8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report:  October 4, 2004

ISONICS CORPORATION
(Name of small business issuer as specified in its charter)
California	001-12531	77-0338561
State of Incorporation	Commission File Number	IRS Employer Identification No.
5906 McIntyre Street, Golden, Colorado 80403
Address of principal executive offices
303-279-7900
Telephone number, including Area code
Not applicable
Former name or former address if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

Item 1.01 – Entry into a Material Definitive Agreement

On October 4, 2004, we entered into a registration rights agreement with an accredited investor relating to an investment by that investor in a private placement of $3,300,000 as described under Item 3.02, below.

Item 3.02 – Unregistered Sales of Securities

On October 4, 2004, we issued 33,000 shares of our Series E Convertible Preferred Stock and 614,000 common stock warrants to a single, offshore, accredited investor in exchange for its investment of $3,300,000.  In addition, we paid a due diligence fee of $231,000 and reimbursement of $20,000 in expenses, and (after our own expenses) received net proceeds of approximately $3,050,000.  The accredited investor is Asset Managers International Ltd (“AMI”) of Dublin, Ireland.  The following sets forth the information required by Item 701 in connection with that transaction:

(a)The transaction was completed effective October 4, 2004.   We issued 33,000 shares of our Series E Convertible Preferred Stock and 614,000 common stock warrants to one offshore, accredited investor.

(b)There was no placement agent or underwriter for the transaction.

(c)The total offering price was $3,300,000.  No underwriting discounts or commissions were paid.  We paid a fee of $231,000 to AMI as a due diligence fee and paid its legal expenses of $20,000.

(d)We relied on the exemption from registration provided by Sections 4(2) and 4(6) under the Securities Act of 1933 for this transaction, as well as Regulation D and Regulation S.  We did not engage in any public advertising or general solicitation in connection with this transaction. We provided the accredited investor with disclosure of all aspects of our business, including providing the accredited investor with our reports filed with the Securities and Exchange Commission, our press releases, access to our auditors, and other financial, business, and corporate information.  Based on our investigation, we believe that the accredited investor obtained all information regarding Isonics it requested, received answers to all questions it posed, and otherwise understood the risks of accepting our securities for investment purposes.

(e)The Series E Convertible Preferred Stock bears a dividend of 8% per annum ($8.00 per share per year), payable in cash, in arrears, monthly, commencing October 4, 2004 (and payable at each month end).  The dividend obligation terminates after one year or earlier if the Series E Convertible Preferred Stock is converted to common stock.

The Series E Convertible Preferred Stock has a liquidation preference of $100 per share plus any accrued but unpaid dividends.

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The Series E Convertible Preferred Stock is convertible into common stock at a price equal to 85% of Market Price on the conversion date, but at a price no higher than $1.24 per share (the “Ceiling Price”) and no lower than $1.00 per share (the “Floor Price”).  For purposes of determining the Conversion Price, the “Market Price”shall be the average of the lowest three intra-day trading prices of Isonics’ common stock (which need not occur on consecutive trading days) during the 5 trading days immediately preceding the conversion date.  The 5 trading day period shall be extended by the number of trading days during such period on which

(i) trading in Isonics’ common stock is suspended by, or not traded on, the OTC Bulletin Board or a subsequent market on which the common stock is then traded, or

(ii) after the date of Registration Statement (the “Registration Statement”) for the underlying shares of common stock of the Corporation into which the Series E Preferred Stock may be converted is declared effective by the SEC, the prospectus included in the Registration Statement may not be used by the holder for resale of underlying shares of common stock, is suspended by, or not traded on, the NASDAQ Small Cap or a subsequent market on which the common stock is then listed, or

(iii) after the date the Registration Statement is declared effective by the SEC, the prospectus included in the Registration Statement for the underlying shares may not be used by the holder for the resale of underlying shares of common stock (provided such inability to use the prospectus is not (a) caused by the holder or (b) as a result of Isonics’ filing of post-effective amendments to the Registration Statement.)

