UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2004

                                       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
                                    000-22923

                           INTERNATIONAL ISOTOPES INC.
               --------------------------------------------------
               (Exact name of issuer 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
                                (Title of Class)

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

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. (X)

The Issuer's revenue for the fiscal year ended December 31, 2004 was $2,848,844.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  computed by  reference  to be the average bid and asked price of
such common equity at March 1, 2005 was $3,464,766.

As of March 1, 2005 the number of shares  outstanding of common stock,  $.01 par
value was 183,315,081 shares.

Documents Incorporated by Reference

Certain information called for in Parts II and III of this Annual Report on Form
10-KSB 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,
2004.


<PAGE>



INTERNATIONAL ISOTOPES INC.

FORM 10-KSB

TABLE OF CONTENTS

                                                                        Page No.
Part I.

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

Part II.

Item 5.   Market for the Registrant's Common Equity and
             Related Stockholder Matters ..............................     8
Item 6.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations ......................     8
Item 7.   Financial Statements.........................................    13
Item 8.   Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure ......................    14
Item 8A   Controls and Procedures......................................    14

Part III.

Item 9.   Directors and Executive Officers of Registrant ..............    14
Item 10.  Executive Compensation ......................................    14
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 ..................................    15
Item 14.  Principal Accountant Fees and Services ......................    16
Power of Attorney .....................................................    16
Signatures ............................................................    17




                                       2
<PAGE>


PART I

This Annual Report contains forward-looking statements within the meaning of the
Private  Securities  Litigation  Reform Act of 1995.  This Act  provides a "safe
harbor"  for  forward-looking  statements  to  encourage  companies  to  provide
prospective  information  about  themselves  so  long  as  they  identify  these
statements  as  forward-looking  and provide  meaningful  cautionary  statements
identifying important factors that could cause actual results to differ from the
projected  results.  All statements,  other than statements of historical  fact,
including   statements  regarding  industry  prospects  and  future  results  of
operations  or  financial  position,  made in this  Annual  Report  are  forward
looking.  Words  such as  "anticipates,"  "believes,"  "expects,"  "future"  and
"intends"  and  similar  expressions  identify  forward-looking  statements.  In
particular,  statements  regarding:  the  sufficiency  of our available cash and
revenues from  operations to meet our operating  needs;  our ability to generate
revenue;  improvements in our gross profit;  our 2005 goals and objectives;  the
improvement  in our  financial  performance  due to an  anticipated  decrease in
operating  expenses;  anticipated  growth in any of our business  segments;  the
impact of expansion  efforts on our  revenues;  the effect of our ability to use
our  patents;  the  anticipated  approval  dates  for  government  permits;  the
improvement of our  competitive  position based on decreased  production  costs;
anticipated completion dates for our plant construction and resulting production
capabilities;  the extension of the maturity date of our bank debt;  the outcome
of  litigation   pending  against  us  and  the   establishment   of  additional
manufacturing capacity are forward-looking.  Forward-looking  statements reflect
management's  current  expectations,  plans or  projections  and are  inherently
uncertain.   Actual   results   could  differ   materially   from   management's
expectations,  plans or  projections.  Readers are  cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report.  Certain risks and uncertainties that could cause actual results to
differ significantly from management's expectations are described in the section
entitled  "Factors  Affecting  Future  Results." That section,  along with other
sections of this Annual Report, describes some, but not all, of the factors that
could  cause  actual   results  to  differ   significantly   from   management's
expectations.  The company  undertakes  no  obligation  to publicly  release any
revisions to these forward-looking statements that may be made to reflect events
or  circumstances  after  the  date  hereof  or to  reflect  the  occurrence  of
unanticipated  events.  Readers  are urged,  however,  to review the factors set
forth in reports  that the company  files from time to time with the  Securities
and Exchange Commission.

Item 1.  BUSINESS

General Business and Products Description
International  Isotopes  Inc., a Texas  corporation,  (together  with its wholly
owned  subsidiary,  International  Isotopes  Idaho  Inc.) was  formed as a Texas
corporation in 1995. Our headquarters  and all operations are currently  located
in Idaho Falls,  Idaho. Our business consists of five reportable  segments which
include; Nuclear Medicine Reference and Calibration Standards,  Cobalt Products,
Radiochemical  Products,  Fluorine Extraction Process Products, and Radiological
Processing Services.

Nuclear Medicine Reference and Calibration Standards
This segment  consists of the  manufacture  of sources and standards  associated
with SPECT (Single Photon Emission Computed  Tomography),  patient  positioning,
and  calibration  or  operational  testing of dose  measuring  equipment for the
nuclear pharmacy business.  These items include flood sources, dose calibrators,
rod sources,  flexible and rigid rulers, spot markers,  pen point markers, and a
host of specialty design items.  One customer  accounts for most of our sales in
this segment.  We are the exclusive contract  manufacturer for this customer for
these products. There are over 5,000 nuclear medicine centers around the country
that require  these types of products on a regular  repeat  basis.  We have been
manufacturing these products since 2001 and have continued to grow this business
at an annual rate of approximately  12% per year. The nuclear pharmacy  business
has been growing,  and is  anticipated to continue to grow, at an annual rate of
about 5%.


                                       3
<PAGE>

Cobalt Products
This segment  includes the production of high and medium specific  activity bulk
cobalt,  recycling  expended cobalt sources,  and fabrication of a wide array of
cobalt teletherapy and experimental  irradiator source capsules.  In prior years
our only  cobalt  product  revenues  were  from the sale of bulk  cobalt  metal.
However,  in 2004, we made several major  accomplishments,  which will allow for
significant growth of this segment.

     o    We made a  significant  financial  investment to install hot cells and
          related processing equipment to permit on site processing of cobalt-60
          isotope.

     o    We have been able to contract for the receipt and recycling of certain
          cobalt sources utilizing these facilities.

     o    We have designed a series of Sealed Source and Special Form  capsules,
          which will allow us to recycle, re-encapsulate,  and sell a variety of
          new cobalt products utilizing recycled material or material we produce
          in reactors.

This  expanded  cobalt  production  capability is expected to have a significant
positive impact upon our revenues in 2005 and beyond.

Radiochemical Products
This segment includes production of various isotopically pure radiochemicals for
medical,  industrial,  or  research  applications.  These  products  are  either
directly  produced  by us or are  purchased  in bulk from  other  producers  and
distributed  by us in customized  packages and chemical  forms  tailored to meet
customer  requirements.  Our sales in this segment consist of Cobalt-60 (Co-60),
Cobalt-57 (Co-57),  Cesium-137 (Cs-137),  Iodine-131 (I-131), Sodium-22 (Na-22),
and Barium-133 (Ba-133) isotopes. We initiated fairly wide scale distribution of
Iodine-131 in 2004.  Radiopharmaceuticals  produced with  Iodine-131 are used in
the treatment  and  diagnosis of various  diseases of the thyroid such as Graves
disease,  thyroid  cancer,  and  hyperthyroidism  and are also used in a host of
investigational  and clinical trials such as for the treatment of breast,  lung,
prostate, and ovarian cancers.

Fluorine Products
We acquired seven patents for the Fluorine  Extraction  Process (FEP) in January
2004 and plan to use this  technology  to produce  several high purity  fluorine
products,  such as germanium  tetrafluoride.  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 expected to be very high purity which
makes it ideally suited to these specialty applications, where ultra high purity
gas is 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.

In addition to acquiring these patents,  we have undertaken  several  additional
steps in 2004 towards manufacturing these high purity fluoride gases.

     o    We have  established a marketing and technology  consulting  agreement
          with  individuals  knowledgeable  and experienced  with the processing
          technology and market applications for fluorine products.

     o    We have leased an additional industrial facility for production of FEP
          gases.

     o    We have hired management and laboratory process operations staff.

     o    We  have   completed  a  process   system  design  and  started  plant
          construction.

We expect to complete  plant  construction  and begin  fluorine  gas  production
during the second  quarter of 2005.  We believe  that the market size and growth
outlook for high purity fluorine products is excellent and this business segment
should   provide  us  with  an  excellent   opportunity   to  grow  our  revenue
substantially in coming years.


                                       4
<PAGE>

Radiological Processing Services
This  segment  concerns a wide array of  miscellaneous  services  the largest of
which is  processing  of gemstones  which has  undergone  irradiation  for color
enhancement.  One customer  accounts for most of our sales in this  segment.  We
have an exclusive  contract  with a this  customer  for the gemstone  processing
service.  Other  services in this segment  consist of  radiological  engineering
consultant   services,   Type  A  package   certification   testing,  and  waste
packaging/recycle services.

We believe  that all of these  business  segments  will  perform well and should
continue to demonstrate continued growth. We expect that revenues generated from
these  operations  should be  expected  to produce  sufficient  cash to meet our
operational needs.


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.

Nuclear Medicine Reference and Calibration Standards
Calibration  and  Reference  Standards  are required  for the daily  operational
checks and calibration of the  measurement of 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 many of 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 several  overseas
locations. There are two other major producers of these products within the U.S.
and that directly compete with us for these products.

