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 31, 2008

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.

535 8^th Avenue, 3^rd Floor, New York, NY 10018-2491

Address of principal executive offices

(212) 356-7400

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 Definitive Agreement.

                a.             Y.A. Global Investments, L.P. Agreement

                On November 3, 2008 Isonics Corporation (the “Company”) and Y.A. Global Investments, L.P. (“YAG”) entered into an agreement to both: (i) provide certain accommodations to certain of the Company’s employees in exchange for the employees agreeing to certain actions which will reduce the Company’s administrative expenditures; and (ii) to set forth the understandings between YAG and the Company upon which YAG has agreed to provide the Company $375,000 in financing (the “Agreement”). Including the $375,000 note to be issued to YAG upon receipt of funds, YAG holds Company notes and debentures in the face amount of $19.379 million which are secured by all or substantially all of the Company’s assets.

                In the securities purchase agreement dated June 13, 2008 between YAG and the Company, YAG agreed to purchase two additional notes from the Company subject to certain conditions. Although certain of those conditions have not been met, YAG has agreed to provide the Company an additional $375,000 in financing pursuant to a promissory note to be due on or before October 31, 2009 (the “Note”). The promissory note has the same terms as the notes issued to YAG in June 2008 and described in our current report on Form 8-K dated June 13, 2008. The Company agreed to pay YAG a monitoring fee of $22,500 directly from the proceeds of the Note and therefore the proceeds received by the Company from the issuance of the Note was $352,500. The proceeds of the Note are subject to YAG’s security interest in all or substantially all of the Company’s assets. Subject to YAG’s security interest, the Company will use the balance of the funds for working capital purposes. The agreement provides that the Company may not use the funds for payment of bonuses, severance, accrued but unused paid time off or deferred compensation to any current or former officers of directors of the Company or its subsidiaries. The Company anticipates that the funds will permit the Company to meet its obligations through the end of its current fiscal quarter at (or before) which time the Company will need additional financing from the sale of assets or further investment from YAG or another investor. The Company cannot offer any assurance that any additional funds will be available when needed.

                In the Agreement the Company made covenants to YAG including: (i) that it will investigate the possibility of liquidating certain assets to provide working capital to the Company and to pay down the debt owed to YAG; (ii) the proceeds received from the Note will be used only for working capital purposes; and (iii) if the Company fills the newly created vacancy on its Board of Directors (as described below) it will be filled by a person acceptable to YAG in its sole discretion. Additionally, in the Agreement YAG warranted to the Company that it has complied with its obligations under all prior agreements between YAG and the Company. The Company also agreed to release YAG and any of its affiliates from any legal claims that the Company may have had or has against YAG.

                As further described below, certain Company employees have agreed to reduce their commitment to the Company to part-time and others have agreed to defer a portion of their salary for payment at a later time. In the Agreement YAG covenanted that if the Company directly or indirectly sells any assets (individually or as a group) for $3.0 million or more YAG will release its security interest in the proceeds to the extent necessary to permit the Company to: (i) comply with certain of its contractual obligations to pay severance payments to certain

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Company employees; (ii) pay the amount of salary deferred by certain continuing officers; and (iii) pay accrued paid time off to certain Company employees.

                b.             Christopher Toffales Employment Agreement

Effective October 31, 2008 Mr. Toffales and the Company entered into an amended and restated employment agreement (the “Employment Agreement”). The Employment Agreement terminated the prior employment agreement between Mr. Toffales and the Company entered into on February 6, 2008.

                Pursuant to the Employment Agreement Mr. Toffales has agreed to continue to serve as the Company’s chief executive officer and chairman of the board of directors, and agreed to also assume the title of president. The Employment Agreement is for a six-month term and thereafter will continue on a month-to-month basis. Alternatively, if the Company directly or indirectly sells any assets for “cash proceeds” (as defined in the Employment Agreement) of $5.0 million or more (individually or as a group, at one time or over a period of time) prior to the six-month term, the Employment Agreement will convert to month-to-month term.