Each common stock warrant is exercisable to purchase one share of common stock through October 4, 2007.  One-half (307,000) of the common stock warrants have an exercise price of $1.24 per share; the remaining one-half of the common stock warrants have an exercise price of $1.35 per share.  (At the time we reached agreement with MAG for the transaction on September 30, 2004, the market price for our stock was $1.31 per share and the twenty day average closing price of our common stock ending at the close of market on September 30, 2004, was $1.27 per share.)

We have an obligation to register the shares underlying the Series E Convertible Preferred Stock and the common stock warrants, including the obligation to file a registration statement within 34 days of October 4, 2004 and to obtain effectiveness of the registration statement within 70 days after the filing of the registration statement.

(f)We will use the proceeds for continued development of NeutroTest and other expenses related to our Homeland Security division, in our semiconductor division, for new product development in our life sciences division, and for general corporate purposes.

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Item 5.03 – Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

On October 1, 2004, Isonics filed its certificate of determination of preferences and rights of Series E Convertible Preferred Stock with the California Secretary of State to complete the private placement of the Series E Preferred Stock described in Item 3.02, above.  This filing acts as an amendment to Isonics’ articles of incorporation.

Item 9.01 – Financial Statements and Exhibits

(a)Financial Statements of Businesses Acquired.

Not applicable.

(b)Pro forma financial information.

Not applicable.

(c)Exhibits

1Certificate of Determination for Series E Convertible Preferred Stock

2Registration Rights Agreement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 6th day of October 2004.

Isonics Corporation
By:	/s/ James E. Alexander
	James E. Alexander
	President and Chief Executive Officer

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EX-1

Exhibit 1

CERTIFICATE OF DETERMINATION OF PREFERENCES AND RIGHTS OF

SERIES E CONVERTIBLE PREFERRED STOCK

OF

ISONICS CORPORATION

a California corporation

The undersigned, James E. Alexander and John V. Sakys certify that:

1.             They are the duly acting President and Secretary, respectively, of Isonics Corporation, a corporation organized and existing under the Corporation Code of the State of California (the “Corporation”).

2.             Pursuant to authority conferred upon the Board of Directors by the Articles of Incorporation of the Corporation, and pursuant to the provisions of Section 401 of Title 1 of the Corporations Code of the State of California, said Board of Directors, pursuant to a meeting held September 21, 2004, adopted a resolution establishing the rights, preferences, privileges and restrictions of, and the number of shares comprising, the Corporation’s Series E Convertible Preferred Stock, which resolution is as follows:

RESOLVED, that a series of Preferred Stock in the Corporation, having the rights, preferences, privileges and restrictions, and the number of shares constituting such series and the designation of such series, set forth below be, and it hereby is, authorized by the Board of Directors of the Corporation pursuant to authority given by the Corporation’s Certificate of Incorporation.

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and determines the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, a new series of Preferred Stock as follows:

(a)           Determination.  The series of Preferred Stock is hereby designated Series E Convertible Preferred Stock (the “Series E Preferred Stock”).

(b)           Authorized Shares.  The number of authorized shares constituting the Series E Preferred Stock shall be Thirty-Three thousand (33,000) shares of such series.

(c)           8% Dividend.  Commencing on the date of this Certificate and continuing for one year, the Corporation shall pay on each outstanding share of Series E Preferred Stock a mandatory monthly dividend (the “Dividend”), at an annual rate equal to the product of multiplying (i) $100.00 per share (the “Series E Purchase Price”), by (ii) eight percent (8.0%).  The Dividend shall be payable monthly in arrears on the last day of each month, in cash, based on the numbers of shares of Series E Preferred Stock outstanding as of the first (1^st) day of such month. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Series E Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

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(d)           Other Dividends.  The holder of the Series E Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

(e)           Liquidation Preference.