Cobalt Products
We sell high activity bulk cobalt to a customer that uses it to fabricate sealed
sources for the Elekta  Gamma  knife unit.  The gamma knife is a device used for
the precise  radiation  treatment of certain tumors and vascular  deformities of
the brain. There are over seventy-five treatment centers around the U.S that are
using the gamma knife and through 2003 it is estimated that over 80,000 patients
have been successfully  treated with this device. We also accept old gamma knife
sources for recycling  when they have decayed past their useful  activity in the
gamma knife.  This recycled cobalt,  along with lower activity cobalt we produce
in a  reactor,  is  incorporated  into new sealed  sources  for  teletherapy  or
experimental irradiators.

Radiochemical Products
We typically  supply  radioisotope  products in bulk form.  The markets for most
radiochemicals are highly competitive. The target markets for these products are
customers who 1) incorporate  them into finished  industrial or medical devices;
2)  use   radioisotope   products  in  clinical   trials  for  various   medical
applications; or 3) further process and include the radioisotope products into a
pharmaceutical product for FDA approved therapy or imaging.

Fluorine Products
We are developing our fluorine  products 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 manufacturing capacity for at least one of these compounds in 2005.
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.


                                       5
<PAGE>

Radiological Processing Services

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 Missouri  University  Research Reactor (MURR).  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  offer this  irradiation
service capability.  The jewelry manufacturing  industry is a highly competitive
industry.


Government Regulation

We have  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,  large scale  cobalt
processing   and   recycle   operations,    radioactive   gemstone   processing,
environmental sample analysis, and various research and development  activities.
The  existing  license  and  permits  are  adequate  to allow all of our current
business  operations.  Expansion  into FEP  production  will require  additional
permitting  both  through  the  NRC,  State  of  Idaho,  and  the  Environmental
Protection  Agency.  We started  this  permitting  process in 2004 and expect to
complete  it in 2005.  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  generate some  radioactive  waste. We must
handle this waste  pursuant  to the Low Level  Radioactive  Waste  Policy Act of
1980,  which  requires the safe disposal of mildly  radioactive  materials.  The
estimated  costs for storage and disposal of these  materials have been included
in 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.

Other Regulations

Registration  of any of our  radiochemicals  into a Drug Master File (DMF) could
subject us to the  additional  regulations  of the Food and Drug  Administration
(FDA).  We are registered as a medical device  manufacturer  through the FDA for
several of our nuclear  medicine  reference and  calibration  standards.  We are
registered  with the U.S.  Department  of  Transportation  for the  shipment  of
radioactive materials and may be subjected to additional licensing  requirements
from the NRC for the import or export of  radioactive  materials  commencing  in
2005.

Employees

As of December 31, 2004 we had sixteen employees, all of whom are full-time.


Item  2.    PROPERTIES

We lease two  properties.  The following  paragraphs  provide a brief summary of
these properties.

4137 Commerce  Circle - The facility  located on this  property  houses our main
corporate  headquarters and all of our  manufacturing  operations except our FEP
operations.  We hold this  property  pursuant  to a lease that  extends  through
August  2008.  The  facility  was new when  leased in March 2001 and  remains in
excellent condition. Our lease includes unlimited automatic five year extensions
of the lease at our sole discretion.  Lease payments are adjusted annually based
upon  changes in the CPI.  We also have a  purchase  option and a right of first
refusal on this  property  which allows us to purchase this property at any time
for a stated amount.


                                       6
<PAGE>

3159  Commerce  Way - The  facility  located  on this  property  houses  our FEP
production operations.  The facility was first leased in February 2004 and is in
excellent  overall  condition.  We hold this  property  pursuant to a lease that
extends  through March 2009. The facility is in excellent  condition.  Our lease
includes  unlimited  automatic  five  year  extensions  of the lease at our sole
discretion.  Lease payments are adjusted annually based upon changes in the CPI.
We also have a  purchase  option and a right of first  refusal on this  property
which allows us to purchase this property at any time for a stated amount.


Item 3.   LEGAL PROCEEDINGS

During February 2004, a lawsuit was filed by Iso-Science  Laboratories,  Inc. in
the  Superior  Court of the State of  California  for the County of Los  Angeles
against the company,  our  President  and CEO, one of our  customers and certain
officers of this customer. The lawsuit contains numerous allegations against the
defendants  relating to the  manufacture  and sale of calibration  and reference
standards for nuclear  medicine.  The lawsuit  alleges the  defendants are using
information and equipment that the plaintiff  acquired from a previous  employer
of one of the  defendants.  The lawsuit  also alleges  unfair  trade  practices,
interference  with  prospective  business  relationships,  and  conspiracy.  The
plaintiff seeks (i) an injunction to restrain us from manufacturing,  marketing,
or selling any of the products in  question;  (ii) a 55% royalty on the price of
all related  products we sell; (iii) the return of all equipment and information
in question; (iv) disgorgement of profits received from the manufacture and sale
of the products in question;  and (v) general and punitive  damages in an amount
to be shown at the time of trial.  In March  2004,  we filed a  response  to the
lawsuit in which we denied all of the allegations.  In addition, we have filed a
counterclaim  against the  plaintiff on the basis that the  plaintiff  filed the
suit against the Company and our President  and CEO with the knowledge  that the
plaintiff  had no basis in law or fact and that the  lawsuit was  calculated  to
interfere with the our contractual  arrangements  and prospective  business with
our customers.

On July 29, 2004 the court granted our motion to dismiss all charges against our
President  and CEO.  On October 25, 2004 the court  established  an  anticipated
trial start date of  December 5, 2005.  We will  continue to  vigorously  defend
against this lawsuit;  however,  a favorable outcome is not determinable at this
time.  Should this  lawsuit be settled in a manner  unfavorable  to us, we could
lose our major  line of  revenues  and  could be  required  to make  substantial
payments to the plaintiff.  We have a manufacturing  agreement in place with our
customer and  co-defendant  pursuant to which the customer will indemnify us and
our  officers  from any loss  arising from this  lawsuit.  Therefore,  we do 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.  However,  there  is no  guarantee  that our  customer  can bear the
financial burden arising from defending and possible settlement of this lawsuit.


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

An annual meeting of shareholders was held on June 25, 2004.

1) Election of Directors
All  three  incumbent  directors  were  reelected  without  opposition  to serve
one-year terms in office. The results of this election were as follows:

        Name of Director                    For              Withheld
        ----------------                 -----------         --------

        Dr. Ralph Richart                106,908,919          320,801
        Steve T. Laflin                  107,183,731           45,989
        Christopher Grosso               106,908,919          320,801


                                       7
<PAGE>

2) Ratification of Independent Auditors
The appointment of Hansen Barnett & Maxwell as the independent  certified public
accountants  for fiscal year 2004 was ratified.  The results of the  shareholder
vote were as follows:
<TABLE>
<S><C>
                                                                                    Broker
                                                     For       Against   Abstain   Non-Votes
                                                 -----------   -------   -------   ---------
Appointment of Hansen Barnett & Maxwell          107,197,661    29,304     2,755          -
 as independent certified public accountants
</TABLE>


PART II

Item 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

In the  second  quarter of 2001 our common  stock was  delisted  from the Nasdaq
Small Cap Market and was traded  solely over the counter on the Pink Sheets.  On
August 13, 2004,  Nasdaq  approved the reporting of our common stock on the Over
the Counter  Bulletin  Board (OTCB) under the trading  symbol "INIS." High asked
prices and low bid prices reported by the respective  trading sectors during the
periods indicated are shown below:

       Fiscal Year                Quarter      High Asked       Low Bid

          2004*                     1st          $0.19           $0.09
          2004*                     2nd          $0.19           $0.17
          2004@                     3rd          $0.19           $0.16
          2004#                     4th          $0.15           $0.08

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

*    As reported on the pink sheets.
@    As reported on the Pink Sheets from the  beginning  of the quarter  through
     August 12, 2004 and as  reported on the OTCBB from August 13, 2004  through
     the end of the quarter.
#    As reported on the OTCBB.

On December 31, 2004, there were 342 holders of record our common stock. We have
never paid any cash dividends on our common stock. In the future, and based upon
our profit  performance,  our Board of Directors  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.

Additional  information  called for by this item will be  included  in our Proxy
Statement  for our 2005  annual  meeting  of  shareholders,  which will be filed
within 120 days after December 31, 2004.

Additional  information  called for by this item will be  included  in our Proxy
Statement  for our 2005  annual  meeting  of  shareholders,  which will be filed
within 120 days after December 31, 2004.


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

The  following  discussion  of the  results  of  the  company's  operations  and
financial  condition  should  be  read  in  conjunction  with  the  accompanying
financial statements and the notes thereto included within this report.


                                       8
<PAGE>

Overview

Our  business  consists  of five  reportable  segments  which  include;  Nuclear
Medicine  Reference and Calibration  Standards,  Cobalt Products,  Radiochemical
Products,  Fluorine  Extraction  Process Products,  and Radiological  Processing
Services.

Nuclear Medicine Reference and Calibration Standards
This segment  consists of the  manufacture  of sources and standards  associated
with SPECT (Single Photon Emission Computed  Tomography),  patient  positioning,
and  calibration  or  operational  testing of dose  measuring  equipment for the
nuclear pharmacy business.  These items include flood sources, dose calibrators,
rod sources,  flexible and rigid rulers, spot markers,  pen point markers, and a
host of specialty design items.

