship these products to all 50 states and Canada.  There are two
other  major  producers  of these  products  within the U.S.  and that  directly
compete with us for these products.

Most of our general  measurement  and  radiological  services  are  performed in
support of gemstone processing. This material has undergone color enhancement by
irradiation at the University of Missouri  Research  reactor.  The gemstones are
used  in  commercial  jewelry   manufactured  by  other  companies  in  overseas
locations.  The color enhancement  process is a highly competitive  industry and
there are several  alternatives to irradiation  treatment.  There are also other
reactors  located in other regions of the world that also offer this irradiation
service  capability.  The  jewelry  manufacturing  industry  is  also  a  highly
competitive industry.

We are developing our fluorine products in 2004 to address an opportunity we see
in the increased market demand for certain high purity fluorine compounds in the
microelectronics  industry.  Emerging  technologies such as the increased use of
silicon  germanium  processing chips for the wireless  industry will require the
use of high purity fluorine compounds such as germanium tetra fluoride.  We plan
to establish some manufacturing  capacity for at least one of these compounds in
2004.  Several of these fluorine compounds are already under production by other
businesses. Since the cost of the FEP process is low we anticipate being able to
be very  price  competitive  with our  fluorine  products.  However,  this price
advantage may initially be our only competitive advantage in this market.

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,  radioisotope  processing and distribution,  radioactive  gemstone
processing,  environmental sample analysis, and various research and development
activities.  The existing  license and permit's are adequate to allow all of the
business  operations.  Expansion  into FEP  production  will require  additional
permitting both through the NRC, State of Idaho, and the EPA. We will make every
effort to prepare well planned and detailed  applications  for these  additional
permits,  however,  there can be no assurance of the time frame required for the
various governmental agencies to review and approve these permits.

Regulation of Radioisotope Production Radioactive Waste

All of our manufacturing  processes result in the generation of some radioactive
waste. We must handle these wastes pursuant to the Low Level  Radioactive  Waste
Policy Act of 1980,  which states we are required to assure the safe disposal of
mildly  radioactive  materials.  The estimated costs for storage and disposal of
these materials have been included into the manufacturing and sales price of our
products. However, actual disposal costs are subject to change at the discretion
of the disposal site and are ultimately applied at the time of disposal.

The  operating  permit from the NRC also  requires  that we maintain an adequate
cash reserve,  in the form of a certificate of deposit and irrevocable letter of
credit to the NRC to support our estimated  decommissioning  and disposal  costs
for the facility.  We do not handle "special nuclear  materials"  (i.e.  nuclear
fuels and weapons grade uranium,  thorium and  plutonium)  and,  therefore,  our
facility is not designated as a "nuclear" facility.


                                       6
<PAGE>

Other Regulations

Our sale of the isotopes  Lutetium-177 and Iodine -131 for medical  applications
could  cause us to be subject  to  additional  regulations  of the Food and Drug
Administration (FDA). The Company is registered as a medical device manufacturer
through  the  U.S.  FDA  for  several  of our  nuclear  medicine  reference  and
calibration standards.

Employees

As of December 31, 2003 we had twelve full time employees.  The employees of 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  and have  increased  our
number  of  employees  during  the  course  of 2003 to  support  the  growth  of
additional products.


Item  2.   PROPERTIES

During  2003  we  completed  a  3,500  square  foot  expansion  of  our  current
manufacturing  facility and entered  into a new  five-year  lease with  purchase
options on what is now a 12,000  square  foot  manufacturing  facility  in Idaho
Falls.  In early 2004 we also leased an  additional  adjacent  8,500 square foot
facility,  which we plan to use for  manufacture of our fluorine  products.  The
additional  facility is also under a 5-year lease with purchase  options similar
to our existing facility.


Item 3.    LEGAL PROCEEDINGS

On February 20, 2004 a lawsuit was filed by Iso-Science  Laboratories,  Inc. dba
Isotope  Products  Laboratories in the Superior Court of the State of California
for the County of Los  Angeles  against  International  Isotopes;  International
Isotopes of Idaho;  Steve Laflin, an individual;  Keith Allberg,  an individual;
Randall  O'Kane,  an  individual;  Radqual,  a business  form unknown and Does 1
through  100.  The  Case  Number  of the Suit is  PCO34499.  Mr.  Laflin  is the
President and CEO of International  Isotopes Inc. Mr. Allberg and Mr. O'Kane are
principals of Radqual, a significant customer of International Isotopes Inc. The
petition that was filed with the court contains numerous allegations against the
defendants  relating to the  defendants  manufacture  and sale of products  that
incorporate  radioactive isotopes. The petition alleges violation of the Uniform
Trade Secrets Act and Conversion by the  defendants by use of  information  that
the plaintiff  alleges it purchased or acquired from a previous  employer of Mr.
Allberg.  The petition  also  contains  allegations  of unfair trade  practices,
interference with prospective business relationships,  conspiracy, and violation
of the RICO statute  alleged to have  occurred by the  defendants  engaging in a
pattern of racketeering  activity in interstate  commerce.  The Company believes
the  allegations  of the  petition  are  totally  without  merit and the Company
intends  to  vigorously  defend  itself  in  the  lawsuit.  The  Company  has  a
manufacturing  agreement  with  Radqual  which  indemnifies  and holds  harmless
International Isotopes and its officers,  agents, employees, and Affiliates from
any loss, claim,  action,  damage,  expense or liability arising from this suit.
Therefore,  the Company does not expect that the ultimate costs to resolve these
matters  will  have a  material  adverse  effect on our  consolidated  financial
position, results of operations, or cash flow.


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

An annual meeting of  stockholders  was conducted on April 29, 2003. The purpose
of the meeting was to review Company  performance and present 3 propositions for
stockholder approval. The three propositions were 1) to elect three 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, 2003; and 3)
to approve an amendment to the Company's  Articles of  Incorporation to provide,
in accordance with Texas law, that  shareholder  actions may be taken by written
consent  of the  requisite  percentage  of  shareholders  without a  shareholder
meeting or a vote of all  shareholders.  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 March 28, 2003. A total of
90% of the common  shares voted and to approve  propositions  1 and 2 and 76% of
the shares outstanding voted in favor of proposition #3.


                                       7
<PAGE>

PART II


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

Prior to the  completion  of our IPO in August  1997,  there was no  established
public  trading market for our Common Stock.  At that time the Company's  Common
Stock  commenced  trading  on the NASDAQ  Small Cap  Market  under the symbol of
"INIS".  The  Company  was also listed on the Boston  Stock  Exchange  under the
symbol "ITL".  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

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

                 2003                   1st         $0.05      $0.04
                 2003                   2nd         $0.08      $0.03
                 2003                   3rd         $0.14      $0.03
                 2003                   4th         $0.10      $0.03

On December 31, 2003,  there were 335 holders of record of the Common Stock. The
closing  price on December 31, 2003 , of a share of common stock was $ 0.10.  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.

Recent Registrations and Sales of Securities through Company Rights Offer

On September 12, 2003, the Company filed an S-8 Registration  statement with the
Securities and Exchange  Commission in order to register up to 20,000,000 shares
of common stock in relation to the Company's 2002 long term incentive program.

On August  12,  2003 we  commenced  a rights  offering  under  which we  offered
38,229,157  Units (each Unit  includes (i) one share of common  stock,  (ii) one
warrant  to  purchase  another  share of common  stock  for $.04,  and (iii) one
warrant  to  purchase  an  additional  share of  common  stock  for $.05) to our
shareholders.   The  Securities   and  Exchange   Commission  had  declared  the
registration  statement  for the rights  offering  effective  on July 28,  2003.
Shareholders  received  one Right for each  share  owned  and were  entitled  to
purchase one Unit for every 2.5 Rights owned at a subscription price of $.03 per
Unit.  Shareholders  who  exercised all of their Rights in full were entitled to
the additional  privilege of over  subscribing  for and  purchasing,  subject to
certain  limitations and subject to allocation,  any Units not acquired by other
holders of Rights, plus up to an additional 14,500,000 Units if the Rights offer
was over-subscribed.  Complete  information,  subscription  certificates,  and a
prospectus  were mailed to all  shareholders  commencing  on August 12, 2003 and
were made available for viewing on our website. We completed the rights offering
on September 12, 2003.