(i)            Preference upon Liquidation, Dissolution or Winding Up.  In the event of any dissolution or winding up of the Corporation, whether voluntary or involuntary, and subject to the rights of any outstanding security that by its terms is senior to the Series E Preferred Stock, holders of each outstanding share of Series E Preferred Stock shall be entitled to be paid first out of the assets of the Corporation available for distribution to shareholders, whether such assets are capital, surplus or earnings, an amount equal to $100.00 (the “Series E Purchase Price”) per share of Series E Preferred Stock held (as adjusted for any stock splits, stock dividends or recapitalizations of the Series E Preferred Stock) and any declared but unpaid dividends on such share, before any payment shall be made to the holders of the Common Stock, or any other stock of the Corporation ranking junior to the Series E Preferred Stock with regard to any distribution of assets upon liquidation, dissolution or winding up of the Corporation.  The holders of the Series E Preferred Stock shall be entitled to share ratably, in accordance with the respective preferential amounts payable on such stock, in any distribution which is not sufficient to pay in full the aggregate of the amounts payable thereon. If, upon any liquidation, dissolution or winding up of the Corporation, the assets to be distributed to the holders of the Series E Preferred Stock shall be insufficient to permit payment to such shareholders of the full preferential amounts aforesaid, then all of the assets of the Corporation available for distribution to shareholders shall be distributed to the holders of Series E Preferred Stock. Each holder of the Series E Preferred Stock shall be entitled to receive that portion of the assets available for distribution as the number of outstanding shares of Series E Preferred Stock held by such holder bears to the total number of shares of Series E Preferred Stock.  Such payment shall constitute payment in full to the holders of the Series E Preferred Stock upon the liquidation, dissolution or winding up of the Corporation.  After such payment shall have been made in full, or funds necessary for such payment shall have been set aside by the Corporation in trust for the account of the holders of Series E Preferred Stock, so as to be available for such payment, such holders of Series E Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Corporation.

(ii)           Consolidation, Merger and Other Corporate Events.  A consolidation or merger of the Corporation (except into or with a subsidiary corporation) or a sale, lease, mortgage, pledge, exchange, transfer or other disposition of all or substantially all of the assets of the Corporation or any reclassification of the stock of the Corporation (other than a change in par value or from no par to par, or from par to no par or as the result of an event described in subsection (iv), (v), (vi) or (viii) of paragraph (g)), shall be regarded as a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this paragraph (d), provided, however, in the case of a merger, if (a) the Corporation is the surviving entity, (b) the Corporation’s shareholders hold a majority of the shares of the surviving entity, and (c) the Corporation’s directors hold a majority of the seats on the board of directors of the surviving entity, then such merger shall not be regarded as a liquidation, dissolution or winding up within the meaning of this paragraph (d).  In no event shall the issuance of new classes of stock,

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whether senior, junior or on a parity with the Series E Preferred Stock, or any stock splits, be deemed a “reclassification” under or otherwise limited by the terms hereof.

(iii)          Distribution of Cash and Other Assets.  In the event of a liquidation, dissolution or winding up of the Corporation resulting in the availability of assets other than cash for distribution to the holders of the Series E Preferred Stock, the holders of the Series E Preferred Stock shall be entitled to a distribution of cash and/or assets equal to the value of the liquidation preference stated in subsection (i) of this paragraph (d), which valuation shall be made solely by the Board of Directors, and provided that such Board of Directors was acting in good faith, shall be conclusive.

(iv)          Distribution to Junior Security Holders.  After the payment or distribution to the holders of the Series E Preferred Stock of the full preferential amounts aforesaid, the holders of Series E Preferred Stock shall have no further rights in respect at such Series E Stock which shall become null and void, and the holders of the Common Stock then outstanding, or any other stock of the Corporation ranking as to assets upon liquidation, dissolution or winding up of the Corporation junior to the Series E Preferred Stock, shall be entitled to receive ratably all of the remaining assets of the Corporation.

(v)           Preference; Priority.  References to a stock that is “senior” to, on a “parity” with or “junior” to other stock as to liquidation shall refer, respectively, to rights of priority of one series or class of stock over another in the distribution of assets on any liquidation, dissolution or winding up of the Corporation. The Series E Preferred Stock shall be senior to the Common Stock of the Corporation and senior to any subsequent series of Preferred Stock issued by the Corporation.

(f)            Voting Rights.  Except as otherwise required by law, the holder of shares of Series E Preferred Stock shall not have the right to vote on matters that come before the shareholders.