Cobalt Products
This segment  includes the production of high and medium specific  activity bulk
cobalt,  recycling  expended cobalt sources,  and fabrication of a wide array of
cobalt teletherapy and experimental  irradiator source capsules.  In prior years
our only  cobalt  product  revenues  were  from the sale of bulk  cobalt  metal.
However, in 2004, we made several major accomplishments, including a significant
investment  to install hot cells and related  processing  equipment to permit on
site processing of cobalt-60 isotope.

Radiochemical Products
This segment includes production of various isotopically pure radiochemicals for
medical,  industrial,  or  research  applications.  These  products  are  either
directly  produced  by us or are  purchased  in bulk from  other  producers  and
distributed  by us in customized  packages and chemical  forms  tailored to meet
customer  requirements.  Our sales in this segment consist of Cobalt-60 (Co-60),
Cobalt-57 (Co-57),  Cesium-137 (Cs-137),  Iodine-131 (I-131), Sodium-22 (Na-22),
and Barium-133 (Ba-133) isotopes. We initiated fairly wide scale distribution of
Iodine-131 in 2004.  Radiopharmaceuticals  produced with  Iodine-131 are used in
the treatment  and  diagnosis of various  diseases of the thyroid such as Graves
disease,  thyroid  cancer,  and  hyperthyroidism  and are also used in a host of
investigational  and clinical trials such as for the treatment of breast,  lung,
prostate, and ovarian cancers.

Fluorine Products
We acquired seven patents for the Fluorine  Extraction  Process (FEP) in January
2004 and plan to use this  technology  to produce  several high purity  fluorine
products,  such as germanium  tetrafluoride.  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 99.999% pure
with no  detectable  uranium in the  product  gas.  This makes our FEP  products
ideally suited to these specialty  applications,  where ultra high purity gas is
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.

Radiological Processing Services
This segment concerns a wide array of miscellaneous  services such as processing
of  gemstones  which has  undergone  irradiation  for color  enhancement.  Other
general services in this segment consist of radiological  engineering consultant
services,  Type A package  certification  testing,  and waste  packaging/recycle
services.

We believe  that all of these  business  segments  will  perform well and should
continue to demonstrate continued growth. We expect that revenues generated from
these operations should produce sufficient cash to meet our operational needs.

We believe  that  revenues  generated  from  these  business  activities  can be
expected to have a positive effect upon our projections for continued  growth in
2005 and should produce sufficient cash to meet our operational needs.


                                       9
<PAGE>

Liquidity and Capital Resources

On December 31, 2004 we had cash and cash  equivalents  of $150,051  compared to
$160,216 at December 31, 2003.  For the year ended  December 31, 2004,  our cash
flows  included net cash used in  operating  activities  of  $621,005,  net cash
provided  by  financing  activities  of  $1,383,090  and cash used in  investing
activities of $772,250.

We incurred a loss  applicable to common  shareholders  of $844,736 for the year
ended  December 31, 2004 and has an  accumulated  deficit of  $88,813,386  since
inception.  Prior to 2004, our  operations and plant and equipment  expenditures
were funded principally from proceeds from public and private sales of equity as
well as through asset sales.

As of December  31, 2004,  we had net  borrowings  of $733,595  with Texas State
Bank.  The  current  maturity  date  of  this  loan is  February  2006.  We made
interest-only  payments on this loan during 2004, but have been making principal
and interest  payments  effective in January 2005.  We  anticipate  working with
Texas  State  Bank to extend  the  maturity  date of this  loan.  We also have a
$250,000  revolving  line of credit with Texas State  Bank.  As of December  31,
2004, we had not drawn against this line of credit.

We  completed  an  unsecured  note  purchase  agreement on January 21, 2004 with
certain of our principal investors and Directors totaling $650,000.  Pursuant to
the terms of the note  purchase  agreement,  we issued  unsecured  notes,  which
accrue  interest  at 6% per year with a  maturity  date of  December  31,  2005.
Interest  is paid on the notes 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 notes and any accrued  interest is  convertible  into shares of
our 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 at the time the notes were issued and was  determined  to be $0.18
per share.

During 2004,  there were a  significant  number of Series A warrants,  and a few
Series B warrants,  issued from the 2003 rights  offering that were exercised by
shareholders for common stock. The total Series A and B warrant exercise in 2004
generated  $802,034  and resulted in the  issuance of an  additional  19,714,894
shares of common  stock.  In January  2005,  the  company  announced a mandatory
redemption   on  all   remaining   Series  A  warrants  by  February  25,  2005.
Consequently,  shareholders  exercised  Series A warrants  for  $969,690 and the
company issued an additional  24,842,259  shares of common stock. As of March 1,
2005  there  are still  42,421,483  Series B  warrants  outstanding,  which,  if
exercised  would generate an additional  $2,121,074 in capital and result in the
issuance of an additional 42,421,483 shares of common stock.

Results of Operations

Year ended December 31, 2004 compared to year ended December 31, 2003

Revenues

Total  revenues  were  $2,848,844  in 2004 as compared to $2,070,592 in 2003, an
increase  of  $778,251  or 37.5%.  The  significant  increase  in  revenues  was
attributable to increases in nearly every business segment. Cobalt Product sales
and  Radiochemical  Products sales both  approximately  doubled.  In our largest
business segment,  Nuclear Medicine Reference and Calibration  Standards,  sales
increased by 11%. Only the Radiological  Processing Services segment declined in
2004 (down 53.6%) primarily due to the continued decline in gemstone  processing
that continues to be subject to intense competition in the color enhancement and
costume jewelry industries.

Cost of Revenues and Gross Profit

Cost of revenue for 2004 was  $1,719,251  compared  to  $1,151,161  in 2003,  an
increase of  $568,090 or 49%.  Gross  profit for 2004 was  $1,129,592  or 40% as
compared  to  $919,431 or 44% in 2003.  The  increase  in cost of  revenues  and
decrease in gross profit is attributable to the cost of launching  Radiochemical
Products in 2004 and the relatively high production  costs associated with these
new products.  Improvements in production  efficiencies,  implementation of cost
saving  measures,  and  elimination of low margin  products during the course of
2004 has lead to considerable  improvements in gross profit performance which we
expect will become evident in 2005.


                                       10
<PAGE>

Operating Costs and Expenses

Total  operating  costs and  expenses for 2004 were  $1,828,293,  as compared to
$1,582,512  in 2003,  an increase of $245,781 or 15%.  The  increase was largely
attributable  to increased  salaries and contract labor resulting from increased
staffing and marketing  contract  consultant costs.  Measured as a percentage of
total  revenue,  operating  expense has decreased 12% from 76% in 2003 to 64% in
2004.  Limiting  increases in staffing  and  eliminating  most of our  marketing
consultant costs are expected to further decrease operating expenses in 2005.

Other Income (expense)

Other  (expense) in 2004 was ($146,035)  compared to other income of $108,332 in
2003. The difference was principally  attributable to the sale of fully impaired
assets in 2003. We no longer expect to realize any significant revenues from the
sale of impaired assets.

Net Loss

The Net Loss from continuing  operations was $844,736 in 2004 compared to a loss
of  $578,485  in  2003.  The  $266,251   increase  in  net  loss  was  primarily
attributable  to the lack of income from sales of fully impaired  assets in 2004
since  all of the  assets  from  discontinued  operations  have now  been  sold.
Enhancements  in  production  process   efficiencies,   production  cost  saving
measures,  elimination of marketing  consultant expense,  and elimination of low
margin  radiochemical  products  are all  expected  to  contribute  to  improved
financial performance in 2005.

Forward Looking Information

This Annual Report contains forward-looking statements within the meaning of the
Private  Securities  Litigation  Reform Act of 1995.  This Act  provides a "safe
harbor"  for  forward-looking  statements  to  encourage  companies  to  provide
prospective  information  about  themselves  so  long  as  they  identify  these
statements  as  forward-looking  and provide  meaningful  cautionary  statements
identifying important factors that could cause actual results to differ from the
projected  results.  All statements,  other than statements of historical  fact,
including   statements  regarding  industry  prospects  and  future  results  of
operations  or  financial  position,  made in this  Annual  Report  are  forward
looking.  Words  such as  "anticipates,"  "believes,"  "expects,"  "future"  and
"intends"  and  similar  expressions  identify  forward-looking  statements.  In
particular,  statements  regarding:  the  sufficiency  of our available cash and
revenues from  operations to meet our operating  needs;  our ability to generate
revenue;  improvements in our gross profit;  our 2005 goals and objectives;  the
improvement  in our  financial  performance  due to an  anticipated  decrease in
operating  expenses;  anticipated  growth in any of our business  segments;  the
impact of expansion  efforts on our  revenues;  the effect of our ability to use
our  patents;  the  anticipated  approval  dates  for  government  permits;  the
improvement of our  competitive  position based on decreased  production  costs;
anticipated completion dates for our plant construction and resulting production
capabilities;  the extension of the maturity date of our bank debt;  the outcome
of  litigation   pending  against  us  and  the   establishment   of  additional
manufacturing capacity are forward-looking.  Forward-looking  statements reflect
management's  current  expectations,  plans or  projections  and are  inherently
uncertain.   Actual   results   could  differ   materially   from   management's
expectations,  plans or  projections.  Readers are  cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report.  Certain risks and uncertainties that could cause actual results to
differ significantly from management's expectations are described in the section
entitled  "Factors  Affecting  Future  Results." That section,  along with other
sections of this Annual Report, describes some, but not all, of the factors that
could  cause  actual   results  to  differ   significantly   from   management's
expectations.  The company  undertakes  no  obligation  to publicly  release any
revisions to these forward-looking statements that may be made to reflect events
or  circumstances  after  the  date  hereof  or to  reflect  the  occurrence  of
unanticipated  events.  Readers  are urged,  however,  to review the factors set
forth in reports  that the company  files from time to time with the  Securities
and Exchange Commission.


