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:  March 8, 2006

ISONICS CORPORATION

(Name of small business issuer as specified in its charter)

California	001-12531	77-0338561
State of	Commission File	IRS Employer
Incorporation	Number	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:

o            Written communications pursuant to Rule 425 under the Securities Act

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

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

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

Item 1.01 — Entry Into a Material Agreement

On March 8, 2006, after 4:00 pm Eastern time, we made an offer to the holders of our outstanding 8% convertible debentures dated February 24, 2005 (each of whom is an accredited investor) to permit the conversion of their debentures into shares of our common stock at $1.45 per share.  (On March 8, 2006, our common stock closed at $1.64 per share.)  This was a reduction from the conversion price set forth in the debenture of $5.00 per share.  The reduced conversion price was effective only to the extent that we received the notice of conversion from the debenture holders by not later than 7:00 am Eastern time on March 9, 2006.  During that period, certain debenture holders accepted the temporarily reduced conversion price and elected to convert $9,000,000 of outstanding principal and, as a result, we are obligated to issue 6,206,899 shares of its common stock.

As a result of the offer and acceptance, we have remaining 8% convertible debentures having a total principal amount of $11,872,500.  The debentures have provisions that restrict the ability of any holder to convert if, as a result of the conversion, such holder would own more than 5% of our common stock.  The shares of common stock underlying the convertible debentures are included for resale in a registration statement on Form S-3 (file no. 333-126231).

Section 3 — Securities and Trading Markets

Item 3.02 — Unregistered Sale of Equity Securities

Conversion of Convertible Debenture

On March 9, 2006, we issued 6,206,899shares of our common stock to holders of our 8% convertible debentures upon conversion of a portion of the debentures at a price of $1.45 per share.  The following sets forth the information required by Item 701 in connection with that transaction:

(a)           The transaction was completed effective March 9, 2006.

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

(c)           The shares were not sold for cash.

(d)           We relied on the exemption from registration provided by Section 3(a)(9) under the Securities Act of 1933 for this transaction.  In addition, each of the debenture holders was an accredited investor.  We did not engage in any public advertising or general solicitation in connection with this transaction.  The investors had access to all of our reports filed with the Securities and Exchange Commission, our press releases and other financial, business and corporate information.  Based on our investigation, we believe that the investors obtained all information regarding Isonics that they requested, received answers to all questions they posed and otherwise understood the risks of accepting our securities for investment purposes.

(e)           The common stock issued in this transaction is not convertible or exchangeable.  No warrants were issued in this transaction.

(f)            We received no cash proceeds from the issuance of the shares.  We did receive a relief from indebtedness as described above.

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Section 8 — Other Events

Item 8.01 — Other Events

On March 9, 2006, we filed a prospectus supplement for the prospectus included in our registration statement on Form S-3 (Commission file no. 333-126231).  A copy of that prospectus supplement is attached hereto as an exhibit.

We plan to file a registration statement pursuant to SEC Rule 462(b) to add shares to the aforementioned registration statement for the resale of the shares underlying the debentures.  The reduction in the market price for shares of our common stock has increased the total number of shares issuable for principal and interest to an amount in excess of the number of shares included in the original registration statement (333-126231).

Section 9 — Financial Statements and Exhibits

Item 9.01 — Financial Statements and Exhibits

(d)  Exhibits

99.1Prospectus supplement filed with the SEC under the Securities Act of 1933 pursuant to Rule 424(c).

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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 9^th day of March 2006.

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

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EX-99.1

Exhibit 99.1

Filed Pursuant To Rule 424(c)

Registration No. 333 - 126231

Prospectus Supplement

(To Prospectus filed July 26, 2005)

Isonics Corporation

(a California corporation)

Common Stock

This prospectus supplement, together with our prospectus filed July 26, 2005, relates to the resale by selling stockholders named in our prospectus filed July 26, 2005, of up to 17,471,900 shares of common stock of Isonics Corporation (“Isonics” or “We”), which are being offered and sold by the selling shareholders named on page 16 of the prospectus, collectively referred to herein as the “Selling Shareholders.”  This prospectus supplement should only be read and delivered together with our prospectus filed July 26, 2005.