(g)           Conversion Rights.  The holders of Series E Preferred Stock will have the following conversion rights:

(i)            Right to Convert.  Subject to and in compliance with the provisions of this paragraph (g), any issued and outstanding shares of Series E Preferred Stock may, at the option of the holder, be converted at any time or from time to time into fully paid and non-assessable shares of Common Stock at the conversion rate in effect at the time of conversion, determined as provided herein; provided, that a holder of Series E Preferred Stock may at any given time convert only up to that number of shares of Series E Preferred Stock so that, upon conversion, the aggregate beneficial ownership of the Corporation’s Common Stock (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of such holder and all persons affiliated with such holder is not more than 9.99% of the Corporation’s Common Stock then outstanding.

(ii)           Mechanics of Conversion.  Before any holder of Series E Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Common Stock, and shall give written notice to the Corporation at such

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office that he elects to convert the same and shall state therein the number of shares of Series E Preferred Stock being converted.  Thereupon, the Corporation shall promptly issue and deliver at such office to such holder of Series E Preferred Stock a certificate or certificates for the number of shares of Common Stock to which he shall be entitled.  Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series E Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

(iii)          Conversion Price.  The number of shares into which one share of Series E Preferred Stock shall be convertible and shall be determined by dividing the Series E Purchase Price by the then existing Conversion Price (as set forth below) (the “Conversion Ratio”).  The “Conversion Price” per share for the Series E Preferred Stock shall be equal to eighty-five percent (85%) of the Market Price (as defined below and subject to adjustment as described below), rounded to the nearest penny; provided, however, that subject to the provisions of the next sentence, in no event shall the Conversion Price be less than $1.00 per share (the “Floor Price”) or exceed $1.24 (the “Ceiling Price”).  The Floor Price and Ceiling Price shall be further adjusted upon the occurrence of any event in paragraph (g) (iv)-(vi).

For purposes of determining the Conversion Price, the “Market Price” shall be the average of the lowest three intra-day trading prices of the Corporation’s Common Stock (which need not occur on consecutive trading days) during the 5 trading days immediately preceding the conversion date (which may include trading days prior to the original issue date), provided, that such 5 trading day period shall be extended by the number of trading days during such period on which (i) trading in the Corporation’s Common Stock is suspended by, or not traded on, the OTC Bulletin Board or a subsequent market on which the common stock is then traded, or (ii) after the date of Registration Statement (the “Registration Statement”) for the underlying shares of common stock of the Corporation into which the Series E Preferred Stock may be converted is declared effective by the SEC, the prospectus included in the Registration Statement may not be used by the holder for resale of underlying shares of common stock, is suspended by, or not traded on, the NASDAQ Small Cap or a subsequent market on which the common stock is then listed, or (iii) after the date the Registration Statement is declared effective by the SEC, the prospectus included in the Registration Statement for the underlying shares may not be used by the holder for the resale of underlying shares of common stock (provided such inability to use the prospectus is not (a) caused by the holder or (b) as a result of the Company’s filing of post-effective amendments to the Registration Statement.)

For purposes of illustration only, assuming the Ceiling Price is $1.24 per share, if the Market Price is $1.30 at time of conversion, the Conversion Ratio will be $100.00/$1.11, allowing the 33,000 shares of Series E Preferred Stock to be converted into 2,972,973 shares of Common Stock.

If an Event of Default occurs, , the Conversion Price shall be reduced to seventy-five percent (75%) of the Market Price, provided, however, in no event shall the Conversion Price be less than the Floor Price. An “Event of Default” shall include the commencement by the Company of a voluntary case or proceeding under the bankruptcy laws or the Company’s failure to: (i) discharge or stay a bankruptcy proceeding within 60 days of such action being taken against the Company, (ii) file the Registration Statement with the SEC within 34 days after the

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date of execution of this Certificate, (iii) have the Registration Statement deemed effective by the SEC within 70 days after the date of filing of the Registration Statement; (iv) maintain trading of the Company’s Common Stock on the NASDAQ Small Cap except for any periods when the stock is listed on the OTC Bulletin Board, the NASDAQ National Market System, the AMEX or the NYSE, (v) pay the certain expenses and the due diligence fee within three (3) days after the date of this Certificate; or (vi) deliver to Purchasers, or Purchasers’ broker, as directed, Common Stock that Purchasers have converted within three (3) business days of such conversions.