                                       11
<PAGE>

In 2004, we continued to build on various  business  segments,  make investments
into facilities and infrastructure,  launch new products,  and improve operating
cost  controls.  The  following  is a  list  of  some  of the  more  significant
accomplishments in 2004.

     o    Significant  financial  investment  to  install  cobalt  hot cells and
          related processing equipment to permit on site processing of cobalt-60
          isotope,   recycling  expended  cobalt  sources,  and  fabrication  of
          teletherapy capsules.

     o    Obtained contracts for receipt and recycle of certain cobalt sources.

     o    Obtained transportation  container to allow shipment and processing of
          cobalt and other radioisotopes produced in other reactor locations.

     o    Designed a series of Sealed  Source and Special Form  capsules,  which
          will allow us to  recycle,  re-encapsulate,  and sell a variety of new
          cobalt products  utilizing recycled material or material we produce in
          reactors.

     o    Installed new  radiochemical  processing hot cells and initiated sales
          of new radiochemical products.

     o    Acquired seven patents for the Fluorine  Extraction  Process (FEP) and
          have  established  marketing  and  technology  consulting  agreements,
          leased an additional  industrial  facility for FEP  production,  hired
          management and laboratory  process FEP operations staff, and completed
          FEP process system design and initiated plant construction.

Based upon the investments we have made in our facilities and products developed
in 2004 we have the following goals and objectives for 2005:

     o    To continue to expand our customer base and increase  cobalt  revenues
          through sales of cobalt sealed sources once NRC sealed source approval
          is obtained.

     o    To explore participation in contracts for various government sponsored
          source recovery and recycle programs expected to be funded through the
          federal  government  and to which we are  uniquely  suited to  provide
          services.

     o    To  launch  at  least  one  new  radiochemical   product  and  explore
          establishing partnerships with radiopharmaceutical manufacturers.

     o    To complete  initial  Fluorine gas plant  construction,  begin FEP gas
          production,  and obtain gas supply  contracts by the second quarter of
          2005.  We believe  that the market  size and growth  outlook  for high
          purity fluorine products is excellent and this business segment should
          provide the Company with an excellent  opportunity to grow our revenue
          substantially in coming years.

     o    To  continue  to grow  market  share of all  products  in the  Nuclear
          Medicine Reference and Calibration Standards business segment

     o    To continue  to  increase  efficiencies  and reduce  production  costs
          necessary to achieve profitability


                                       12
<PAGE>

We believe that revenues  generated from these business  activities  will have a
positive effect upon our business in 2005 and should produce  sufficient cash to
meet our operational needs.

Company Risk Factors

Readers  should  carefully  consider the  following  factors that may affect our
business,  future operating  results and financial  condition,  as well as other
information  included  in  this  Annual  Report.  The  risks  and  uncertainties
described  below are not the only ones the company faces.  Additional  risks and
uncertainties  not presently  known to us or that we currently  deem  immaterial
also may impair our business operations.  If any of the following risks actually
occur,  our  business,  financial  condition  and  operating  results  could  be
materially adversely affected.

We have 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  through December 31, 2004, we have generated  $22,165,661 in revenues
and accumulated deficit (including preferred stock dividends and returns) in the
amount of $88,813,306.

We may need  additional  financing  to continue  operations.  As of December 31,
2004, we have an outstanding debt of $650,000  pursuant to short term notes with
certain major  shareholders and Directors of the Company that mature on December
31, 2005. We also have a loan from Texas State Bank in the amount of $733,595 as
of December  31,  2004,  which  matures in  February  2006 and is secured by our
accounts  receivable  and fixed assets.  We must  negotiate an extension of this
note on or before the maturity date. We also owe $840,753 to our former Chairman
of the Board  pursuant  to a note that  matures in April,  2012.  Principal  and
interest  payments on this note are paid annually based upon net profits (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,  Texas State Bank agreed to the assumption of our loan by an
individual  upon our sale of the Waxahachie  property.  As of December 31, 2004,
the  remaining  outstanding  balance on this loan was  $312,391.44.  Should this
individual  default on the assumed loan,  the liability for the loan will revert
to the Company.

There is no long-term contract in place with the Department of Energy contractor
for continued HSA Cobalt  production.  We have put short term specific "work for
non-government  sponsor  agreements"  in place  with the  Department  of  Energy
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  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 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 U.S.  Nuclear  Regulatory  Commission and Food and
Drug Administration  regulations.  To the extent these regulations are or become
burdensome, our business development could be adversely affected.

We are dependent  upon key  personnel.  Our ongoing  operations are dependent on
Steve T. Laflin,  President and Chief Executive Officer.  The loss of Mr. Laflin
could  have a  material  adverse  effect on our  business.  We have a $2 million
dollar key man life  insurance  policy on Mr. Laflin and two years  remaining on
Mr. Laflin's employment agreement. There is no assurance that we will be able to
retain Mr.  Laflin or our  existing  personnel or attract  additional  qualified
employees.  The loss of any of our key  personnel  or an  inability  to  attract
additional qualified employees could 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, which controls the Idaho reactor and
laboratory operations. Our gemstone production is tied to an exclusive agreement
with  Quali  Tech Inc.  Nuclear  medicine  calibration  and  reference  standard
manufacturing is conducted under an exclusive contract with RadQual,  LLC, which
in turn has agreements in place with several companies for marketing and sales.


                                       13
<PAGE>

We are subject to competition from other  companies.  Each of our business areas
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. Most of
our  radiochemicals  are also  manufactured  by several  other  companies in the
world, and there are other suppliers of high purity fluorine  products.  Each of
our competitors has significantly  greater  financial  resources that could give
them competitive advantage 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.  We  believe  the
allegations of the petition are without merit. However, there is no guarantee of
a favorable outcome of this suit and an unfavorable  outcome could result in the
loss of major revenues and require substantial payments to the plaintiff.



Item 7.    FINANCIAL STATEMENTS

The following financial statements are included herewith:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2004 and 2003

Consolidated  Statements of Operations for the years ended December 31, 2004 and
2003

Consolidated  Statement of  Shareholders'  Equity  (Deficit) for the years ended
December 31, 2004 and 2003

Consolidated  Statements of Cash Flows for the years ended December 31, 2004 and
2003

Notes to Consolidated Financial Statements


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 our 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
material  information  relating  to the company was made known to them by others
within the company,  particularly  during the period in which this Annual Report
on Form 10-KSB was being prepared.

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.


                                       14
<PAGE>

PART III.


Item 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
            COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

We have  adopted  a Code of  Ethics  that  applies  to our  principal  executive
officer, principal financial officer, principal accounting officer or controller
or persons  performing  similar  functions.  Our Code of Ethics is posted on our
website and can be accessed, free of charge, at www.intisoid.com.

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 2005 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, 2004,  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, 2004, the close of our fiscal year.



                                       15
<PAGE>

Item 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENTAND
            RELATED STOCKHOLDER MATTERS

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


Item 13.    EXHIBITS AND REPORTS ON FORM 8-K

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

3.1      Restated  Articles of  Incorporation  of the Company  (incorporated  by
         Reference  to Exhibit 3.1 to the  Company's  Registration  Statement on
         Form SB-2 filed on May 1, 1997 (Registration No. 333-26269)).

3.2      Articles of Amendment to the Restated  Articles of incorporation of the
         Company  (incorporated  by  reference  to Exhibit 3.2 to the  Company's
         Registration  Statement  on Form  S-8  filed  on  September  12,  2003)
         (Registration No. 333-108776).

3.3      Bylaws of the Company  (incorporated by reference to Exhibit 3.2 to the
         Company's  Registration  Statement  on Form  SB-2  filed on May 1, 1997
         (Registration No. 333-26269)).

4.1      International   Isotopes   Subscription   Rights  Agreement  and  Proxy
         Statement

10.1     * 2002 Long Term Incentive Plan  (incorporated  by reference to Exhibit
         10.1 to the  Company's  Annual  Report on Form 10KSB for the year ended
         December 31, 2002

10.2     Form of Incentive Stock Option Agreement

10.3     Series A and B  Warrant  Agreement  and Form of  Series A and B Warrant
         (incorporated by reference to the Company's  Registration  Statement on
         Form S-3 filed on June 18,2003 (Registration No. 333-106215)

10.4     *International Isotopes Employee Stock Purchase Plan

10.5     *International Isotopes Employment Agreement with Steve T. Laflin

10.6     Lease Agreement 4137 Commerce Circle

10.7     Option to Purchase and Right of First  Refusal for Property  located at
         4137 Commerce Circle

10.8     Lease Agreement 3159 Commerce Way

10.9     Option to Purchase and Right of First  Refusal for Property  located at
         3159 Commerce Way

10.10    Promissory Note with Texas State Bank for $250,000 Line of Credit

10.11    Promissory Note with Texas State Bank for Commercial Loan

10.12    Unsecured Note to former Chairman of the Board, Dated April 1, 2002

10.13    Form of Note  Purchase  Agreement  and  Form of  Unsecured  Convertible
         Promissory Notes


                                       16
<PAGE>

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 for
         Chief Executive Officer.