The date of this prospectus supplement is March 9, 2006

FORWARD-LOOKING STATEMENTS

This prospectus supplement contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that these forward-looking statements be subject to the safe harbors created by those provisions. Forward-looking statements are generally written in the future tense or are preceded by words such as “may,” “should,” “forecast,” “could,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan” or other similar words. The forward-looking statements contained in this prospectus supplement involve a number of risks and uncertainties, many of which are outside of our control. Factors that could cause actual results to differ materially from projected results include, but are not limited to, the Risk Factors filed in our Form 8-K reporting an event of February 23, 2006 incorporated into our prospectus dated July 26, 2005, by reference, as it may be further supplemented from time to time. Readers are expressly advised to review and consider those Risk Factors. Although we believe that the assumptions underlying the forward-looking statements contained in this prospectus supplement are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements will be accurate. In light of the significant uncertainties inherent in the forward-looking statements included in this prospectus supplement, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following information is added to the prospectus filed July 26, 2005:

RECENT DEVELOPMENTS

On March 9, 2006, holders of our 8% convertible debentures converted outstanding principal in the amount of $9,000,000 into 6,206,899 shares of our common stock. We gave the holders of all debentures the right (through 7:00 am Eastern time on March 9, 2006) to convert a portion or their entire principal amount into shares of our common stock at a conversion price of $1.45 per share (a reduction from the prior conversion price of $5.00 per share). At the close of business on March 8, 2006, the closing price for our common stock was $1.64 per share. As a result of the conversion, there remain outstanding convertible debentures with a principal amount of $11,872,500. The following information sets forth information regarding the remaining shares included within the prospectus for sale on behalf of the selling shareholders:

2,661,290	The number of shares issued upon the conversion of Series E Convertible Preferred Stock (“Series E Stock”) to common stock.
307,000	Shares issuable upon the exercise of common stock warrants at $1.24 per share through October 4, 2007, of which 230,250 have been issued.
307,000	Shares issuable upon the exercise of common stock warrants at $1.35 per share through October 4, 2007, of which 230,250 have been issued.
31,500	Shares issuable upon the exercise of common stock warrants at $2.32 per share through June 10, 2006.
10,350,000	Being the estimated maximum number of shares issuable in payment of the principal amount of outstanding 8% Convertible Debentures (“the Debentures”) including the 1,168,066 shares issued in partial repayment of principal on March 1, 2006.
1,200,000	Being the estimated maximum number of shares issuable in payment of interest that may accrue on the Debentures including the 379,895 shares issued to pay interest in September 2005 and on March 1, 2006.
1,593,900	Shares issuable upon the exercise of common stock warrants at $6.25 per share through February 24, 2008.
100,000	Shares of restricted common stock issued in December 2004.
50,000	Shares of restricted common stock issued in December 2004.

The 232,500 shares issuable upon exercise of the common stock warrants issued to the Reback Living Trust Feb. 20, 2001,  such shares which were included in the original prospectus, have been included in another registration statement. The remaining shares continue to be offered by the prospectus filed July 26, 2005, as supplemented hereby.

The section entitled “Risk Factors” in the prospectus filed July 26, 2005, should be deleted, and the Risk Factors included in Isonics’ Form 8-K reporting an event of February 23, 2006, should be substituted therefore.

The following table provides information on the selling shareholders who have accepted the March 8, 2006, conversion offer, the principal debenture amount converted, the number of shares of common stock which were issued upon conversion and the remaining outstanding principal balances on the debentures:

	Debentures  Principal  Converted ($ )	Shares of Common  Stock Issued for  Conversion	Remaining  Outstanding Principal on Debentures ($ )
DKR SoundShore Oasis Holding Fund Ltd.	2,755,000	1,900,000	3,776,250
DKR SoundShore Strategic Holding Fund Ltd.	145,000	100,000	198,750
Monarch Capital Fund Ltd.	—	—	705,833
Harborview Master Fund LP	—	—	678,500
Iroquois Capital, LP	1,875,000	1,293,104	1,562,500
JMG Capital Partners, LP	950,000	655,173	425,000
JMG Triton Offshore Fund Ltd.	950,000	655,173	425,000
Langley Partners L.P.	2,325,000	1,603,449	425,000
Omicron Master Trust	—	—	2,730,000
Platinum Partners Value Arbitrage Fund L.P.	—	—	916,667
	9,000,000	6,206,899	11,872,500