(iv)          Adjustment for Stock Splits and Combinations.  If the Corporation shall at any time, or from time to time after the date shares of the Series E Preferred Stock are first issued (the “Original Issue Date”), effect a subdivision of the outstanding Common Stock, the Floor Price and Ceiling Price in effect immediately prior thereto shall be proportionately decreased, and conversely, if the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Floor Price and Ceiling Price then in effect immediately before the combination shall be proportionately increased.  Any adjustment under this paragraph (f)(iv) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(v)           Adjustment for Certain Dividends and Distributions.  In the event the Corporation at any time, or from time to time after the Original Issue Date, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Floor Price and Ceiling Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Floor Price and Ceiling Price then in effect by a fraction:

(A)          the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

(B)           the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Floor Price and Ceiling Price shall be recomputed accordingly as of the close of business on such record date and thereafter, the Floor Price and Ceiling Price shall be adjusted pursuant to this paragraph (f)(v) as of the time of actual payment of such dividends or distributions.

(vi)          Adjustments for Other Dividends and Distributions.  In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of such Series E Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Series E Preferred Stock been converted into Common Stock

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on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period under this paragraph (g) with respect to the rights of the holders of the Series E Preferred Stock.

(vii)         Adjustment for Reclassification Exchange or Substitution.  If the Common Stock issuable upon the conversion of the Series E Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this paragraph (g)), then and in each such event the holder of each share of Series E Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock into which such shares of Series E Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein.

(viii)        Reorganization, Mergers, Consolidations or Sales of Assets.  If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this paragraph (g)) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all of the Corporation’s properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Series E Preferred Stock shall thereafter be entitled to receive upon conversion of such Series E Preferred Stock, the number of shares of stock or other securities or property of the Corporation or of the successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation or sale.  In any such case, appropriate adjustment shall be made in the application of the provisions of this paragraph (g) with respect to the rights of the holders of the Series E Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this paragraph (g) (including adjustment of the Floor Price and Ceiling Price then in effect and the number of shares purchasable upon conversion of the Series E Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.

(ix)           Sale of Common Stock or Securities Convertible Into Common Stock. In the event the Corporation sells Common Stock or other securities convertible into or exerciseable for Common Stock at a per share price, exercise price or conversion price lower than the Conversion Price then in effect (other than in connection with an acquisition of the securities, assets or business of another company, joint ventures and employee stock options), the Conversion Price shall be subject to weighted average anti-dilution adjustments.

(x)            Certificate of Adjustment.  In each case of an adjustment or readjustment of the Floor Price and Ceiling Price or the securities issuable upon conversion of the Series E Preferred Stock, the Corporation shall compute such adjustment or readjustment in accordance herewith and the Corporation’s Chief Financial Officer shall prepare and sign a certificate showing such adjustment or readjustment, and shall mail such certificate by first class mail,

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postage prepaid, to each registered holder of the Series E Preferred Stock at the holder’s address as shown in the Corporation’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based.

(xi)           Notices of Record Date.  In the event of (A) any taking by the Corporation of a record of the holders of any class or series of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution or (B) any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation or any transfer of all or substantially all of the assets of the Corporation to any other corporation, entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of Series E Preferred Stock at least 10 days prior to the record date specified therein, a notice specifying (1) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (2) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective and (3) the time, if any is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares, of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up.

(xii)          Fractional Shares.  No fractional shares of Common Stock shall be issued upon conversion of the Series E Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay the holder of the fractional share an amount of cash equal to the fair value of such fraction.

(xiii)         Reservation of Stock Issuable Upon Conversion.  The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series E Preferred Stock, three million three hundred thousand (3,300,000) shares of Common Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series E Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(xiv)        Notices. Any notice required by the provisions of this paragraph (g) to be given to the holders of shares of Series E Preferred Stock shall be deemed given (A) if deposited in the United States mail, postage prepaid, or (B) if given by any other reliable or generally accepted means (including by facsimile or by a nationally recognized overnight courier service), in each case addressed to each holder of record at his address (or facsimile number) appearing on the books of the Corporation.