31.2     Certification  under section 302 of the  Sarbanes-Oxley Act of 2002 for
         Chief Financial Officer.

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

*This  exhibit  constitutes  a  management  contract  or  compensatory  plan  or
arrangement.


Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Hansen,  Barnett & Maxwell served as our  independent  accountants for the years
ended December 31, 2004, 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, 2004 and
2003 are summarized as follows:

                                     2004           2003
                                    -------        -------
         Audit Fees                 $56,939        $65,496
         Audit Related Fees              $0             $0
         Tax Fees                        $0             $0
         All Other Fees                  $0             $0
                                    -------        -------
         Total                      $56,939        $65,496

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  about  financial  reporting,
considers and pre-approves  all 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.  All Audit,  Audit-Related,  Tax and
Other Fees in 2003 and 2004 were approved by the Audit Committee.



                                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.


                                       17
<PAGE>

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this 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, Chief Executive Officer
                                             and Chief Financial Officer



                                   SIGNATURES

In  accordance  with 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 30, 2005                           By:  /s/ Dr. Ralph Richart
                                              ----------------------------
                                              Dr. Ralph Richart
                                              Chairman of the Board of Directors


March  30, 2005                          By:  /s/ Steve T. Laflin
                                              ----------------------------
                                              Steve T. Laflin
                                              President, Chief Executive Officer
                                              (Principal Executive Officer),
                                              Chief Financial Officer (Principal
                                              Accounting Officer) and Director


March 30, 2005                           By:  /s/ Christopher Grosso
                                              ----------------------------
                                              Christopher Grosso
                                              Director, Audit Committee Chairman





                                       18
<PAGE>



INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

FINANCIAL STATEMENTS

TABLE OF CONTENTS


                                                                       Page No.

Report of Independent Registered Public Accounting Firm...............    20

FINANCIAL STATEMENTS

Consolidated Balance Sheets
    as of December 31, 2004 and 2003..................................    21

Consolidated Statements of Operations for the years ended
   December 31, 2004 and 2003.........................................    22

Consolidated Statements of Shareholders' Equity (Deficit) for
   the years ended December 31, 2003 and 2004.........................    23

Consolidated Statements of Cash Flows for the years ended
   December 31, 2004 and 2003.........................................    24

Notes to Consolidated Financial Statements ...........................    26





                                       19
<PAGE>


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



           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRM


To the Board of Directors and the Shareholders
International Isotopes Inc

We have audited the  accompanying  consolidated  balance sheets of International
Isotopes Inc and  subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of operations,  shareholders' 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 audit.

We conducted  our audits in  accordance  with  standards  of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits 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, 2004 and 2003, and the results
of its operations and its cash flows for the years then ended in conformity with
U.S. generally accepted accounting principles.




                                                    HANSEN, BARNETT & MAXWELL

Salt Lake City, Utah
February 11, 2005





                                       20
<PAGE>

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


                                                                           December 31,
                                                                  -----------------------------
                      Assets                                          2004             2003
 ------------------------------------------------------           ------------     ------------
<S>                                                               <C>              <C>
Current assets:
    Cash and cash equivalents                                     $    150,051     $    160,216
    Accounts receivable                                                432,750          203,152
    Inventories (Note 3)                                             2,237,421        2,283,752
    Prepaids and other current assets                                   91,520          190,979
                                                                  ------------     ------------
      Total current assets                                           2,911,742        2,838,099

Long-term assets
    Restricted certificate of deposit                                  152,728          150,573
    Property, plant and equipment, net (Note 4)                      1,123,226          617,287
    Capitalized lease disposal costs, net of accumulated
      amortization of $47,472 & $35,604 respectivly (Note11)           101,860          113,728
    Patents, net of accumulated amortization                            98,433             --
                                                                  ------------     ------------
      Total long-term assets                                         1,476,247          881,588
                                                                  ------------     ------------
      Total assets                                                $  4,387,989     $  3,719,687
                                                                  ============     ============


          Liabilities and Stockholders' Equity
 ------------------------------------------------------
Current liabilities
    Accounts payable                                              $    328,589     $    320,554
    Accrued liabilities                                                226,338          150,475
    Current installments of mortgage and notes
      payable (Note 6)                                               1,520,570          756,725
                                                                  ------------     ------------
      Total current liabilities                                      2,075,497        1,227,754

Long-term liabilities
    Obligation for lease disposal costs (Note 11)                      149,332          149,332
    Mortgage and notes payable, excluding current
      installments (Note 6)                                            761,775          898,664
    Mandatorily redeemable preferred stock, $0.01 par value;
      850 shares (Note 7)                                             (850,000          850,000
                                                                  ------------     ------------
      Total long-term liabilities                                    1,761,107        1,897,996
                                                                  ------------     ------------
      Total liabilities                                              3,836,604        3,125,750

Stockholders' equity (Note 7)
    Common stock, $0.01 par value; 250,000,000 shares
      authorized; 159,077,940 issued                                 1,590,779        1,393,630
    Additional paid-in capital                                      87,773,992       87,168,957
    Accumulated deficit                                            (88,813,386)     (87,968,650)
                                                                  ------------     ------------
      Total stockholders' equity                                       551,381          593,937
                                                                  ------------     ------------
      Total liabilities and stockholders' equity                  $  4,387,989     $  3,719,687
                                                                  ============     ============
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       21
<PAGE>

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

                                                          Years ended December 31,
                                                       -------------------------------
                                                           2004              2003
                                                       -------------     -------------
<S>                                                    <C>               <C>
 Sales of product                                      $   2,848,844     $   2,070,592

 Cost of products                                          1,719,251         1,151,161
                                                       -------------     -------------
     Gross profit                                          1,129,592           919,431
                                                       -------------     -------------

 Operating costs and expenses:
   Salaries and contract labor                               720,383           495,724
   General, administrative and consulting                  1,058,812         1,029,602
   Research and development                                   49,098            57,186
                                                       -------------     -------------
     Total operating expenses                              1,828,293         1,582,512
                                                       -------------     -------------

     Operating loss                                         (698,701)         (663,081)
                                                       -------------     -------------

Other income (expense):
   Other income                                               10,476            35,996
   Gain from sale of fully impaired assets                      --             212,200
   Interest income                                             2,323             3,626
   Interest expense                                         (158,834)         (143,490)
                                                       -------------     -------------
     Total other income (expense)                           (146,035)          108,332
                                                       -------------     -------------

   Loss before cumulative effect of change
     in accounting principle                           $    (844,736)    $    (554,749)

Cumulative effect of change in accounting principle             --             (23,736)
                                                       -------------     -------------

Net loss                                               $    (844,736)    $    (578,485)
                                                       =============     =============

Net loss per common share - basic and diluted:
   Loss before culumative effect of change
     in accounting principle                           $       (0.01)    $       (0.01)
   Net loss                                            $       (0.01)    $       (0.01)
                                                       =============     =============

Weighted average common shares outstanding -
   basic and diluted                                     150,721,137       108,346,738
                                                       =============     =============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       22
<PAGE>

<TABLE>
<CAPTION>
                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
            Consolidated Statement of Stockholders' Equity (Deficit)
                     Years ended December 31, 2004 and 2003

                                                                                                                  Total
                                                         Common Stock             Additional                    Stockholders'
                                                  ---------------------------      Paid-in      Accumulated       Equity/
                                                    Shares          Amount         Capital        Deficit        (Deficit)
                                                  -----------    ------------    ------------   ------------    ------------
<S>             <C>                                <C>           <C>             <C>            <C>             <C>
Balance January 1, 2003                            95,581,135    $    955,812    $ 86,416,002   $(87,390,165)   $    (18,351)

Cancelation 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

Exercise of 19,714,894 Series A and B warrants     19,714,894         197,149         604,885           --           802,034

Net loss                                                 --              --              --         (844,736)       (844,736)
                                                  -----------    ------------    ------------   ------------    ------------
Balance December 31, 2004                         159,077,940    $  1,590,779    $ 87,773,992   $(88,813,386)   $    551,385
                                                  ===========    ============    ============   ============    ============
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       23
<PAGE>

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

                                                                  Years ended December 31,
                                                                 --------------------------
                                                                    2004           2003
                                                                 -----------    -----------
<S>                                                              <C>            <C>
Cash flows from operating activities:
   Net loss                                                      $  (844,736)   $  (578,485)
   Adjustments to reconcile net loss to net cash used in
   operating activities
    Depreciation and amortization                                    179,364        112,753
    Gain from sale of assets fully impaired                             --         (212,200)
    Loss on disposal of property, plant and equipment                    381           --
    Cumulative effect of change in accounting principle                 --           23,736
    Changes in operating assets and liabilities:
       Accrued interest on restricted certificate of deposit          (2,155)        (3,415)
       Accounts receivable                                          (229,597)        15,771
       Prepaids and other current assets                              99,459        (62,149)
       Inventories                                                    46,331         (3,924)
       Accounts payable and accrued liabilities                      129,948        (81,011)
                                                                 -----------    -----------
         Net cash used in operating activities                      (621,005)      (788,924)
                                                                 -----------    -----------