                                       8
<PAGE>

The total amount raised from the rights offer was $1,313,679,  which corresponds
to 100% of the basic shareholder  subscription and an additional 38% of the over
subscription  amount permitted under the offering.  Of the total amount received
by the Company,  $906,811 was subscribed through shareholder  conversion of debt
to equity and an  additional  $406,868 was provided as cash.  Under the terms of
the rights offering we issued 43,790,153 shares of common stock to participants,
bringing  the total  number of  outstanding  common  shares to  139,363,046.  In
addition,  the  participants  of the  rights  offer  received  an  aggregate  of
43,790,153 Series A warrants and 43,790,153 Series B warrants, which can be used
to purchase  additional shares of common stock for $0.04 and $0.05 respectively.
We invested the majority of net proceeds  from the rights offer into  equipment,
hardware,  and  facilities in order to further expand  production  capability as
evidenced by our start of Lutetium-177 and Iodine-131 sales.


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, our expectations  regarding future financial condition and operating
results,  product development,  business and growth strategy,  market conditions
and  competitive  environment.  Our actual results could differ  materially from
those  anticipated  in these  forward-looking  statements as a result of certain
factors disclosed in this document.

I3 was initially formed as a Texas corporation in 1995 to produce,  market,  and
distribute a broad range of products used in diagnostic and therapeutic  nuclear
medicine,  research,  and industry. In 2001, we changed our mission and business
strategy  somewhat  to  focus  upon  other  radioisotope  products,  manufacture
calibration and reference  standards for nuclear  medicine,  and provide general
radiological measurement capability for processed gemstones. In 2003, we put two
new supply  agreements in place for Lu-177 and I-131  radioisotopes and expanded
our processing  facility to include  processing and distribution  capability for
these new isotopes.

In 2003, we offered a selection of radioisotopes and  radiochemicals for various
applications   including  clinical  research,   life  sciences,  and  industrial
applications.  These  isotopes  have  included , Cobalt-57  (Co-57),  Cesium-137
(Cs-137),  Barium-133  (Ba-133),  and most significantly  Cobalt-60 (Co-60).  We
produce  the  cobalt in the  Department  of  Energy  Test  Reactor  at the Idaho
National Laboratory.  As a consequence,  the production rate of the material and
delivery  schedules are effected by the  operating  schedule of that reactor and
the support of the DOE prime operating contractor. Fortunately, the radiological
half-life of  Cobalt-60 is long enough that time delays do not normally  present
quality  problems  with our  customer.  However,  these  delays  can  result  in
significant  changes to the times we  complete  sales and realize  revenue  from
those  sales.  Such  was the  case  in  2003  when  numerous  delays  in the DOE
reactor-operating  schedule delayed our scheduled cobalt sale from November 2003
until February 2004. This delay significantly reduced our operating revenues for
2003.

During  2003,  we entered into a new supply  agreement  with the  University  of
Missouri Research Reactor (MURR) to supply the additional  isotope  Lutetium-177
(Lu-177).  MURR has been a  leading  developer  of  radioisotopes  suitable  for
patient trials and has also been a very reliable production source for this type
of isotope.  Lutetium-177 is currently being  investigated in several  different
clinical applications including treatment of colon cancer, metastic bone cancer,
Non-Hodgkin's  Lymphoma,  and lung cancer.  Published cancer statistics estimate
that there are over half a million  new cases of these  cancers  occurring  each
year in the U. S. and nearly two million cases worldwide. Clinical research with
lutetium-177 has been ongoing for several years and the isotope has demonstrated
certain chemical and radiological properties which make it potentially very well
suited as a cancer therapy product.  We are actively marketing this radioisotope
and  attempting  to cater to the  research  community  that could  require  this
product to support their trials in the coming years.  Should  clinical trials be
successful  one or more  sponsors  could  be  expected  to begin  phased  trials
necessary to eventually  have FDA approval of products  containing this isotope.
That FDA  approval  process  takes  years to  complete  and  requires  extensive
financial support by a sponsoring pharmaceutical company throughout that period.
We will not be  supporting  the cost of this FDA  approval  process  but hope to
realize  significant  commercial  revenues by supplying the isotope for clinical
and investigational use customers.


                                       9
<PAGE>

Also in 2003,  we entered  into a  distribution  agreement  with a major  global
supplier  of  Iodine-131  radiochemical.  During the last half of 2003,  we have
purchased the necessary hot cell and process  equipment and put two distribution
agreements  in  place  to  facilitate  sales  of the  isotope.  We  will  launch
distribution of this isotope within all 50 states beginning in the first quarter
of 2004.  Iodine-131 is currently being used on a large  commercial scale within
the U.S. for the  treatment  and  diagnosis of various  diseases  related to the
thyroid such as Graves disease, thyroid cancer, and hyperthyroidism.  Iodine-131
is also being used in a host of investigational  and clinical trials such as for
the treatment of breast, lung, prostate, and ovarian cancers.

We continued the contract  manufacturing  relationship with RadQual LLC in 2003,
and this business area exhibited  excellent  growth.  While  competition in this
business  industry remains severe, we have been able to keep pace with the price
discounts  offered  by our  competitors  and  gain  additional  market  share by
offering what be believe is the best quality product in the market.

General  measurement  and  radiological  services in 2003  remained weak largely
attributable  to  weakness  in  the  gemstone  markets  and  effects  of  global
competition in the gemstone industry. We are not anticipating significant growth
in this  industry  in the  coming  year and  have,  therefore,  directed  future
resources  towards the  development of our other products and expansion into new
business areas.

We completed an  evaluation  of a business  opportunity  involving  the fluorine
extraction  process (FEP) and made a  determination  during 2003 to acquire from
the current owner seven FEP related patents thus giving us exclusive U.S. rights
to this  technology.  We believe there is an excellent  market potential for the
high purity  fluorine  products  and we will spend  considerable  effort in 2004
working to put some initial production  capability in place. Also to support the
start-up of FEP, we have  entered  into a marketing  and  technology  consulting
agreement with  individuals  knowledgeable  and experienced  with the processing
technology  and market  applications  for FEP products and leased an  additional
facility for production of FEP gases.

We believe  that  revenues  generated  from  these  business  activities  can be
expected to have a positive effect upon our projections for continued  growth in
2004 and should 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.

Liquidity and Capital Resources

On December 31, 2003 we had cash and cash  equivalents  of $310,789  compared to
$441,904 at December 31, 2002.  For the year ended  December 31, 2003,  our cash
flows  included net cash used in  operating  activities  of  $788,924,  net cash
provided by  financing  activities  of $572,418  and cash  provided by investing
activities of $81,976.

The Company  incurred a loss  applicable to common  shareholders of $578,485 for
the year ended December 31, 2003 and has an  accumulated  deficit of $87,968,650
since inception.  Prior to 2003 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.

In July 2002 we took out an  additional  loan with Texas State Bank for $100,000
and paid this loan in full in June 2003.  As of December 31,  2003,  the Company
had net borrowings of $733,595 under a revolving line of credit with Texas State
Bank that we reduced  from  $1,046,520  on January 1, 2003  through  the sale of
excess  equipment  held for sale.  Subsequent  to December  31, 2003 the Company
converted  this revolving line to a fixed term note with a maturity date of June
30, 2004 and began making regular monthly interest only payments.  We anticipate
working  with Texas  State Bank to extend the  maturity  date of this note to at
least December 31, 2004. We also established a $250,000 revolving line of credit
with Texas State Bank in January 2004 to provide  additional  operating capital.
The  maturity  date of that  note is also  June 30,  2004  and at that  time the
Company will reevaluate  whether to continue or close this revolving line. As of
the  submittal  date of this  form  10-KSB we have not  withdrawn  funds on this
revolving line of credit.


                                       10
<PAGE>

During the quarter  ended June 30, 2003,  as part of an  agreement  with certain
shareholders,   the  Company  increased  its  short-term  borrowing  from  these
shareholders  to $790,000.  During the quarter ended  September 30, 2003,  these
notes were converted to common stock as part of our rights offering.

The Company  completed an unsecured note purchase  agreement on January 21, 2004
with  certain  of the  Company's  Principal  investors  and  Directors  totaling
$650,000.  This is an  unsecured  note  accruing  interest at 6% per year with a
maturity  date of December  31,  2005.  Interest is to be paid on this note on a
semi-annual basis and the Company has the option to prepay the principal balance
at any time  prior  to  maturity.  The  principal  of the  note and any  accrued
interest is convertible into shares of the Company's common stock at any time at
the  option of the  holder  prior to  maturity.  The  conversion  price for this
conversion  option  was based on the market  value of the  common  stock and was
determined to be $0.18 per share.