                Consistent with his previous employment agreement the Employment Agreement provides that Mr. Toffales will be paid an annual salary of $250,000. However to help the Company conserve funds, Mr. Toffales has agreed to defer 25% of his annual salary until the Company directly or indirectly sells any assets (individually or as a group or over a period of time) that result in cash proceeds of $3.0 million or more. Upon such a sale Mr. Toffales will cease deferring any portion of his salary and will be paid the full amount of his salary deferred. The deferral will also cease if and when the Company later appoints a new director to its Board of Directors. Additionally, the Employment Agreement provides that Mr. Toffales will be paid previously accrued paid time off upon the Company’s sale of any assets resulting in cash proceeds of $3.0 million or more or upon the termination of Mr. Toffales’ employment. Mr. Toffales is also eligible to participate in all Company equity-based compensation plans and receive other standard employment benefits under the Employment Agreement.

                The Employment Agreement provides that if the Company directly or indirectly sells any assets (individually or as a group) during the term of the Agreement, or within six months following its termination, Mr. Toffales may be entitled to a severance payment upon the termination of the Employment Agreement. As described below whether Mr. Toffales is entitled to a severance payment under the Employment Agreement will depend on the amount of cash proceeds realized from the sale of any Company assets. Regardless of the amount the Company receives upon the sale of any assets Mr. Toffales will not be entitled to a severance payment if the Employment Agreement is terminated for “cause” (as defined in the Employment Agreement). If the Company sells any assets during the term of the Employment Agreement, or within six months of its termination, for cash proceeds of less than $5.0 million Mr. Toffales will not be entitled to a severance payment upon the termination of the Employment Agreement. However, if the Company sells any assets for cash proceeds of at least $5.0 million during the term of the Employment Agreement, or within six months after its termination, Mr. Toffales shall be entitled to a severance agreement equal as follows:

·If the cash proceeds from the sale of assets total at least $5.0 million but less than $6.0 million Mr. Toffales will be entitled to a severance payment equal to six months of his salary ($125,000).

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·If the cash proceeds from the sale of assets total at least $6.0 million but less than $7.5 million Mr. Toffales will be entitled to a severance payment equal to nine months of his salary ($192,500).

·If the cash proceeds from the sale of any Company assets during the term of the Employment Agreement or within six months of its termination exceed $7.5 Mr. Toffales’ will be entitled to a severance payment equal to nine months of his salary ($192,500) plus an additional one month of his salary will be added to the severance payment for each full $400,000 increment received that is in excess of $7.5 million. In no event will Mr. Toffales’ severance be greater than $400,000.

                Although the Employment Agreement provides that any severance payment or the payment of previously accrued paid time off is subject to the consent of YAG, as described above YAG has consented and agreed to these payments subject to certain conditions.

Item 1.02 — Termination of a Material Definitive Agreement.

                a.             Christopher Toffales Employment Agreement

                As described in Item 1.01 above, on October 31, 2008 the employment agreement dated February 6, 2008 between Mr. Toffales and the Company was terminated. The material terms of that employment agreement were described in a current report on Form 8-K dated February 6, 2008. Mr. Toffales and the Company mutually agreed to terminate the employment agreement as part of the Company’s efforts to conserve funds. The Company did not incur any termination penalties upon the termination of the agreement.

                b.             John Sakys Employment Agreement

On October 31, 2008, John Sakys and the Company agreed to terminate the February 6, 2008, employment agreement pursuant to which Mr. Sakys was serving as the Company’s president and chief operating officer. The material terms of that agreement were described in a current report on Form 8-K dated February 6, 2008. The Company did not incur any termination penalties upon the termination of the agreement nor did Mr. Sakys demand the payment of any severance that he may have been due under the agreement. On October 31, 2008 Mr. Sakys and the Company entered into an amended and restated employment agreement whereby on a month-to-month basis Mr. Sakys will continue to serve as a Company employee on a part time basis. The amended and restated employment agreement is effective as of October 16, 2008 and provides that upon Mr. Sakys’ termination, and if the Company sells any assets for $3.0 million or greater (individually or as a group at one time or over a period of time), Mr. Sakys will be entitled a severance payment equal to $60,000. As described below, on October 31, 2008 Mr. Sakys also resigned as an officer and director of Isonics and its subsidiaries.