(xv)         Payment of Taxes.  The Corporation will pay all transfer taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of shares of Series E Preferred Stock.

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(xvi)        No Dilution or Impairment.  The Corporation shall not amend its Articles of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, without the approval of a majority of the then outstanding Series E Preferred Stock.

(h)           No Re-issuance of Preferred Stock.  Any shares of Series E Preferred Stock acquired by the Corporation by reason of purchase, conversion or otherwise shall be canceled, retired and eliminated from the shares of Series E Preferred Stock that the Corporation shall be authorized to issue.  All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth in the Articles of Incorporation or in any certificate of Determination creating a series of Preferred Stock or any similar stock or as otherwise required by law.

(i)            Severability.  If any right, preference or limitation of the Series E Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule, law or public policy, all other rights, preferences and limitations set forth herein that can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall nevertheless remain in full force and effect, and no right, preference or limitation herein shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein.

3.             The number of authorized shares of Preferred Stock of the Corporation is 10,000,000, and the number of shares of Series E Preferred Stock, none of which has been issued, is 33,000.

Each of the undersigned declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge.  Executed at Golden, Colorado on this 30^th day of September, 2004.

/s/ James E. Alexander

James E. Alexander, President

/s/ John V. Sakys

John V. Sakys, Secretary

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EX-2

Exhibit 2

REGISTRATION RIGHTS AGREEMENT

AGREEMENT dated as of October 4, 2004, between Asset Managers International Ltd. (the “Holder”), and Isonics Corporation, a California corporation (the “Company”).

WHEREAS, the Holder has purchased, for an aggregate of $3,300,000, an aggregate of 33,000 shares of Series E Convertible Preferred Stock (the “Series E Stock”) from the Company, and have the right to cause their Series E Stock to be converted into shares of Common Stock, no par value (the “Common Stock”), of the Company, pursuant to the conversion formula set forth in the Certificate of Determination;

WHEREAS, the Holder has acquired Warrants (together, the “Warrants”) from the Company, pursuant to which the Holder have the right to purchase in the aggregate up to 614,000 shares of the Common Stock through the exercise of the Warrants;

WHEREAS, the Company desires to grant to the Holder the registration rights set forth herein with respect to the shares of Common Stock issuable upon the conversion of the Series E Stock and the exercise of the Warrants.

NOW, THEREFORE, the parties hereto mutually agree as follows:

1.             Registrable Securities.  As used herein the terms “Registrable Security” means each of the shares of Common Stock (i) issued upon the conversion of the Series E Stock (the “Conversion Shares”) or (ii) upon exercise of the Warrants (the “Warrant Shares”), provided, however, that with respect to any particular Registrable Security, such security shall cease to be a Registrable Security when, as of the date of determination that (a) it has been effectively registered under the Securities Act of 1933, as amended (the “Securities Act”), and disposed of pursuant thereto, or  (b) registration under the Securities Act is no longer required for the immediate public distribution of such security.  The term “Registrable Securities” means any and/or all of the securities falling within the foregoing definition of a “Registrable Security.”  In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be made in the definition of “Registrable Security” as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Section 1.

2.             Registration.

(a)           The Company shall file a registration statement (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) within thirty-four (34) days after the date of this Agreement in order to register the resale of the Registrable Securities under the Securities Act.  Once effective, the Company shall maintain the effectiveness of the Registration Statement until the earlier of (i) the date that all of the Registrable Securities have been sold, or (ii) the date that the Company receives an opinion of counsel to the Company that

all of the Registrable Securities may be freely traded without registration under the Securities Act, under Rule 144 promulgated under the Securities Act or otherwise.

(b)           The Company will initially include in the Registration Statement as Registrable Securities not less than Three Million Nine Hundred Fourteen Thousand (3,914,000) shares of Common Stock.