Results of Operations

Year ended December 31, 2003 compared to year ended December 31, 2002

Revenues

Total  revenues  were  $2,070,592  in 2003 as compared to  $2,181,704 in 2002, a
decrease of $111,112 or 5%. This decrease was primarily  attributable to a delay
in a major cobalt sale  originally  planned for  November  2003 but delayed into
2004 because of circumstances  beyond our control.  Had this sale taken place as
planned our  revenues for 2003 would have totaled  approximately  2,444,592  and
represented a 12% increase over 2002. Other  contributing  factors to revenue in
2003 were a 24% increase in the revenue from sales of nuclear medicine reference
and  calibration  standards and a 30% decline in gemstone  processing  revenues.
Increased  revenues from nuclear  medicine  reference and calibration  standards
came  through  increased  sales of existing  products and sales from several new
products  added  during  2003.  The  decline in  gemstone  revenues  came as our
exclusive  customer came under increasing  competition in the color  enhancement
and costume jewelry industry.

Cost of revenues

Cost of revenue for 2003 was  $1,151,161  compared  to  $1,071,690  in 2002,  an
increase  of  $79,471  or 7%.  Most of this  increase  was  attributable  to the
addition of several new products and costs of special contracts.

Operating costs and expenses

Total  operating  costs and  expenses for 2003 were  $1,582,512,  as compared to
$1,402,664   in  2002,  an  increase  of  $179,848  or  13%.  The  increase  was
attributable  to  increased  staffing  and efforts in research  and  development
related to implementation of Lutetium-177 and Iodine-131 production  capability.
We also increased our expenditures in marketing and advertising related to these
new products  and  incurred  additional  investor  relations  expense to improve
communication with our shareholders.

Other income (expense)

The total of Other Income (expense) in 2003 was $108,332  compared to an expense
of ($57,803).  The difference was principally  attributable to a decrease in the
interest  expense  incurred in the year and the sale of certain  fully  impaired
assets.


                                       11
<PAGE>

Continuing Operations

The net loss from continuing  operations was $554,749 in 2003 compared to a loss
of  $350,453  in  2002.  The  $204,296   increase  in  net  loss  was  primarily
attributable to increases in equipment  depreciation,  research and development,
marketing  consultants,  and additional  labor support.  All of these  increased
expenses were directed toward the development of new nuclear medicine  reference
and  calibration   standards  and   implementing   processing  and  distribution
capability for the new isotopes Lutetium-177 and Iodine-131.

Forward Looking Information

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.

In  2004  we  will  continued  to  offer  our  selection  of  radioisotopes  and
radiochemicals  for  various  applications  including  clinical  research,  life
sciences, and industrial applications. In 2004 we plan to expand our utilization
of the test reactor and begin  producing  larger  quantities  of lower  activity
Cobalt-60 that is required for a wider range of customers and applications.

During  2003 we put a new  supply  agreement  in place  with the  University  of
Missouri  Research  Reactor  (MURR)  to  supply  Lutetium-177.  Lutetium-177  is
currently being investigated in more than thirty different clinical applications
including  treatment  of  colon  cancer,  metastic  bone  cancer,  Non-Hodgkin's
Lymphoma, and lung cancer. During 2004 we will actively market this radioisotope
and attempt to cater to the research  community  that could require this product
to support their trials.

We will  also  market  our  newest  product,  Iodine-131  within  all 50  states
beginning in the first quarter of 2004.  Iodine-131 is currently being used on a
large  commercial  scale  within the U.S.  for the  treatment  and  diagnosis of
various diseases related to the thyroid such as Graves disease,  thyroid cancer,
and  hyperthyroidism  and it is  being  used  in a host of  investigational  and
clinical  trials  for the  treatment  of breast,  lung,  prostate,  and  ovarian
cancers.  We expect to quickly  develop a wide customer base and sell product to
many of the independent pharmacy networks in the U.S.

The contract  manufacturing  relationship with RadQual LLC will continue through
2004 and we expect this business area to continue to exhibit excellent growth in
2004. Several new products were introduced in 2003 and some additional  products
will be introduced in 2004.

General  measurement  and  radiological  services in 2003  remained weak largely
attributable  to  weakness  in  the  gemstone  markets  and  effects  of  global
competition in the gemstone industry. We are not anticipating significant growth
in this  industry  in the  coming  year and  have,  therefore,  directed  future
resources to other product areas.


                                       12
<PAGE>

We  will  spend  considerable  effort  in 2004 to put  some  initial  production
capability  of some FEP  compounds  in place.  Efforts  will also be directed at
initiating our licensing and permitting  process for larger scale  production of
these FEP gasses in subsequent years.

We believe  that  revenues  generated  from  these  business  activities  can be
expected to have a positive effect upon our projections for continued  growth in
2004 and should 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 Risk Factors

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, 2003 the Company
generated  $19,316,817  in revenues and had an  accumulated  deficit  (including
preferred stock  dividends and returns) in the amount of  $87,968,650.  However,
although we cannot  provide any  assurance  we believe the  Company's  continued
growth and our new business products will produce sufficient revenue to meet our
2004 cash flow and operational needs.

We may need additional financing to continue operations. As of December 31, 2003
we have an  outstanding  debt of  $733,595  on short term note with Texas  State
Bank.  That note  matures  on June 30,  2004 and is  secured  with our  accounts
receivable and fixed assets.  We will have to negotiate an extension of terms on
this  note at the  maturity  date.  The  Company  also has a  ten-year  note for
$840,753  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).

Remaining  Company  Obligations  on the Texas State Bank Loan for the Waxahachie
Property.  In 2002 the  Company  and Texas  State  Bank  agreed to have our loan
assumed  by an  individual  in  consideration  of our  sale  of  the  Waxahachie
property. As of December 31, 2003 the remaining outstanding balance on this loan
was $329,357.  Should this individual default on the assumed note, the liability
for the loan would revert to the Company.

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 $150,000  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.


                                       13
<PAGE>

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.  and this  current  agreement  expires  in  November  2004.
Nuclear medicine  calibration and reference standard  manufacturing is conducted
under an exclusive  contract with RadQual,  LLC, which in turn has agreements in
place with several companies for marketing and sales.

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.  Lutetium-177  and I-131 isotope is manufactured by several
other companies in the world,  and there are also other suppliers of high purity
fluorine products.  Each of our competitors has significantly  greater financial
resources  than us and that could create a  competitive  advantage for them over
us.

We are named as Defendant in a lawsuit filed by Iso-Science  Laboratories Inc. A
lawsuit has been filed by Iso-Science  Laboratories,  Inc. dba Isotope  Products
Laboratories  against  International  Isotopes  Inc.  and  others.  The  Company
believes the  allegations of the petition are totally  without  merit.  However,
there can be no guarantee of the outcome of this suit and an unfavorable outcome
could  result in the loss of a major line of revenues  and  require  substantial
payments to the Plaintiff.

New Accounting Standards

In May 2003 the FASB  issued  SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with Characteristics of both Liabilities and Equity", which requires
that  certain  financial  instruments  be  presented  as  liabilities  that were
previously  presented as equity or as temporary equity. Such instruments include
mandatory  redeemable  preferred  and common  stock,  and  certain  options  and
warrants.  SFAS 150 is  effective  for  financial  instruments  entered  into or
modified after May 31, 2003, and is generally  effective at the beginning of the
first interim period beginning after June 15, 2003.

In November 2002, the FASB issued Financial  Interpretation No. 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of  Others."  FIN 45 sets  forth  the  disclosures
required by a guarantor in its financial  statements about its obligations under
certain  guarantees  that it has issued.  It also  clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee.