                c.             Gregory Meadows Employment Agreement

                On October 31, 2008, Gregory Meadows and the Company agreed to terminate the February 6, 2008, employment agreement pursuant to which Mr. Meadows was serving as the

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Company’s chief financial officer and vice president- finance. The material terms of that agreement were described in a current report on Form 8-K dated February 6, 2008. The Company did not incur any termination penalties upon the termination of the agreement and Mr. Meadows did not demand the payment of any severance that he may have been due under the agreement. On October 31, 2008, Mr. Meadows and the Company entered into an amended and restated employment agreement whereby on a month-to-month basis Mr. Meadows will continue to serve as a Company employee on a part time basis. The amended and restated employment agreement is effective as of October 16, 2008 and provides that upon his termination, and if the Company sells any assets for $3.0 million or greater (individually or as a group at one time or over a period of time), Meadows will be entitled a severance payment equal to $45,000. As described below, Mr. Meadows also resigned as an officer of Isonics and as an officer and director of its subsidiaries.

Item 5.02 — Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

                a.             Departure and Appointment of Officers and Directors

                Effective October 31, 2008, the Company accepted John Sakys’ resignation as the Company’s president and chief operating officer, and secretary and from all positions that he held with the Company’s subsidiaries. Further, Mr. Sakys resigned from our board of directors. Mr. Sakys advised the Company that he resigned to help the Company conserve its financial resources and for personal reasons, and not because of any disagreement with management or Company practices or policies. A copy of the disclosure in this Form 8-K was provided to Mr. Sakys on or before November 3, 2008. He has not expressed any disagreement with the disclosure contained herein.

                Effective October 31, 2008, the Company accepted Gregory Meadows’ resignation as the Company’s chief financial officer and vice president - finance and from all positions that he held with the Company’s subsidiaries. Mr. Meadows advised the Company that he resigned to help the Company conserve its cash resources and for personal reasons, and not because of any disagreement with management or Company practices or policies. A copy of the disclosure in this Form 8-K was provided to Mr. Meadows on or before November 3, 2008. He has not expressed any disagreement with the disclosure contained herein.

Effective October 31, 2008, the Company appointed George O’Leary, age 45, as its chief financial officer to replace Mr. Meadows. Mr. O’Leary has served as a Company director since March, 2008. Mr. O’Leary is on the board of directors of NeoGenomics (OTCBB: NGNM), NeoMedia (OTCCBB: NEOM), SmarTire (OTCBB: SMTR), NS8 (OTCBB: NSEO), and FutureMedia (FMDAY). Mr. O’Leary is currently the president of SKS Consulting of South Florida Corp. (“SKS”) and working with companies to provide turn-around expertise, as well as helping the implementation and execution of these companies’ strategic plans. From 1996 to 2000, Mr. O’Leary was the chief executive officer and president of Communication Resources Incorporated (“CRI”), where annual revenues grew from $5 million to $40 million during his tenure.  Prior to CRI, Mr. O’Leary served as the vice president of operations of Cablevision Industries, where he ran $125 million of business until it was sold to Time Warner. Mr. O’Leary started his professional career as a senior accountant with Peat Marwick and Mitchell. 

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Mr. O’Leary holds a B.B.A. degree in Accounting with honors from Siena College. There are no family relationships between Mr. O’Leary and the Company’s other officer(s) and directors.