3.             Covenants of the Company with Respect to Registration.

The Company covenants and agrees as follows:

(a)           The Company shall use best efforts to cause the Registration Statement to become effective with the SEC as promptly as possible and in no event more than 120 days after the date of this Agreement.  If any stop order shall be issued by the SEC in connection therewith, the Company shall use best efforts to obtain promptly the removal of such order.  Following the effective date of the Registration Statement, the Company shall, upon the request of any Holder, forthwith supply such reasonable number of copies of the Registration Statement, preliminary prospectus and prospectus meeting the requirements of the Securities Act, and any other documents necessary or incidental to the public offering of the Registrable Securities, as shall be reasonably requested by the Holder to permit the Holder to make a public distribution of the Holder’s Registrable Securities.  The obligations of the Company hereunder with respect to the Holder’s Registrable Securities are subject to the Holder’s furnishing to the Company such appropriate information concerning the Holder, the Holder’s Registrable Securities and the terms of the Holder’s offering of such Registrable Securities as the Company may reasonably request in writing.

(b)           The Company shall pay all costs, fees and expenses in connection with the Registration Statement filed pursuant to Section 2 hereof including, without limitation, the Company’s legal and accounting fees, printing expenses, and blue sky fees and expenses; provided, however, that each Holder shall be solely responsible for the fees of any counsel retained by the Holder in connection with such registration and any transfer taxes or underwriting discounts, commissions or fees applicable to the Registrable Securities sold by the Holder pursuant thereto.

(c)           The Company will take all actions which may be required to qualify or register the Registrable Securities included in the Registration Statement for the offer and sale under the securities or blue sky laws of such states as are reasonably requested by each Holder of such securities, provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction.

4.             Additional Terms.

(a)           The Company shall indemnify and hold harmless the Holder and each underwriter, within the meaning of the Securities Act, who may purchase from or sell for any Holder, any Registrable Securities, from and against any and all losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in the Registration Statement, any other registration statement filed by the Company under the Securities Act with

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respect to the registration of the Registrable Securities, any post-effective amendment to such registration statements, or any prospectus included therein or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission based upon information furnished or required to be furnished in writing to the Company by the Holder or underwriter expressly for use therein, which indemnification shall include each person, if any, who controls any Holder or underwriter within the meaning of the Securities Act and each officer, director, employee and agent of each Holder and underwriter; provided, however, that the indemnification in this Section 4(a) with respect to any prospectus shall not inure to the benefit of any Holder or underwriter (or to the benefit of any person controlling any Holder or underwriter) on account of any such loss, claim, damage or liability arising from the sale of Registrable Securities by the Holder or underwriter, if a copy of a subsequent prospectus correcting the untrue statement or omission in such earlier prospectus was provided to such Holder or underwriter by the Company prior to the subject sale and the subsequent prospectus was not delivered or sent by the Holder or underwriter to the purchaser prior to such sale and provided further, that the Company shall not be obligated to so indemnify any Holder or any such underwriter or other person referred to above unless the Holder or underwriter or other person, as the case may be, shall at the same time indemnify the Company, its directors, each officer signing the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any and all losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in the Registration Statement, any registration statement or any prospectus required to be filed or furnished by reason of this Agreement or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission based upon information furnished in writing to the Company by the Holder or underwriter expressly for use therein.

(b)           If for any reason the indemnification provided for in the preceding section is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations.

(c)           Neither the filing of a Registration Statement by the Company pursuant to this Agreement nor the making of any request for prospectuses by the Holder shall impose upon any Holder any obligation to sell the Holder’s Registrable Securities.

(d)           Each Holder, upon receipt of notice from the Company that an event has occurred which requires a Post-Effective Amendment to the Registration Statement or a supplement to the prospectus included therein, shall promptly discontinue the sale of Registrable Securities until the Holder receives a copy of a supplemented or amended prospectus from the Company, which the Company shall provide as soon as practicable after such notice.

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(e)           If the Company fails to keep the Registration Statement referred to above continuously effective during the requisite period, then the Company shall, promptly upon the request of any Holder, use best efforts to update the Registration Statement or file a new registration statement covering the Registrable Securities remaining unsold, subject to the terms and provisions hereof.

(f)            Each Holder agrees to provide the Company with any information or undertakings reasonably requested by the Company in order for the Company to include any appropriate information concerning the Holder in the Registration Statement or in order to promote compliance by the Company or the Holder with the Securities Act.