Item 7.    FINANCIAL STATEMENTS

The following financial statements are included herewith:

         Report of Independent Certified Public Accountants

         Consolidated Balance Sheets as of December 31, 2003 and 2002

         Consolidated  Statements of Operations for the years ended December 31,
         2003 and 2002

         Consolidated  Statement of Stockholders' Equity (Deficit) for the years
         ended December 31, 2003 and 2002

         Consolidated  Statements of Cash Flows for the years ended December 31,
         2003 and 2002

         Notes to Consolidated Financial Statements


                                       14
<PAGE>

Item 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

None


Item 8A.   CONTROLS AND PROCEDURES

As of the end of the period  covered by this  report,  the Company  conducted an
evaluation,  under the supervision and with the  participation  of the principal
executive officer and principal financial officer,  of the Company's  disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation,
the principal  executive officer and principal  financial officer concluded that
the Company's  disclosure  controls and  procedures are effective to ensure that
information  required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded,  processed,  summarized and reported
within the time periods  specified in Securities and Exchange  Commission  rules
and forms.

There was no change in the Company's  internal control over financial  reporting
during the Company's most recently  completed fiscal quarter that has materially
affected,  or is reasonably likely to materially  affect, the Company's internal
control over financial reporting.


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 2004 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, 2003,  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, 2003, 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,  2003,  the close of our fiscal
year.


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, 2003, the close of our fiscal year.


                                       15
<PAGE>

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

21.        International  Isotopes  Idaho  Inc.  is the sole  subsidiary  of the
           Company.

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

31.1       Certification under section 302 of the Sarbanes-Oxley Act of 2002.

32.1       Certification under section 906 of the Sarbanes-Oxley Act of 2002.

Reports on Form 8-K

The Company  filed a Form 8K on  September  17, 2003  reporting  the Company had
completed its previously announced rights offering to existing shareholders


Item 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

Hansen,  Barnett & Maxwell served as our  independent  accountants for the years
ended  December 31 2002 and 2003,  and is expected to serve in that capacity for
the current year. Principal  accounting fees for professional  services rendered
for us by Hansen,  Barnett & Maxwell for the years ended  December  31, 2002 and
2003 are summarized as follows:

                                2002        2003
                               -------     -------
           Audit               $49,758     $65,496
           Audit Related          -           -
           Tax                    -           -
           All Other              -           -
                               -------     -------
           Total               $49,758     $65,496

Audit Fees.  Audit fees were for  professional  services  rendered in connection
with the company's  annual financial  statement audits and quarterly  reviews of
financial  statements and review of and preparation of consents for registration
statements for filing with the Securities and Exchange Commission.

Audit Committee Pre-Approval Policies and Procedures. At its regularly scheduled
and special  meetings,  the Audit Committee of the Board of Directors,  which is
comprised  of  independent  directors   knowledgeable  of  financial  reporting,
considers and pre-approves  any audit and non-audit  services to be performed by
the Company's independent accountants.  The Audit Committee has the authority to
grant pre-approvals of non-audit services.


                                       16
<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 24, 2004                      By: /s/ Dr. Ralph Richart
                                        ----------------------------
                                        Dr. Ralph Richart
                                        Chairman of the Board of Directors


March 24, 2004                      By: /s/ Steve T. Laflin
                                        ----------------------------
                                        Steve T. Laflin
                                        President, Chief Executive Officer,
                                        Director, Chief Financial Officer, and
                                        Principal Accounting Officer


March 24, 2004                      By: /s/ Christopher Grosso
                                        ----------------------------
                                        Christopher Grosso
                                        Director, Audit Committee Chairman



                                       17
<PAGE>


                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

                              FINANCIAL STATEMENTS

                               TABLE OF CONTENTS


                                                                        Page No.

Report of Independent Certified Public Accountants....................     19

FINANCIAL STATEMENTS

Consolidated Balance Sheets
   as of December 31, 2003 and 2002....................................    20

Consolidated Statements of Operations for the years ended
   December 31, 2003 and  2002.........................................    21

Consolidated Statements of Stockholders' Deficit for the
   years ended December 31, 2003 and 2002..............................    22

Consolidated Statements of Cash Flows for the years ended
   December 31, 2003 and 2002..........................................    23

Notes to Consolidated Financial Statements ............................    25




                                       18
<PAGE>


      HANSEN, BARNETT & MAXWELL
    A Professional Corporation
   CERTIFIED PUBLIC ACCOUNTANTS               Registered with the Public Company
     5 Triad Center, Suite 750                    Accounting Oversight Board
   Salt Lake City, UT 84180-1128
       Phone: (801) 532-2200                      An Independent member of
        Fax: (801) 532-7944                             Baker Tilly
          www.hbmcpas.com                              International




               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, 2003 and 2002 and the related
consolidated statements of operations,  stockholders' equity (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, 2003 and 2002 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
February 6, 2004



                                       19
<PAGE>

<TABLE>
<CAPTION>
                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets


                                                                       December 31,
                                                              -----------------------------
                    Assets                                        2003             2002
 -----------------------------------------------              ------------     ------------
<S>                                                           <C>              <C>
Current assets:
    Cash and cash equivalents                                 $    160,216     $    294,746
    Accounts receivable                                            203,152          218,923
    Assets held for sale (Note 2)                                     --            607,531
    Inventories (Note 3)                                         2,283,752        2,279,828
    Prepaids and other current assets                              190,979          128,830
                                                              ------------     ------------
      Total current assets                                       2,838,099        3,529,858
                                                              ------------     ------------

Long-term assets
    Restricted certificate of deposit                              150,573          147,158
    Property, plant and equipment, net (Note 4)                    617,287          236,053
    Capitalized lease disposal costs, net of accumulated
      amortization of $35,604 (Note 10)                            113,728             --
                                                              ------------     ------------
      Total long-term assets                                       881,588          383,211
                                                              ------------     ------------
      Total assets                                            $  3,719,687     $  3,913,069
                                                              ============     ============


  Liabilities, Redeemable Convertible Preferred
     Stock and Stockholders' Equity (Deficit)
 -----------------------------------------------
Current liabilities
    Accounts payable                                          $    320,554     $    257,776
    Accrued liabilities                                            150,475          342,091
    Note payable related to assets held for sale
      (Notes 2 and 5)                                                 --            345,295
    Current installments of mortgage and notes
      payable (Note 5)                                             756,725        1,226,520
                                                              ------------     ------------
      Total current liabilities                                  1,227,754        2,171,682
                                                              ------------     ------------

Long-term liabilities
    Obligation for lease disposal costs (Note 10)                  149,332             --
    Mortgage and notes payable, excluding current
      installments (Note 5)                                        898,664          909,738
    Mandatorily redeemable preferred stock, $0.01
      par value; 850 shares (Note 6)                               850,000             --
                                                              ------------     ------------
      Total long-term liabilities                                1,897,996          909,738
                                                              ------------     ------------
      Total liabilities                                          3,125,750        3,081,420

Mandatorily redeemable preferred stock, $0.01 par
   value; 850 shares                                                  --            850,000
                                                              ------------     ------------

Stockholders' equity (deficit) (Note 6)
    Common stock, $0.01 par value; 250,000,000 shares
      authorized; 139,363,046 and 95,581,135 shares
      issued and outstanding, respectively                       1,393,630          955,812
    Additional paid-in capital                                  87,168,957       86,416,002
    Retained earnings/(deficit)                                (87,968,650)     (87,390,165)
                                                              ------------     ------------
      Total stockholders' equity (deficit)                         593,937          (18,351)
                                                              ------------     ------------
      Total liabilities, redeemable convertible
        preferred stock and stockholders'
        equity (deficit)                                      $  3,719,687     $  3,913,069
                                                              ============     ============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       20
<PAGE>

<TABLE>
<CAPTION>
                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations

                                                           Years ended December 31,
                                                        -------------------------------
                                                            2003              2002
                                                        -------------     -------------
<S>                                                     <C>               <C>
 Sales of product                                       $   2,070,592     $   2,181,704
 Cost of products                                           1,151,161         1,071,690
                                                        -------------     -------------
     Gross profit                                             919,431         1,110,014
                                                        -------------     -------------

 Operating costs and expenses:
   Salaries and contract labor                                495,724           469,704
   General, administrative and consulting                   1,029,602           594,405
   Research and development                                    57,186              --
   Restructuring charges                                         --             338,555
                                                        -------------     -------------
     Total operating expenses                               1,582,512         1,402,664
                                                        -------------     -------------
     Operating loss                                          (663,081)         (292,650)