                Also effective October 31, 2008, the Company appointed Chris Toffales as our president. Mr. Toffales has served as chairman of the Company’s board of directors since February 16, 2007 and the Company’s chief executive officer since January 11, 2008. Mr. Toffales, age 51, joined Isonics in February 2007 as chairman of the board of directors. Effective in January 2008 Mr. Toffales was appointed to serve as our chief executive officer. Mr. Toffales has been President and Director of CTC Aero, LLC, a defense advisory consulting firm, since 2003. From 2004 to 2007, Mr. Toffales served as a director of Irvine Sensors Corporation (“Irvine Sensors”) of Costa Mesa, California. Irvine Sensors (Nasdaq: IRSN) is involved in the design, development, manufacture and sale of miniaturized vision systems and electronic products for defense, security and commercial applications.  From January 2004 to February 2007 he served as a director and vice chairman of communications of Power Industries, Inc. a provider of military and commercial electronic products and its parent CPI International, Inc. (Nasdaq: CPII). From 1999 to 2003, Mr. Toffales was a senior vice president of DRS Technologies, Inc., a supplier of military electronics systems (including infrared imaging systems), and also served as President of DRS Technologies Systems Company, a subsidiary of DRS Technologies. From 1998 to 1999, Mr. Toffales was vice president for business development of Lockheed Martin Fairchild Systems, an aerospace and defense firm. Prior to these positions, Mr. Toffales held various officer level positions at Lockheed Martin Corporation and Loral Fairchild Systems, both of which are aerospace and defense firms. Mr. Toffales holds a B.S. in Electrical Engineering from City College of New York.

                b.             Changes to Compensatory Arrangements

                As described in Item 1.01 above, effective October 31, 2008 the Company and Christopher Toffales, the Company’s chief executive officer, president and chairman of the board of directors, entered into an amended and restated employment agreement. Under the amended and restated employment agreement Mr. Toffales has agreed to temporarily defer 25% of his annual salary.

                Also as described above, the compensation arrangements for Messrs. Sakys and Meadows will be changing, but in neither case will they continue as officers or directors of Isonics.

Item 9.01. Financial Statements and Exhibits.

(d)  Exhibits

10.1         Agreement with Y.A. Global Investments L.P.

10.2         Term Note (1)

10.3         Amended and Restated Employment Agreement with Christopher Toffales

(1)Incorporated by reference from the current report on Form 8-K dated June 13, 2008 and filed with the Securities and Exchange Commission on June 18, 2008. Except for the principal amount of the note, the note issued on November 3, 2008 contained identical terms to the note issued on June 13, 2008 and previously filed with the Securities and Exchange Commission.

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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 6^th day of November 2008.

Isonics Corporation
By:	/s/ Chris Toffales
	Chris Toffales
	Chief Executive Officer

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EX-10.1

Exhibit 10.1

THIS AGREEMENT (this “Agreement”), dated as of November 3, 2008, is by and among ISONICS CORPORATION, a California corporation (the “Company”), and YA GLOBAL INVESTMENTS, L.P. (“YA Global”)

                    WHEREAS, on June 13, 2008 the parties hereto entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”);

                    WHEREAS, the Securities  Purchase Agreement provides for a Second Closing and a Third Closing (each as defined in the Securities Purchase Agreement);

                    WHEREAS, the conditions to the Second and Third Closing have not been met

                    WHEREAS, the Company has requested and YA Global has agreed to consummate the Second and Third Closing in consideration of certain additional agreements as contained herein;

NOW, THEREFORE, in consideration of the foregoing, and the respective agreements, warranties and covenants contained herein, the parties hereto agree, covenant and warrant as follows:

1.COMPANY ACKNOWLEDGMENTS AND RELEASE.

a.Acknowledgement of Obligations.  The Company hereby acknowledges, confirms and agrees that as of the date hereof, the Company is indebted to YA Global under the following:

·Secured Convertible Debenture (No. CCP-2) issued on June 5, 2006, by Isonics Corporation (the “Company”) in the amount of $3,000,000 to YA Global Investments, L.P. (f/k/a Cornell Capital Partners L.P.) (“YA Global”), which was amended and restated on June 13, 2006, as Secured Convertible Debenture (No. CCP-4) (“Debenture CCP-4”) and which was further amended and restated on June 13, 2008 into a term note in the amount of $3,000,000;

·Term Note, dated June 13, 2008, issued by the Company in the amount of $602,136.99 to YA Global and representing interest accrued on Debenture CCP-4;

·Secured Convertible Debenture (No. CCP-5) issued on November 16, 2006, by the Company in the amount of $3,000,000 to YA Global (“Debenture CCP-5”) which was amended and restated on June 13, 2008 into a term note in the amount of $2,970,000;

·Term Note, dated June 13, 2008, issued by the Company in the amount of $520,246.85 to YA Global and representing interest accrued on Debenture CCP-5;

·Secured Convertible Debenture (No. CCP-1) issued on May 31, 2006, by the Company in the amount of Ten Million Dollars ($10,000,000) to YA Global and on June 13, 2006, which was amended and restated as Secured Convertible Debenture (No. CCP-3) and further amended on June 13, 2008 by Amendment No. 1 thereto;

·Secured Convertible Debenture (No. CCP-2007-1) issued on April 11, 2007, by the Company in the amount of Two Million Dollars ($2,000,000) to YA Global and amended on June 13, 2008 by Amendment No. 1 thereto; and

·Term Note, dated June 13, 2008, issued by the Company in the amount of $1,175,000 to YA Global (the “Term Note”).

b.Acknowledgement of Security Interests.  The Company hereby acknowledges, confirms and agrees that YA Global has and shall continue to have valid, enforceable and perfected first-priority liens upon and security interests in the Pledged Property heretofore granted to YA Global pursuant to the following:

·Security Agreement between the Company and YA Global dated May 30, 2006;

·Security Agreement between Isonics Homeland Security and Defense Corporation, a wholly owned subsidiary of the Company and YA Global dated May 30, 2006;

·Security Agreement between Protection Plus Corporation, a wholly owned subsidiary of the Company, and YA Global dated May 30, 2006;

·Security Agreement between Isonics Vancouver, Inc., a wholly owned subsidiary of the Company, and YA Global dated May 30, 2006;

·Security Agreement between the Company and the subsidiaries of the Company listed therein in favor of YA Global dated June 13, 2008; and

·in the Pledged Shares heretofore granted to YA Global pursuant to the Pledge and Escrow Agreement among the Company, David Gonzalez, Esq. and YA Global dated April 10, 2007, or otherwise granted to or held by YA Global.

c.Confirmation and Release. YA Global hereby represents and warrants to the Company that to the best of its knowledge it has complied with its obligations under all prior agreements (including, without limitation, debentures, warrants, securities purchase agreements and security agreements) between YA Global and the Company and, in connection therewith, has made no misrepresentation to the Company and has complied with all of its legal requirements (the “Confirmation”). In consideration thereof, the Company does hereby agree to, on behalf of itself and its agents, representatives, attorneys, assigns, heirs, subsidiaries, executors and administrators (collectively, “Company Parties”) RELEASE AND FOREVER DISCHARGE YA Global and its subsidiaries and its respective affiliates, parents, joint ventures,

officers, directors, shareholders, interest holders, members, managers, employees, consultants, representatives, successors and assigns, heirs, executors and administrators (collectively, “Buyer Parties”) from all causes of action, suits, debts, claims and demands whatsoever known or unknown, at law, in equity or otherwise, which the Company Parties ever had or now has, and any claims for reasonable attorneys’ fees and costs, and including, without limitation, any claims relating to fees, penalties, liquidated damages, and indemnification for losses, liabilities and expenses.  Based upon and subject to the Confirmation, the release contained in this Section is effective without regard to the legal nature of the claims raised and without regard to whether any such claims are based upon tort, equity, or implied or express contract.  It is expressly understood and agreed that this release shall operate as a clear and unequivocal waiver by the Company Parties of any such claim whatsoever.