(g)           The Company agrees that it shall cause each of its directors, officers and shareholders owning ten percent (10%) or more of the Company’s outstanding Common Stock to refrain from selling any shares of the Company’s Common Stock until the Registration Statement has been declared effective.

(h)           Each Holder, on behalf of itself and its affiliates, hereby covenants and agrees not to, directly or indirectly, offer to “short sell”, contract to “short sell” or otherwise “short sell” any securities of the Company, including, without limitation, shares of Common Stock that will be received as a result of the conversion of the Series E Stock or the exercise of the Warrants.

5.             Governing Law.  The Registrable Securities will be, if and when issued, delivered in California.  This Agreement shall be deemed to have been made and delivered in the State of California and shall be governed as to validity, interpretation, construction, effect and in all other respects by the internal substantive laws of the State of California, without giving effect to the choice of law rules thereof.

6.             Amendment.  This Agreement may only be amended by a written instrument executed by the Company and the Holder.

7.             Entire Agreement.  This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

8.             Execution in Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.

9.             Notices.  All communications hereunder shall be in writing and shall be hand delivered, mailed by first-class mail, couriered by next-day air courier or by facsimile at the addresses set forth below.

If to the Holder,

Asset Managers International Ltd.
c/o Olympia Capital (Ireland) Limited

Harcourt Center

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6^th Floor, Block 3

Harcourt Road

Dublin 2, Ireland

With a copy toPentagon Capital Management PLC

88 Baker Street

London W 1 U 6TQ, UK

Attention: Lewis Chester

If to the Company,Isonics Corporation
5906 McIntyre Street
Golden, Colorado
Attn:  James E. Alexander, President

Telephone No.: 303-279-7900

Facsimile No.:   303-279-7300

With a copy (which does not constitute notice) to

Burns, Figa & Will, P.C.
6400 South Fiddler’s Green Circle, Suite 1030
Englewood, CO 80111
Attn:  Herrick K. Lidstone, Jr., Esq.
Telephone No.: 303-796-2626
Facsimile No.:  720-493-9951

All such notices and communications shall be deemed to have been duly given:  (i) when delivered by hand, if personally delivered; (ii) five business days after being deposited in the mail, postage prepaid, if mailed certified mail, return receipt requested; (iii) one business day after being timely delivered to a next-day air courier guaranteeing overnight delivery; (iv) the date of transmission if sent via facsimile to the facsimile number as set forth in this Section or the signature page hereof prior to 4:00 p.m. on a business day, or (v) the business day following the date of transmission if sent via facsimile at a facsimile number set forth in this Section or on the signature page hereof after 4:00 p.m. or on a date that is not a business day.  Change of a party’s address or facsimile number may be designated hereunder by giving notice to all of the other parties hereto in accordance with this Section.

10.           Binding Effect; Benefits.  Any Holder may assign its rights hereunder.  This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, successors and assigns.  Nothing herein contained, express or implied, is intended to confer upon any person other than the parties hereto and their respective heirs, legal representatives and successors, any rights or remedies under or by reason of this Agreement.

11.           Headings.  The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.

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12.           Severability.  Any provision of this Agreement which is held by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

13.           Jurisdiction.  Each of the parties irrevocably agrees that any and all suits or proceedings based on or arising under this Agreement may be brought only in and shall be resolved in the federal or state courts located in the City of Los Angeles, California and consents to the jurisdiction of such courts for such purpose.  Each of the parties irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding in any such court.  Each of the parties further agrees that service of process upon such party mailed by first class mail to the address set forth in Section 9 shall be deemed in every respect effective service of process upon such party in any such suit or proceeding.  Nothing herein shall affect the right of either party to serve process in any other manner permitted by law.  Each of the parties agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

14.           Attorneys’ Fees and Disbursements.  If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party or parties shall be entitled to receive from the other party or parties reasonable attorneys’ fees and disbursements in addition to any other relief to which the prevailing party or parties may be entitled.

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written.

Isonics Corporation
By:	/s/ James E. Alexander
	James E. Alexander, President
HOLDER:
ASSET MANAGERS INTERNATIONAL LTD.
By:	/s/ Oscar P. Lewnowski
Name:		Oscar P. Lewnowski
Its:		Director

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