 Other income (expense):
   Other income                                                35,996           115,485
   Gain from sale of assets held for sale                     212,200              --
   Interest income                                              3,626             7,909
   Interest expense                                          (143,490)         (181,196)
                                                        -------------     -------------
     Total other income (expense)                             108,332           (57,803)
                                                        -------------     -------------
     Loss from continuing operations                         (554,749)         (350,453)

 Gain on disposal of discontinued operations
   (less applicable taxes of $0)                                 --             500,000
                                                        -------------     -------------
 Income (loss) before cumulative effect
   of change in accounting principle                         (554,749)          149,547

 Cumulative effect of change in accounting
   principle                                                  (23,736)             --
                                                        -------------     -------------
     Net income (loss)                                       (578,485)          149,547
 Preferred stock dividends from accretion
   of discount                                                   --            (349,242)
                                                        -------------     -------------
 Net loss applicable to common shareholders             $    (578,485)    $    (199,695)
                                                        =============     =============
 Basic and diluted loss per share amounts
   from continuing operations                           $       (0.01)    $       (0.01)

 Gain on disposal of discontinued operations                      --               0.01
                                                        -------------     -------------
 Net loss per common share - basic and diluted          $       (0.01)    $       (0.00)
                                                        =============     =============

 Weighted average common shares outstanding -
   basic and diluted                                      108,346,738        86,654,052
                                                        =============     =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       21
<PAGE>

<TABLE>
<CAPTION>
                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
                 Consolidated Statement of Stockholders' Deficit
                     Years ended December 31, 2003 and 2002


                                                              Common Stock             Additional                       Total
                                                      ----------------------------      Paid-in      Accumulated     Stockholders'
                                                         Shares          Amount         Capital        Deficit      Equity/(Deficit)
                                                      ------------    ------------    ------------   ------------   ---------------
<S>                                                   <C>             <C>             <C>            <C>            <C>
Balance January 1, 2002                                 26,581,135    $    265,812    $ 70,575,834   $(87,190,470)  $   (16,348,824)

Preferred stock dividends from accretion of
    insurance costs on redeemable convertible
    preferred stock                                           --              --              --         (349,242)         (349,242)
Conversion 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
Conversion 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)

Cancellation of 8,242 shares of common stock
   as part of a licensing agreement                         (8,242)            (82)             82           --                --
Common stock issued as part of rights offering
   net of offering costs of $122,906                    43,790,153         437,900         752,873           --           1,190,773

Net loss                                                      --              --              --         (578,485)         (578,485)
                                                      ------------    ------------    ------------   ------------   ---------------
Balance December 31, 2003                              139,363,046    $  1,393,630    $ 87,168,957   $(87,968,650)  $       593,937
                                                      ============    ============    ============   ============   ===============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       22
<PAGE>

<TABLE>
<CAPTION>
                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows

                                                                   Years ended December 31,
                                                                   -----------------------
                                                                     2003          2002
                                                                   ---------     ---------
<S>                                                                <C>           <C>
Cash flows from operating activities:
   Net income (loss)                                               $(578,485)    $ 149,547
   Adjustments to reconcile net loss to net
     cash used in operating activities:
   Depreciation and amortization                                     112,753        80,166
   Gain from sale of assets held for sale                           (212,200)
   Gain on release foregiveness of debt of
     discontinued operations                                            --        (500,000)
   Cumulative effect of change in accounting principle                23,736          --
Changes in operating assets and liabilities:
   Restricted certificate of deposit                                  (3,415)      (14,544)
   Accounts receivable                                                15,771       (80,392)
   Prepaids and other current assets                                 (62,149)      158,244
   Inventories                                                        (3,924)      257,691
   Accounts payable and accrued liabilities                          (81,011)      102,380
                                                                   ---------     ---------
         Net cash (used in) provided by operating activities        (788,924)      153,092
                                                                   ---------     ---------

Cash flows from investing activities:
   Purchase of property, plant and equipment                        (392,460)      (36,183)
   Proceeds from assets held for sale                                474,436       122,000
                                                                   ---------     ---------
         Net cash provided by investing activites                     81,976        85,817
                                                                   ---------     ---------

Cash flows from financing activities:
   Cash paid for redemption of convertible preferred stock              --         (86,832)
   Proceeds from issuance of common stock                            406,868          --
   Payments for offering costs                                      (122,906)         --
   Checks written in excess of cash in bank                             --        (101,714)
   Proceeds from issuance of debt                                    760,000       232,257
   Principal payments on notes payable                              (471,544)     (149,229)
                                                                   ---------     ---------
         Net cash provided by (used in) financing activities         572,418      (105,518)
                                                                   ---------     ---------

Net change in cash and cash equivalents                             (134,530)      133,391
Cash and cash equivalents at beginning of year                       294,746       161,355
                                                                   ---------     ---------
Cash and cash equivalents at end of year                           $ 160,216     $ 294,746
                                                                   =========     =========
</TABLE>


                                   (Continued)



                                       23
<PAGE>

<TABLE>
<CAPTION>

                  INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows

                                    Continued

                                                                     Years ended December 31,
                                                                   ---------------------------
                                                                      2003            2002
                                                                   -----------     -----------
<S>                                                                <C>             <C>
Supplemental disclosure of cash flow activities:
   Cash paid for interest                                          $   113,462     $   101,748
                                                                   ===========     ===========

Supplemental disclosure of noncash financing and
investing transactions:

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

   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

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

   Acquisition of equipment for note payable                            89,660            --

   Sale of assets held for sale through assumption of debt             345,295            --

   Conversion of debt and accrued interest to common stock             906,811            --

</TABLE>



           See accompanying notes to consolidated financial statements



                                       24
<PAGE>


                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


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  was  dissolved  in  December  2003  and I4  holds  the
         remaining assets of the Company and conducts its operations.

         Nature of Operations - The Company is a manufacturer of calibration and
         reference standards for nuclear medicine, provides general radiological
         measurement  capability for processed gemstones,  offers a selection of
         radioisotopes  and  radiochemicals  for  various  applications  such as
         clinical research or industrial  applications,  and supplies  cobalt-60
         isotope for use in the  Leksell  Gamma  Knife.  With the  exception  of
         cobalt-60, the Company's normal operating cycle is considered to be one
         year. Due to the time required to produce high specific  activity (HSA)
         cobalt-60,   the  Company's   operating  cycle  for  the  cobalt-60  is
         considered  to be three  years.  All assets  expected to be realized in
         cash  or sold  during  the  normal  operating  cycle  of  business  are
         classified as current assets.

         Principles of  Consolidation - The  consolidated  financial  statements
         include the  accounts of the  Company and its wholly  owned  subsidiary
         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  carrying  value of notes  payable  approximates  fair value
                because  they bear  interest at rates which  approximate  market
                rates.

                Cash, cash equivalents and restricted  certificate of deposit of
                $310,789   and   $441,904  at   December   31,  2003  and  2002,
                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, 2003 the Company has pledged a  certificate  of
                deposit in the amount of $150,573. The certificate of deposit is
                pledged as security on a letter of credit.  The letter of credit
                is 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.
                Accordingly,  withdrawal of the  certificate is restricted  over
                the remaining life of the license.

                At December 31, 2003,  the Company had $110,639 of cash deposits
                in excess of federally insured limits.



                                       25
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         (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        5-10


                Depreciation  expense  was  $112,753  and  $80,166 for the years
                ended December 31, 2003 and 2002, respectively.


         (c)    Inventories

                Inventories are carried at the lower of cost or market.  Cost is
                determined  using  the  first  in,  first  out  method.  Work in
                progress   inventory   contains   product  that  is   undergoing
                irradiation. This irradiation process can take up to three years
                to reach high specific activity (HSA) levels.

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

                Long-lived   assets  are   reviewed   for   impairment   yearly.
                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.  Based on the evaluation,  no impairment was
                considered necessary during the years ended December 31, 2003 or
                2002.


                                       26
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         (g)    Cumulative Effect of Change in Accounting Principle

                The  Company   adopted  SFAS  No.  143,   Accounting  for  Asset
                Retirement  Obligations,  on January 1, 2003. In accordance with
                the  transition  provisions  of SFAS No.  143,  on that date the
                Company  recorded asset  retirement  costs and  liabilities  and
                recorded an adjustment for the cumulative  effect on prior years
                of adopting SFAS No. 143 in the amount of $23,736 as a reduction
                in earnings,  which had no effect on basic or diluted income per
                common share.