Cash flows from investing activities:
   Purchase of patents                                              (109,000)          --
   Purchase of property, plant and equipment                        (663,250)      (392,460)
   Proceeds from assets held for sale                                   --          474,436
                                                                 -----------    -----------
         Net cash (used in) provided by investing activites         (772,250)        81,976
                                                                 -----------    -----------

Cash flows from financing activities:
   Proceeds from exercise of warrants                                802,184           --
   Proceeds from issuance of common stock                               --          406,868
   Payments for offering costs                                          --         (122,906)
   Proceeds from issuance of debt                                    603,950        760,000
   Principal payments on notes payable                               (23,044)      (471,544)
                                                                 -----------    -----------
         Net cash provided by financing activities                 1,383,090        572,418
                                                                 -----------    -----------

Net change in cash and cash equivalents                              (10,165)      (134,530)
Cash and cash equivalents at beginning of year                       160,216        294,746
                                                                 -----------    -----------
Cash and cash equivalents at end of year                         $   150,051    $   160,216
                                                                 ===========    ===========
</TABLE>


                                  (Continued)


                                       24
<PAGE>


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

                                    Continued

                                                                  Years ended December 31,
                                                                 --------------------------
                                                                    2004           2003
                                                                 -----------    -----------
<S>                                                              <C>            <C>
Supplemental disclosure of cash flow activities:
   Cash paid for interest                                        $    75,092    $   113,462
                                                                 ===========    ===========

Supplemental disclosure of noncash financing and
  investing transactions:

   Note payable converted from interest payable                  $    46,050    $      --

   Renewal/renogiation of note payable                               733,595           --

   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 rights offering           --          906,811

</TABLE>


          See accompanying notes to consolidated financial statements.



                                       25
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


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 International Isotopes Idaho, Inc.

         Nature of Operations  -The  Company's  business  consists of five major
         business  segments  which  include:   Nuclear  Medicine  Reference  and
         Calibration  Standards,   Cobalt  Products,   Radiochemical   Products,
         Fluorine  Extraction  Process  Products,  and  Radiological  Processing
         Services.

         With the exception of certain  unique  products,  the Company's  normal
         operating  cycle is considered to be one year. Due to the time required
         to produce some cobalt  products,  the  Company's  operating  cycle for
         those products 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. As of December 31, 2004, the
         Company had sixteen full time employees.

         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 a restricted certificate of deposit
                totaling  $302,779  and  $310,789 at December 31, 2004 and 2003,
                respectively,   consist  of  operating  accounts,  money  market
                accounts  and a  certificate  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, 2004 the Company has pledged a  certificate  of
                deposit 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, 2004,  the Company had $152,606 of cash deposits
                in excess of federally insured limits.


                                       26
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


         (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 and amortization  expense was $179,364 and $112,753
                for the years ended December 31, 2004 and 2003, 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
                exceeds 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, 2004 or
                2003.


                                       27
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


         (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.

                Sales to one  major  customer  accounted  for 49% and 60% of the
                sales during 2004 and 2003 respectively.

         (i)    Research and Development Costs

                The Company  had  research  and  development  expenses  totaling
                $49,098  in 2004  and  $57,186  in  2003.  These  expenses  were
                associated   with   initial   development   of  the   processing
                opportunities for new radiochemical products and for development
                work associated with the 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,  2004 and 2003,  the Company
                expensed  $4,672 and  $108,751,  respectively  of  shipping  and
                handling   costs.   These   costs  are   reported   as  general,
                administrative   and  consulting  costs  in  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").



                                       28
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


                No  compensation  cost has been  recognized for 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 would have been  increased  to the pro forma
                amounts  indicated  below for the years ended  December 31, 2004
                and 2003:

                                                        2004           2003
                                                    ------------    -----------

Net loss, as reported                               $   (844,736)   $  (578,485)

Deduct:  Total stock-based employee compensation
   expense determined under fair value based
   method for all awards, net of related tax
   effects                                              (174,561)       (95,319)
                                                    ------------    -----------
Pro forma net loss                                  $ (1,019,297)   $  (673,804)
                                                    ============    ===========

Loss per share, basic and diluted:
   As reported                                      $      (0.01)   $     (0.01)
                                                    ============    ===========
   Pro forma                                        $      (0.01)   $     (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 is  computed  on the basis of the
                weighted-average  number  of  common  shares  and  all  dilutive
                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 2004,  there were  103,580,306  and
                85,865,412  options/warrants  and 850 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.



                                       29
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


                In December  2004,  the FASB issued  Statement  No. 123 (Revised
                2004),  Share-Based  Payment  ("Statement  123(R)").   Statement
                123(R) revises  Statement No. 123,  Accounting  for  Stock-Based
                Compensation,  and supersedes APB Opinion No. 25, Accounting for
                Stock  Issued  to  Employees.   Statement  123(R)  requires  the
                recognition  of  the  cost  of  employee  services  received  in
                exchange  for stock  options  and  awards of equity  instruments
                based on the  grant-date  fair value of such options and awards,
                over the  period  they  vest.  Under the  options  for  adoption
                available under Statement 123(R),  the Company has determined to
                adopt  Statement  123(R)  on  the   modified-prospective   basis
                beginning on July 1, 2005,  which will result in the recognition
                of the remaining unamortized  grant-date fair value compensation
                over the  remaining  vesting  period.  The  effect  of  adopting
                Statement  123(R) on options  outstanding  at December  31, 2004
                will result in recognition of $48,688 of additional compensation
                during the year ending December 31, 2005.

         (n)    Reclassifications

                Certain 2003 amounts  have been  reclassified  to conform to the
                2004 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  with an
accumulated  deficit  of  $88,813,386  at  December  31,  2004 and a net loss of
$844,736 for the year then ended. The Company's working capital has decreased by
$774,100 from the prior year,  working capital includes inventory which will not
be sold  for up to  three  years,  and the  Company  has used  cash  flows  from
operations of $621,005.  During 2004,  the Company sought to improve future cash
flows from operating activities through significant  investments into facilities
and  infrastructure,  launching  new products  and  implementing  and  improving
operating cost control  measures.  The Company has been able to grow the Nuclear
Medicine  Reference  and  Calibration  Standards  segment  at an annual  rate of
approximately 12% per year and anticipates similar growth trends over the coming
year.

During March 2005,  the Company  obtained  approval from the Nuclear  Regulatory
Commission  ("NRC")  to  manufacture  a wide  range  of  cobalt  irradiator  and
teletherapy capsules and plans to expand their customer base and increase cobalt
revenues through  recycling  various expended sealed sources and sales of cobalt
sealed sources  utilizing  recycled  material or material  produced in reactors.
During 2005,  the Company has also signed  contracts  for the sale of HSA Cobalt
through December 2007 and for the sale of Cobalt sealed source sets.  Management
believes that this expanded cobalt production  capability should increase future
revenues.

During 2004,  the Company  acquired  seven  patents for the Fluorine  Extraction
Process  (FEP)  and  began  construction  of a plant to use this  technology  to
produce several high purity fluorine products, such as germanium  tetrafluoride.
The Company  expects to  complete  plant  construction  and begin  fluorine  gas
production  during the  second  quarter  of 2005.  Based on the market  size and
growth outlook for high purity fluorine products,  management believes this plan
and its operations should increase future revenues.

Subsequent to December 31, 2004,  certain series A and B warrants were exercised
resulting in the issuance of  24,252,059  shares of common stock for proceeds of
$970,180.

Management  believes  these changes to  operations  and the  additional  capital
received  from the exercise of warrants will be sufficient to enable the Company
to continue its  operations as a going concern;  however,  there is no assurance
that management's plans will be fulfilled or that profitable  operations will be
obtained.



                                       30
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


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, 2004 and 2003:

                                             2004           2003
                                          ----------     ----------

                 Raw materials            $  267,850     $  268,265
                 Work in progress          1,968,177      2,007,066
                 Finished goods                1,394          8,421
                                          ----------     ----------
                                          $2,237,421     $2,283,752

         Work in progress  includes  cobalt-60  isotopes that are located in the
         U.S. federal  government's  Advanced Test Reactor (ATR) located outside
         Idaho  Falls,   Idaho.   These   isotopes  are  at  various  stages  of
         irradiation.  Some isotopes are near  completion and others may require
         up to three years to  complete.  At December  31, 2004 and 2003,  these
         isotopes  had  a  carrying   value  of   $1,764,659   and   $1,889,003,
         respectively.