         (h)    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.  Management  believes  other
                suppliers and other  marketing/customer  opportunities  could be
                pursued  and has  taken  steps  in 2003 to  explore  alternative
                vendors  and  expand  its  limited  customer  base  through  the
                addition of new products such as I-131 and Lu-177.

                At December 31, 2003, sales to these three significant customers
                accounted for $1,222,788,  $377,309 and $345,698 of total sales.
                At  December  31,  2002,  sales to these  same  three  customers
                accounted for $977,055, $659,866 and $491,587 of total sales.

         (i)    Research and Development Costs

                The Company  had  research  and  development  expenses  totaling
                $57,186 in 2003.  These  expenses were  associated  with initial
                development of the processing  opportunities  for the lu-177 and
                I-131 isotopes and for development work associated with addition
                of several new products in the nuclear  medicine  reference  and
                calibration  business  including  several  measurement  devices,
                calibrated vials and various markers.

         (j)    Shipping and Handling Costs

                The Company  expenses all shipping and handling costs  incurred.
                For the years  ended  December  31,  2003 and 2002,  the Company
                expensed  $108,751 and $139,616 as shipping and handling  costs.
                These  costs  are  reported  as  general,   administrative   and
                consulting costs on the statements of operations.

         (k)    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").  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").



                                       27
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


                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, 2003 and 2002:

                                                         2003           2002
                                                      ----------     ----------

               Net loss applicable to common
                 shareholders, as reported            $ (578,485)    $ (199,695)

               Deduct:  Total stock-based
                 employee compensation expense
                 determined under fair value
                 based method for all awards,
                 net of related tax effects              (95,319)      (168,911)
                                                      ----------     ----------
               Pro forma net loss per common share    $ (673,804)    $ (368,606)
                                                      ==========     ==========

               Loss per share, basic and diluted:
                 As reported                          $    (0.01)    $        -
                                                      ==========     ==========
                 Pro forma                            $    (0.01)    $        -
                                                      ==========     ==========

         (l)    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, 2003 and 2002,  there were  103,580,306  and
                17,027,326  options  and  warrants  and 850  shares  of Series 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.

         (m)    Recent Accounting Pronouncements

                In May 2003 the  FASB  issued  SFAS  No.  150,  "Accounting  for
                Certain  Financial  Instruments  with  Characteristics  of  both
                Liabilities and Equity",  which requires that certain  financial
                instruments  be presented as  liabilities  that were  previously
                presented as equity or as  temporary  equity.  Such  instruments
                include  mandatory  redeemable  preferred and common stock,  and
                certain   options  and   warrants.   The  Company   adopted  the
                requirements  of SFAS 150 on July 1, 2003.  This adoption had no
                effect on reported net loss.

                In November 2002, the FASB issued Financial  Interpretation  No.
                45,  "Guarantor's  Accounting  and Disclosure  Requirements  for
                Guarantees,  Including  Indirect  Guarantees of  Indebtedness of
                Others."  FIN  45  sets  forth  the  disclosures  required  by a
                guarantor  in its  financial  statements  about its  obligations
                under certain  guarantees that it has issued.  It also clarifies
                that a guarantor is required to recognize, at the inception of a
                guarantee,  a  liability  for the fair  value of the  obligation
                undertaken  in issuing the  guarantee.  The Company  adopted the
                requirements  FIN 45 in the accompanying  financial  statements.
                This  adoption  had no  effect  on net loss  for the year  ended
                December 31, 2003 and  increased  the loss  applicable to common
                shareholders $10,000 during the year ended December 31, 2002.



                                       28
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         (n)    Reclassifications

                Certain 2002 amounts have been  reclassified to conform with the
                2003 presentation.  These reclassifications had no effect on the
                previously reported net loss.


NOTE 2 - BUSINESS CONDITION AND LIQUIDITY

         Business  Condition  - The Company has a history of recurring losses to
         common  shareholders  with an  accumulated  deficit of  $87,968,650  at
         December 31, 2003 and a net loss  applicable to common  shareholders of
         $578,485 for the year then ended.  The  Company's  working  capital has
         increased by $252,169 from the prior year and the Company has used cash
         flows from operations of $788,924.

         During the year ended  December  31,  2003 the Company put in place two
         new isotope supply agreements for Lu-177 and I-131, increased the range
         of products offered in the nuclear  medicine  reference and calibration
         business  area,  purchased  patents for exclusive  rights to a fluorine
         extraction process, and submitted for regulatory approval an additional
         nuclear medicine reference standard. Management anticipates revenues to
         result  from  these  new  products  and  business  activities  in 2004,
         although not assured.  In an effort to get these  projects  started and
         provide  additional  operating  capital,  the Company has also received
         $650,000 in convertible debt subsequent to December 31, 2003.

         As discussed in note 8, during  February  2004,  the Company was served
         with a lawsuit that if settled in a manner  unfavorable  to the Company
         could  result in the loss of its major  line of  revenues  and  require
         substantial   payments  to  the  plaintiff.   The  Company  intends  to
         vigorously defend itself in this lawsuit.


NOTE 3 - INVENTORIES

         Included in  inventory  are the  various  pellet  holders and  housings
         involved  in  target  fabrication,  raw  cobalt,  nickel  and other raw
         elements,   and  completed   flood  sources  and   irradiated   cobalt.
         Inventories consisted of the following at December 31, 2003 and 2002:

                                               2003             2002
                                            ----------       ----------

                 Raw materials              $  268,265       $  294,662
                 Work in progress            2,007,066        1,971,551
                 Finished goods                  8,421           13,615
                                            ----------       ----------
                                            $2,283,752       $2,279,828

         Work in progress  includes  cobalt-60  isotopes that are located in the
         Federal Governments  Advanced Test Reactor located outside Idaho Falls,
         Idaho.  These isotopes are at various  stages of irradiation  with some
         isotopes near  completion and others could require up to three years to
         complete.  At December 31, 2003 and 2002, these isotopes had a carrying
         value of $1,889,003 and $1,924,550, respectively.



                                       29
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

         Property,  plant and equipment is summarized as follows at December 31,
         2003 and 2002:

                                                     2003            2002
                                                   ---------       ---------
         Furniture and fixtures                    $  49,931       $  39,641
         Plant and improvements                       48,507          21,270
         Production equipment                        791,444         349,240
                                                   ---------       ---------
                                                     889,882         410,151
         Less accumulated depreciation              (272,595)       (174,098)
                                                   ---------       ---------
         Property, plant & equipment, net          $ 617,287       $ 236,053
                                                   =========       =========

NOTE 5 - MORTGAGE AND NOTES PAYABLE

         During the year ended December 31, 2002, certain shareholders  advanced
         the  Company  $80,000  of short term  financing.  This  financing  bore
         interest at 5% and was due by December 31, 2003.  During the year ended
         December 31, 2003, these shareholders  advanced an additional  $710,000
         under the same terms. In connection with the rights offering  completed
         in  September  2003,  these  shareholders  converted  the  total  funds
         advanced of $790,000 plus accrued  interest of $14,326 to common stock.
         At the date the  conversion was granted,  the  conversion  rate was not
         beneficial  to these  shareholders,  based on the  market  value of the
         common stock.

         At December  31,  2002,  the  Company had a note  payable to the former
         chairman of the board in the amount of $909,737. In connection with the
         rights offering completed in September 2003, this individual  converted
         $68,985 of principal  and $33,500 of accrued  interest to common stock.
         At the date the  conversion was granted,  the  conversion  rate was not
         beneficial to this individual,  based on the market value of the common
         stock.




                                       30
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         Mortgage and notes payable as of December 31, 2003 and 2002, consist of
         the following:


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

Short-term note payable to certain investors, bearing
interest at 5%; converted to equity during 2003.                 -       80,000

Note payable to a finance company accrues interest at
8.7%; due in monthly installments of $1,488; secured
by equipment; due in 2008.                                  69,161            -

Note payable to a company, accrues interest at 0%;
payable in quarterly installments of $2,970; secured
by equipment; due in 2005.                                  11,880            -

Promissory note to a bank, bearing interest at 7.5%
due monthly; converted from a revolving line of credit
on January 15, 2004 (Note 11); secured by equipment,
accounts receivable and inventory; due July 2004.          733,595    1,046,520

Note payable to a bank bearing interest at 9.5%;
secured by Waxahachie real estate; settled during 2003
(Note 9).                                                        -      345,295

Note payable to the former chairman of the board,
interest accrues at 7%; payable annually on April 1;
principal payments are due annually on April 1
consisting of 30% of prior year net income, with
remaining balance due April 2012; unsecured.               840,753      909,738
                                                       -----------  -----------

Total mortage and notes payable to banks                 1,655,389    2,481,553
Less: current maturities                                  (756,725)  (1,571,815)
                                                       -----------  -----------
Mortgage and notes payable to banks, excluding
current installments                                   $   898,664  $   909,738
                                                       ===========  ===========

The aggregate annual maturities of mortgage and notes payable as of December 31,
2003 for the next five years are as follows:

Years Ending December 31:
_________________________
2004                                                                $   756,725
2005                                                                    853,984
2006                                                                     14,528
2007                                                                     15,849
2008                                                                     14,303
                                                                    -----------
Total                                                               $ 1,655,389
                                                                    ===========


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

         Stock Rights Offering

         On August 12,  2003,  the Company  completed  a rights  offering to its
         common  shareholders.  Under the  terms of the  offering,  the  Company
         issued  one  Right  for each 2.5  common  shares  outstanding  and,  in
         addition,  common  shareholders who fully subscribed were  collectively
         issued 14,500,000  additional Rights. Each Right issued was exercisable
         at $0.03 in exchange for the issuance of one common  share,  a Series A
         warrant to purchase one common share at $0.04 and a Series B warrant to
         purchase  one  common  share at $0.05.  Common  shareholders  exercised
         43,790,153  Rights in exchange for cash proceeds  totaling $406,868 and
         through  the  conversion  of  $906,810  of notes  payable  and  accrued
         interest,   before  $122,906  of  offering  costs.   The  warrants  are
         exercisable through July 2007.


                                       31
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         Redeemable Convertible Preferred Stock

         The Company has  authorized  the issuance of up to 5,000,000  shares of
         Preferred  Stock,  par value $0.01 per share. 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 and October 1999, the Company  completed a private  placement of
         10,000 shares of 5% cumulative mandatorily redeemable convertible $0.01
         par value  $1,000  face value  preferred  stock  ("Series  A  Preferred
         Stock").  In June 2000,  the Company  completed a private  placement of
         10,000 shares of 7% cumulative mandatorily redeemable convertible $0.01
         par value  $1,000  face value  preferred  stock  ("Series  B  Preferred
         Stock").

         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.  Prior to  January  1,  2002,  2,533  shares  of the  Series B
         Preferred Stock were converted into 820,750 shares of common stock.

         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  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).  During 2002, all of the holders of
         the  Series A  Preferred  Stock and  certain  holders  of the  Series B
         Preferred Stock agreed to exchange a total of 13,800  preferred  shares
         for  69,000,000  shares of  common  stock of the  Company  at $0.20 per
         share,  which  was  above  market  value  on the date of  exchange.  At
         December 31, 2003 there are 850 shares of the Series B Preferred  Stock
         outstanding.

         The Company adopted SFAS 150 at July 1, 2003, that required the Company
         to reclassify its 850 shares of mandatorily  redeemable preferred stock
         with a redemption  value and carrying amount of $850,000 from temporary
         equity to long-term  liabilities.  The adoption of this standard had no
         effect on net loss.

         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.  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.


                                       32
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         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. In June 2003, the Company granted  2,000,000  options to
         certain  directors to purchase  shares of common stock with an exercise
         price of $0.03 per share,  which was equal to the closing  market price
         of the common stock on the date of grant.

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

                                                              Weighted-Average
         Fixed Options                             Shares      Exercise Price
         ---------------------------------------------------------------------
         Outstanding at January 1, 2002           1,000,000     $       0.08
         Granted                                 13,000,000             0.02
                                                 ----------     ------------
         Outstanding at December 31, 2002        14,000,000             0.03
         Granted                                  2,000,000             0.03
                                                 ----------     ------------
         Outstanding at December 31, 2003        16,000,000     $       0.02
                                                 ==========     ============

         Exercisable at December 31, 2002         4,000,000     $       0.03
                                                 ==========     ============

         Exercisable at December 31, 2003         8,000,000     $       0.03
                                                 ==========     ============

         The following table  summarizes  information  about fixed stock options
         under the Plan outstanding at December 31, 2003:
<TABLE>
<CAPTION>
                        Options          Weighted-       Weighted       Number       Weighted-
                     Outstanding at       Average        Average    Exercisable at    Average
 Range of Exercise    December 31,       Remaining       Exercise    December 31,    Exercise
       Price             2003         Contractual Life     Price         2003          Price
 -----------------   --------------   ----------------   --------   --------------   ---------
<S>                  <C>              <C>                <C>        <C>              <C>
 $        .02 -.08       16,000,000      8.27 years      $   0.02        8,000,000   $    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:

                                               2003           2002
                                             --------       --------
         Expected dividend yield                    -              -
         Risk-free interest rate                 3.4%           4.8%
         Expected volatility                     159%           148%
         Expected life                       10 years       10 years
         Weighted average fair value
           per share                         $   0.03       $   0.02



                                       33
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         Warrants

         The  following  summarizes  warrants  granted and expired for the years
         ended December 31, 2003 and 2002:

                                                          Weighted-Average
                                                              Exercise
           Fixed Warrants                   Shares             Price
 --------------------------------         -----------     ----------------
 Outstanding at January1, 2002              5,390,376     $           5.01
 Expired                                   (2,363,050)                5.97
                                          -----------     ----------------
 Outstanding at December 31, 2002           3,027,326                 4.26
 Granted                                   87,580,306                 0.05
 Expired                                   (3,027,326)                4.26
                                          -----------     ----------------
 Outstanding at December 31, 2003          87,580,306     $           0.05
                                          ===========     ================

         The following table summarizes information about warrant outstanding at
         December 31, 2003:



                Outstanding and Exerciseable at December 31, 2003
              ------------------------------------------------------
                                                    Weighted Average
                                                        Remaining
              Exercise Prices      Warrants         Contractual Life
              ------------------------------------------------------
              $0.04               43,790,153           3.58 years
              $0.05               43,790,153           3.58 years
                                  ----------
                                  87,580,306
                                  ==========


NOTE 7 - INCOME TAXES

         The Company  paid no federal or state income taxes during 2003 or 2002.
         Income tax expense  (benefit) on income (loss) before cumulative effect
         of change in accounting principle 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:




                                       34
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


                                                       2003            2002
                                                   ------------    ------------
         Income tax expense (benefit)              $   (188,615)   $     50,846
         Nondeductible expenses                              38             695
         Loss of NOL due to change in ownership               -      22,585,251
         State taxes net of federal benefit             (28,961)          7,815
         Change in valuation allowance                  217,538     (22,644,607)
                                                   ------------    ------------
         Total income tax expense                  $          -    $          -
                                                   ============    ============

         The tax effects of temporary  differences that give rise to significant
         portions  of the  Company's  deferred  tax assets  (liabilities)  as of
         December 31, 2003 and 2002 are presented below:

                                                     2003            2002
                                                  -----------     -----------
         Deferred income tax asset
         Net operating loss carryforward          $ 1,050,377     $   681,628
         Impairment charge                                  -         140,587
                                                  -----------     -----------
         Total deferred income tax asset            1,050,377         822,215
         Deferred income tax liability -
            depreciation                               (9,718)         (8,403)
         Valuation allowance                       (1,040,659)       (813,812)
                                                  -----------     -----------
         Deferred tax asset (liability)           $         -     $         -
                                                  ===========     ===========

         Unused net operating  losses will begin expiring in 2023. The valuation
         allowances  for 2003 and 2002 have been  applied to offset the deferred
         tax assets in recognition of the uncertainty that such benefits will be
         realized.

         The Internal Revenue Code contains provisions which reduce or limit the
         availability and utilization of net operating loss carryforwards in the
         event of a more than 50%  change  in  ownership.  If such an  ownership
         change occurs with the Company,  the use of these net operating  losses
         could be limited.