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are summarized as follows at December 31,
         2004 and 2003:

                                                 2004            2003
                                              -----------     -----------
         Furniture and fixtures               $    63,062     $    49,931
         Plant and improvements                    53,647          48,507
         Production equipment                   1,432,235         791,444
                                              -----------     -----------
                                                1,548,944         889,882
         Less accumulated depreciation           (425,718)       (272,595)
                                              -----------     -----------
         Property, plant & equipment, net     $ 1,123,226     $   617,287
                                              ===========     ===========


                                       31
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


NOTE 5 - PATENTS

         During the year ended December 31, 2004, the Company  obtained  certain
         patents and patents  pending related to a Fluorine  Extraction  Process
         and a container  to transport  radioactive  materials.  Patents,  as of
         December 31, 2004, are as follows:

                                                           2004
                                                         --------
         Patents                                         $109,000
         Less accumulated amortization                    (10,567)
                                                         --------
         Patents - net                                   $ 98,433
                                                         ========

         During the year ended December 31, 2004, the Company recognized $10,567
         of amortization expense.  Estimated amortization expense of patents for
         the next five years is as follows:


         Years Ending December 31:
         2005                                            $ 10,896
         2006                                              10,896
         2007                                              10,896
         2008                                              10,896
         2009                                              10,896
         Thereafter                                        43,953
                                                         --------
         Total                                           $ 98,433
                                                         ========

NOTE 6 - MORTGAGE AND NOTES PAYABLE

         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,  $68,985 of principal and
         $33,500 of accrued interest on this note was converted to common stock.
         The  conversion  rate was not  beneficial  to the holder,  based on the
         market value of the common stock on the conversion date.

         During 2004,  the Company  negotiated a line of credit with a bank. The
         maximum  amount  available  to borrow  is  $250,000.  The line  accrues
         interest  at the bank prime rate plus 1% not to be less than 7.5%.  The
         line  comes  due in July 2005 and is  secured  by  equipment,  accounts
         receivable and inventory.  As of December 31, 2004, the Company had not
         drawn any funds against this line of credit.



                                       32
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


Mortgage  and notes  payable as of December  31,  2004 and 2003,  consist of the
following:

                                                          2004          2003
                                                      -----------   -----------
Unsecured note payable to certain directors
and shareholders, accrues interest at 6%,
convertible to common stock at the option
of the creditor, due December 31, 2005.
Convertible at $0.18 per share, which was
the market value on the date of the grant.            $   650,000   $         -

Note payable to a finance company accrues
interest at 8.7% due in monthly installments
of $1,488; secured by equipment; due in 2008.              57,997        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% through July 2005 then at prime plus 1%
due monthly; secured by equipment, accounts
receivable and inventory; due February 2006.              733,595       733,595

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;
secured.                                                  840,753       840,753
                                                      -----------   -----------
Total mortage and notes payable                         2,282,345     1,655,389
Less: current maturities                               (1,520,570)     (756,725)
                                                      -----------   -----------
Mortgage and notes payable, excluding current
installments                                          $   761,775   $   898,664
                                                      ===========   ===========


The aggregate annual maturities of mortgage and notes payable as of December 31,
2004 for the next five years are as follows:

Years Ending December 31:
_________________________
2005                                                  $ 1,520,570
2006                                                      731,623
2007                                                       15,849
2008                                                       14,303
                                                                -
                                                      -----------
                                                      $ 2,282,345
                                                      ===========


NOTE 7 - SHAREHOLDERS' 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.


                                       33
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


         During  2004 there were  18,356,024  Series A warrants,  and  1,358,870
         Series B  warrants,  issued  from the 2003  rights  offering  that were
         exercised  by  shareholders  for common stock  generating  $802,184 and
         resulted  in the Company  issuing an  additional  19,714,894  shares of
         common  stock.  The Series A warrant  agreement  contained  a provision
         allowing  the  Company to redeem  the  Series A  warrants  at any time,
         provided  the  average  closing  price of the  Company's  common  stock
         equaled,  or  exceeded,  $0.12 for 30  consecutive  trading  days.  The
         Company stock met this  requirement  and in January  2005,  the Company
         announced  that the Series A warrants would be redeemed on February 25,
         2005  at a  redemption  price  of  $0.001  per  warrant.  Prior  to the
         redemption  date of February 25, 2005,  24,242,259 of Series A warrants
         were exercised for cash proceeds of $969,690.  On February 25, 2005 the
         Company redeemed the remaining 1,191,870 Series A warrants for $1,192.

         Subsequent to December 31, 2004, 9,800 Series B warrants were exercised
         for cash proceeds of $490.

         Redeemable Convertible Preferred Stock

         The Company is authorized to issue 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 the  payment of  dividends  and  amounts  payable in event of
         liquidation, dissolution or winding up of the Company.

         At December 31,  2004,  there were 850 shares of the Series B Preferred
         Stock  outstanding  with a mandatory  redemption  date of May 2022. 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.

         Employee Stock Purchase Plan

         On September  30, 2004,  the Company's  Board of Directors  approved an
         employee stock purchase plan for an aggregate of up to 2,000,000 shares
         of the Company's  common stock.  The plan allows employees to deduct up
         to 15% of their  payroll each pay period to be used for the purchase of
         common stock at a discounted  rate. The common shares will be purchased
         at the end of each  three  month  offering  period  or other  period as
         determined  by the  Board.  The  Plan  is  intended  to  qualify  as an
         "employee  stock  purchase  plan"  under  Section  423 of the  Internal
         Revenue  Code.  Employees  began making  payroll  deductions in January
         2005.  The plan is subject to  shareholder  approval at the next annual
         shareholder meeting.

         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 reported
         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 common  stock.  The
         maximum  number of options that can be granted to each  employee in one
         year is 10,000,000.



                                       34
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


         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  were fully
         vested as of 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.  During 2004 the
         Company  granted  1,500,000  options to purchase  common  stock with an
         exercise  price of $0.17 and  500,000  options  to  purchase  shares of
         common  stock at an  exercise  price of $0.12  which  was  equal to the
         closing market price of the common stock on the grant dates.

         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, 2003         14,000,000       $      0.02
         Granted                                 2,000,000       $      0.03
                                              ------------       -----------
         Outstanding at December 31, 2003       16,000,000       $      0.03
         Granted                                 2,000,000       $      0.16
                                              ------------       -----------
         Outstanding at December 31, 2004       18,000,000       $      0.04
                                              ============       ===========

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

         Exercisable at December 31, 2004       12,250,000       $      0.03
                                              ============       ===========


         The following table  summarizes  information  about fixed stock options
         under the Plan outstanding at December 31, 2004:

<TABLE>
<S><C>

                  Options           Weighted-         Weighted          Number          Weighted-
  Range of     Outstanding at        Average          Average       Exerciseable at      Average
  Exercise      December 31,        Remaining         Exercise        December 31,      Exercise
   Prices           2004         Contractual Life      Price              2004           Price
 -------------------------------------------------------------------------------------------------

  .02-.03        15,000,000            7.33            $ 0.02          10,750,000         $ 0.02
    0.08          1,000,000            6.31            $ 0.08           1,000,000         $ 0.08
    0.12            500,000            9.85            $ 0.12             125,000         $ 0.12
    0.17          1,500,000            9.59            $ 0.17             375,000         $ 0.17
</TABLE>



                                       35
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


         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:

                                              2004          2003
                                            --------      --------
        Expected dividend yield                   -             -
        Risk-free interest rate                 4.4%          3.4%
        Expected volatility                     150%          159%
        Expected life                       10 years      10 years
        Weighted average fair value
          per share                            $0.16         $0.03



         Warrants

         The following  summarizes warrant activity for the years ended December
         31, 2004 and 2003:


                                                             Weighted-Average
                                                                 Exercise
             Fixed Warrants                      Shares           Price
        ----------------------------------------------------------------------
        Outstanding at January 1, 2003          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
        Exercised                             (19,714,894)            0.04
                                              -----------      -----------
        Outstanding at December 31, 2004       67,865,412      $      0.05
                                              ===========      ===========


         The following table summarizes information about warrant outstanding at
         December 31, 2004:


                  Outstanding and Exerciseable at December 31, 2004
              ----------------------------------------------------------
                                                    Weighted Average
                                                       Remaining
              Exercise Prices        Warrants       Contractual Life
              ----------------------------------------------------------
              $0.04                   25,434,129          2.58
              $0.05                   42,431,283          2.58
                                    ------------
                                      67,865,412
                                    ============




                                       36
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


NOTE 8 - INCOME TAXES

         The Company  paid no federal or state income taxes during 2004 or 2003.
         Income  tax  expense  on 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:

                                                 2004            2003
                                              ----------      ----------
        Income tax benefit                    $ (287,210)     $ (188,615)
        Nondeductible expenses                       409              38
        State taxes net of federal benefit       (44,100)        (28,961)
        Change in valuation allowance            330,901         217,538
                                              ----------      ----------
        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, 2004 and 2003 are presented below:

                                                    2004            2003
                                                 -----------     -----------
        Deferred income tax asset
          Net operating loss carryforward        $ 1,397,335     $ 1,050,377
                                                           -               -
                                                 -----------     -----------
        Total deferred income tax asset            1,397,335       1,050,377
        Deferred income tax liability -
          depreciation                               (35,084)         (9,718)
        Valuation allowance                       (1,362,251)     (1,040,659)
                                                 -----------     -----------
        Deferred tax asset (liability)           $         -     $         -
                                                 ===========     ===========

         At December 31, 2004 the Company had net operating losses of $3,562,759
         that will begin to expire in 2023.  The valuation  allowances  for 2004
         and 2003 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 9 - COMMITMENTS AND CONTINGENCIES

         Litigation

         During February 2004, a lawsuit was filed by Iso-Science  Laboratories,
         Inc. in the Superior Court of the State of California for the County of
         Los Angeles  against the  Company,  its  President  and CEO, one of its
         customers and certain  officers of this customer.  The lawsuit contains
         numerous allegations against the defendants relating to the manufacture
         and sale of calibration and reference  standards for nuclear  medicine.
         The lawsuit alleges the defendants are using  information and equipment
         that the  plaintiff  acquired  from a previous  employer  of one of the
         defendants.   The  lawsuit   also  alleges   unfair  trade   practices,
         interference with prospective business  relationships,  and conspiracy.
         The  plaintiff  seeks (i) an  injunction  to restrain  the Company from
         manufacturing,  marketing,  or selling any of the products in question;
         (ii) a 55%  royalty on the price of all  related  products  the Company
         sells;  (iii) the return of all equipment and  information in question;
         (iv)  disgorgement of profits received from the manufacture and sale of
         the  products in question;  and (v) general and punitive  damages in an
         amount to be shown at the time of trial.  In March  2004,  the  Company
         filed a response to the lawsuit in which the Company  denied all of the
         allegations.  In addition, the Company has filed a counterclaim against
         the  plaintiff on the basis that the  plaintiff  filed the suit against
         the  Company  and our  President  and CEO with the  knowledge  that the
         plaintiff  had no  basis  in law or  fact  and  that  the  lawsuit  was
         calculated  to  interfere  with  our   contractual   arrangements   and
         prospective business with our customers.