NOTE 8 - COMMITMENTS AND CONTINGENCIES

         Litigation

         During February 2004, a lawsuit was filed by Iso-Science  Laboratories,
         Inc. dba Isotope  Products  Laboratories  in the Superior  Court of the
         State of California for the County of Los Angeles  against the Company,
         the Company's President and CEO, a significant  customer of the Company
         and  certain  officers  of  this  significant  customer.  The  petition
         contains numerous  allegations  against the defendants  relating to the
         manufacture and sale of calibration and reference standards for nuclear
         medicine. The petition alleges the defendants are using information and
         equipment that the plaintiff  acquired from a previous  employer of one
         of the  defendants.  The petition also alleges unfair trade  practices,
         interference  with prospective  business  relationships and conspiracy.
         The  plaintiff  seeks  an  injunction  to  restrain  the  Company  from
         manufacturing,  marketing or selling any of the products in question; a
         55% royalty of the price of all related  products  sold by the Company;
         the return of all equipment and  information in question;  disgorgement
         of profits  received  for the  manufacture  and sale of the products in
         question;  and general and punitive damages in an amount to be shown at
         the time of trial.  This  lawsuit is in the  preliminary  stage and the
         Company is trying to  determine  the proper  response to be filed.  The
         Company intends to vigorously defend itself in the lawsuit; however, an
         outcome  favorable  to the  Company is not  determinable  at this time.
         Should this lawsuit be settled in a manner  unfavorable to the Company,
         the Company could lose its major line of revenues and could be required
         to make  substantial  payments  to the  plaintiff.  The  Company  has a
         manufacturing  agreement in place with this significant  customer which
         indemnifies  the Company and its  officers  from any loss  arising from
         this  suit.  However,  there  is no  guarantee  that  this  significant
         customer  can bear the  financial  burden  arising from  defending  and
         possible settlement of this lawsuit.


                                       35
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         Lease Commitments

         The  Company  leases  office  space,   certain  office   equipment  and
         production  equipment under operating  leases expiring at various dates
         through  2009.  Rental  expense  under such  leases for the years ended
         December 31, 2003 and 2002 was $82,242 and $69,180.

         Future  minimum lease  payments under  noncancelable  operating  leases
         (with  initial or  remaining  lease  terms in excess of one year) as of
         December 31, 2003 are:

                                                     Operating
         Years ending December 31                     Leases
                                                     ---------
         2004                                          136,967
         2005                                          139,107
         2006                                          138,744
         2007                                          138,744
         2008                                          102,484
         Thereafter                                      4,310
                                                     ---------
         Total minimum lease payments                $ 660,356
                                                     =========

         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.



                                       36
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002

         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 2003 and 2002 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  $150,572  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.

         In 2003 the  Company  signed a contract  obligating  them to purchase a
         total  of  $195,250  worth  of a  certain  isotope  from  one of  their
         suppliers.  The Company  purchased a total of $40,345 of material under
         that contract in 2003 leaving a remaining obligation of $154,250.


NOTE 9 - SALE OF ASSETS

         Sale of Assets

         At December 31, 2002,  the balance of excess  components  and equipment
         held  for sale  that  had not been  sold or  written  down  through  an
         impairment charge was $262,236.  During 2003, excess components carried
         at  $262,236  were sold.  The total  amount  paid for these  assets was
         $474,436.  The Company  recognized a gain of $212,200  from the sale of
         fully impaired assets.

         Sale of Waxahachie Real Estate

         At December 31, 2002, the Company carried as an asset held for sale its
         Waxahachie  real  estate at  $345,295.  In January  2003,  the  Company
         entered into an agreement  to sell the  Waxahachie  real estate for the
         assumption of the $345,295  debt  associated  with the  property.  As a
         result of the debt assumption,  the Company remains contingently liable
         on the note with Texas State Bank for the  remainder of the term should
         the purchaser default on this note.

         In accordance with Financial  Accounting Standards Board Interpretation
         No.  45,  Guarantor's   Accounting  and  Disclosure   Requirements  for
         Guarantees,  Including  Indirect  Guarantees of Indebtedness of Others,
         the Company has  recognized a $10,000  obligation  under the  guarantee
         that  consists of the  obligation  to stand ready to reassume  the note
         held at Texas  State Bank in the event the  purchaser  defaults  on the
         note.  The  obligation is based on the cost necessary for the purchaser
         to refinance the note,  which would release  Company from the guarantor
         position.  Should the  purchaser  default  on the note and the  Company
         reassumes the liability, they would also regain the real estate.


NOTE 10 - ASSET RETIREMENT OBLIGATION

         Effective January 1, 2003, the Company adopted SFAS No. 143, Accounting
         for Asset Retirement Obligations, which requires entities to record the
         fair value of a liability for an asset retirement obligation when it is
         incurred. The standard applies to legal obligations associated with the
         retirement  of  long-lived  assets that  result  from the  acquisition,
         construction,  development  or normal use of the asset.  The  Company's
         asset retirement obligations relate primarily to the decommissioning of
         the  manufacturing  facility at the  conclusion  of  operations in that
         facility.



                                       37
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         SFAS No. 143 requires  that the fair value of a liability  for an asset
         retirement  obligation  be  recognized  in the  period  in  which it is
         incurred,  if a reasonable estimate of fair value can be made. When the
         liability is initially  recorded,  the related cost is  capitalized  by
         increasing the carrying  amount of the related asset,  in the case of a
         leased  facility the cost is capitalized as capitalized  lease disposal
         costs.  Over time,  the liability is accreted  upward for the change in
         its present value each period until the obligation is settled.

         The implementation of SFAS No. 143 on January 1, 2003 resulted in a net
         increase in property and equipment of $125,596.  Liabilities  increased
         by $149,332 which  represents the  establishment of an asset retirement
         obligation  liability.  The  cumulative  effect  on prior  years of the
         change in  accounting  principle of $23,736 was shown as a reduction in
         earnings.  The  effect of  adopting  this  accounting  principle  was a
         $11,868  increase in net loss during the year ended  December 31, 2003.
         Had the  effects of SFAS 143 been  applied  retroactively  for the year
         ended  December  31, 2002,  net loss would have been $137,  679 with no
         effect to prior recorded earnings per share.

         The  pro  forma  amount  of the  liability  for  the  asset  retirement
         obligation  was  $149,332 at December 31,  2002.  The asset  retirement
         obligation is adjusted for any  liabilities  incurred or settled during
         the period,  accretion  expense and any revisions made to the estimated
         cash flows.  Every year the liability amount is approved by the Nuclear
         Regulatory  Commission.  Any  increase  to the  liability,  assuming no
         additional  decommissioning  items are added,  is recorded as accretion
         expense; however,  accretion expense during the year ended December 31,
         2003 was not material.


NOTE 11 - SUBSEQUENT EVENTS

         In January 2004, the Company  completed the purchase of certain assets,
         patents and intellectual  property  related to the fluorine  extraction
         process.  The patents were  acquired for $105,000 and the equipment for
         $10,000.  The Company  also  entered  into a marketing  and  consulting
         agreement with another company for technology and marketing  assistance
         regarding the fluorine extraction process and the production facility.

         In January 2004, the Company  entered into a lease agreement to lease a
         warehouse  in  which  to  locate  the  fluorine  extraction  production
         facility.  The term of the lease is five years with monthly payments of
         $4,310. This lease has been included with the lease commitments.

         In January 2004, the Company renegotiated the terms of a line of credit
         with the Bank and fixed  the  terms of the line of credit  into a note.
         The new terms  other than  fixing the line into a note,  extend the due
         date of the note to July 1, 2004 and fixed the  interest  rate at 7.5%.
         The Company also  negotiated an additional  $250,000  revolving line of
         credit  with  a due  date  of  July  1,2004.  The  Company  anticipates
         renegotiating  the  revolving  line of credit to extend the due date to
         December  31,  2004.  Both  lines are  secured by  inventory,  accounts
         receivable and equipment.

         The Company  completed an unsecured note purchase  agreement on January
         21,  2004  with  certain  of  the  Company's  Principal  investors  and
         Directors  totaling  $650,000.  This  is  an  unsecured  note  accruing
         interest  at 6% per year with a maturity  date of  December  31,  2005.
         Interest  is to be paid on this  note on a  semi-annual  basis  and the
         Company  has the  option to prepay  the  principal  balance at any time
         prior to maturity.  The principal of the note and any accrued  interest
         is convertible into shares of the Company's common stock at any time at
         the option of the holder prior to maturity.  The  conversion  price for
         this  conversion  option  was based on the  market  value of the common
         stock and was determined to be $0.18 per share.



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