                                       37
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


         On July 29,  2004 the court  granted  our motion to dismiss all charges
         against  our   President  and  CEO.  On  October  25,  2004  the  court
         established  an  anticipated  trial start date of December 5, 2005. The
         Company  will  continue to  vigorously  defend  against  this  lawsuit;
         however,  the likelihood of an unfavorable  outcome is not determinable
         at this time. Should this lawsuit be settled in a manner unfavorable to
         the  Company,  the Company  could lose our major line of  revenues  and
         could be required to make  substantial  payments to the plaintiff.  The
         Company has a  manufacturing  agreement  in place with our customer and
         co-defendant  pursuant to which the customer will  indemnify us and our
         officers  from any loss  arising  from  this  lawsuit.  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 in the future.
         However, there is no guarantee that our customer can bear the financial
         burden arising from defending and possible settlement of this lawsuit.

         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, 2004 and 2003 was $143,922 and $82,242 respectively.

         Future  minimum lease  payments under  noncancelable  operating  leases
         (with  initial or  remaining  lease  terms in excess of one year) as of
         December 31, 2004 are:


                                                        Operating
         Years ending December 31                        Leases
                                                        ---------
         2005                                             143,719
         2006                                             138,744
         2007                                             138,744
         2008                                             102,484
         2009                                               4,310
                                                        ---------
         Total minimum lease payments                   $ 528,001
                                                        =========

         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 U.S.  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 the  Company's  sole  customer for this
         product.   Nuclear   Medicine   Reference  and   Calibration   Standard
         manufacturing  is conducted  under an exclusive  contract with RadQual,
         LLC. who in turn has an agreement in place with several  companies  for
         distributing  the product.  A loss of either of these  customers  could
         adversely affect operating  results by causing a delay in production or
         a possible loss of sales.


                                       38
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


         Contingencies

         Because all of the  Company's  business  segments  involve  radioactive
         materials 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 amended this license several times a year 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 this  license  does not  currently  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
         Certificate of Deposit at Texas State Bank has been used to provide the
         financial assurance required by the NRC for the Idaho facility license.

NOTE 10 - SALE OF ASSETS

         Sale of Waxahachie Real Estate

         In January  2003,  the Company  entered  into an agreement to sell real
         estate in  Waxahachie  ,Texas for the  assumption  of  $345,295 of debt
         associated with the property.  The Company remains  contingently liable
         to Texas State Bank for the debt on the real  estate for the  remainder
         of the term of the debt and could become  liable  should the  purchaser
         default on the note.

         In accordance with FASB 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,  the Company would also regain the
         real estate.

NOTE 11 - 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.

         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.



                                       39
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003



         The following summarizes the asset retirement obligation activity for
         the years ended December 31, 2004 and 2003:

         Balance January 1, 2003                       $ 149,332
          Accretion expense                               11,947
          Revision to cashflow estimates                 (11,947)
                                                       ---------
         Balance December 31, 2003                       149,332
          Accretion expense                               11,947
          Revision to cashflow estimates                 (11,947)
                                                       ---------
         Balance December 31, 2004                     $ 149,332
                                                       =========

NOTE 12 - SEGMENTS INFORMATION

         The  Company  has  five  reportable  segments  which  include:  Nuclear
         Medicine   Reference  and  Calibration   Standards,   Cobalt  Products,
         Radiochemical  Products,  Fluorine  Extraction Process and Radiological
         Processing Services. Each of these segments is briefly described in the
         following paragraphs:

         o     Nuclear  Medicine  Reference and  Calibration  Standards  segment
               consists of manufacture of sources and standards  associated with
               SPECT   imaging,   patient   positioning,   and   calibration  or
               operational  testing  of dose  measuring  equipment  for  nuclear
               pharmacy.

         o     Cobalt  Products  segment  includes  the  production  of high and
               medium specific activity bulk cobalt,  recycling  expended cobalt
               sources,  and  fabrication of a wide array of cobalt  teletherapy
               and experimental irradiator source capsules.

         o     Radiochemical  Products  segment  includes  production of various
               isotopically  pure  radiochemical  for  medical,  industrial,  or
               research   applications.   These  products  are  either  directly
               produced  by the  company  or are  purchased  in bulk from  other
               producers and  distributed by the Company in customized  packages
               and chemical forms tailored to customer and market demands.

         o     Fluorine Extraction Process (FEP) segment concerns the production
               of  high  purity   fluorine  gas  compounds  (such  as  germanium
               tetrafluioride)    for   the   electronics   and   silicon   chip
               manufacturing  industry.  The  Company  has  acquired  all patent
               rights   to   this   process   and   is   in   the   process   of
               constructing/licensing a separate FEP production facility.

         o     Radiological Processing Services segment concerns a wide array of
               miscellaneous  services such as processing of gemstone  which has
               undergone   irradiation  for  color   enhancement,   radiological
               engineering  consultant  services,  Type A package  certification
               testing, and waste packaging/recycle services.

         The accounting policies of the segments are the same as those described
         in  the  summary  of  significant   accounting  policies.  The  Company
         evaluates  performance  based on profit or loss from operations  before
         other income or expense.


                                       40
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


The  Company's  reportable  segments are  strategic  revenue  sources that offer
different  products  and  services.  They are managed  separately  because  each
segment requires different technology and marketing strategies.
<TABLE>
<S><C>
                                                                 Radio-        Fluorine
                                  Reference        Cobalt       chemical      Extraction     Radiological       Total
 December 31, 2004                Standards      Production     Products       Process         Services        Segments
 --------------------------       ----------     ----------     ---------     ----------     ------------     ----------

 Revenues                         $1,377,281     $  923,262     $ 387,983     $        -     $    160,317     $2,848,843
 Depreciation and amortization        35,984         16,726        48,427         12,199           29,096        142,432
 Segment profit                      560,002        387,471      (284,752)      (226,549)         (13,379)       422,793
 Segment assets                      687,267      2,509,904       543,576        263,967          167,391      4,172,105
 Expenditures for segment assets       4,867        398,042        76,928        263,967                -        743,804


                                                                 Radio-        Fluorine
                                  Reference        Cobalt       chemical      Extraction     Radiological       Total
 December 31, 2003                Standards      Production     Products       Process         Services        Segments
 --------------------------       ----------     ----------     ---------     ----------     ------------     ----------

 Revenues                         $1,201,833     $  377,309     $ 145,763     $        -     $    345,687     $2,070,592
 Depreciation and amortization        33,769          8,910         6,527              -           30,174         79,380
 Segment profit (loss)               396,233        118,946      (217,807)             -          106,460        403,832
 Segment assets                      467,963      2,183,791       426,510              -          168,497      3,246,761
 Expenditures for segment assets      12,737         17,523       409,727              -                -        439,987
</TABLE>


                                   Segment       Corporate         Total
 December 31, 2004                  Totals        Amounts       Consolidated
 --------------------------       ----------     ----------     ------------

 Revenues                         $2,848,843     $        -     $  2,848,843
 Depreciation and amortization       142,432         36,932          179,364
 Net profit (loss)                   422,793     (1,267,529)        (844,736)
 Total assets                      4,172,105        215,884        4,387,989
 Expenditures for assets             743,804         28,446          772,250


                                   Segment       Corporate         Total
 December 31, 2003                  Totals        Amounts       Consolidated
 --------------------------       ----------     ----------     ------------

 Revenues                         $2,070,592     $        -     $  2,070,592
 Depreciation and amortization        79,380         33,373          112,753
 Net loss                            403,832       (982,317)        (578,485)
 Total assets                      3,246,761        472,926        3,719,687
 Expenditures for assets             439,987         39,744          479,731




                                       41
<PAGE>

                   INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003




NOTE 13 - SUBSEQUENT EVENTS

         As  discussed in Note 7,  subsequent  to year end  25,434,129  Series A
         warrants  and 9,800  Series B warrants  were  exercised or redeemed for
         cash proceeds of $970,180.

         In March 2005, the Company  entered into two new multi-year  agreements
         with customers for various cobalt products and services.






                                       42
<PAGE>