2.COMPANY COVENANTS.

a.Liquidation of Assets. In consultation with YA Global and its representatives, the Company will investigate the possibility of liquidating certain of its assets and divisions to provide working capital to the Company and to pay down a portion of the Company’s indebtedness to YA Global.

b.Synergistic Business Opportunities. In consultation with and with the assistance of YA Global, Isonics agrees that it will pursue a strategy directed toward the acquisition of other businesses compatible and synergistic with its subsidiary Protection Plus Security Corporation.

c.Use of Proceeds. The Company will use the proceeds from Second and Third Closing for working capital purposes, which, for the avoidance of doubt, will not include the payments of bonuses, severance, accrued but unused paid time off or deferred compensation to any current or former officers of directors of the Company or its subsidiaries.

d.Bonuses, Accrued and Unused Paid Time Off, Severance, Deferred Compensation.  With regard to any current or former officers or directors of the Company and its subsidiaries, the Company will not (i) pay bonuses, pay severance, reimburse for deferred compensation or reimburse for accrued and unused paid time off unless YA Global consents and (ii) enter into any agreements to distribute bonuses, pay severance, reimburse for deferred compensation or reimburse for accrued and unused paid time off unless such agreement states that any such payments and reimbursements are subject to the Buyer(s) consent.

e.Director Vacancies.  The Company will cause any vacancies on the Company’s Board of Directors, including, without limitation, the vacancy created by the resignation of John Sakys tendered to the Company on October     , 2008, to be filled by a person acceptable to YA Global in its sole discretion.

3.YA GLOBAL COVENANTS.

a.To the extent the Company directly or indirectly sells any assets (whether as a sale or a transfer in lieu of foreclosure or other business combination) (individually or as a group) for a total resulting in cash proceeds of more than $3,000,000 or otherwise obtains cash assets of more than $3,000,000, YA Global will release its security interest to the extent necessary to permit a portion of the net proceeds to be paid as follows:

i.To John Sakys as Severance (as defined in the Amended and Restated Employment Agreement, dated the date hereof, between the Company and John Sakys (the “Sakys Agreement”)) and as PTO (as defined in the Sakys Agreement) pursuant to the terms of the Sakys Agreement.

ii.To Gregory Meadows as Severance (as defined in the Amended and Restated Employment Agreement, dated the date hereof, between the Company and Gregory Meadows (the “Meadows Agreement”)) and as PTO (as defined in the Meadows Agreement) pursuant to the terms of the Meadows Agreement.

iii.To Nick Tsimenakis as Severance (as defined in the Amended and Restated Employment Agreement, dated the date hereof, between the Company and Nick Tsimenakis (the “Tsimenakis Agreement”)) and as PTO (as defined in the Tsimenakis Agreement).

iv.To Peter Christiansen as deferred compensation pursuant to the terms of the letter agreement, dated the date hereof, from the Company to Peter Christiansen (the “Christiansen Letter”).

b.To the extent the Company directly or indirectly sells any assets (whether as a sale or a transfer in lieu of foreclosure or other business combination) (individually or as a group) for a total resulting in cash proceeds of more than $5,000,000 or otherwise obtains cash assets of more than $5,000,000, YA Global will release its security interest to the extent necessary to permit a portion of the net proceeds to be paid to Chris Toffales as Severance (as defined in the Amendment and Restated Executive Employment Agreement, dated the date hereof, between the Company and Chris Toffales (the “Toffales Agreement” and together with the Sakys Agreement, the Meadows Agreement, the Tsimenakis Agreement and the Christiansen Letter, the “Employment Agreements”)) pursuant to the terms of the Toffales Agreement.  To the extent the Company directly or indirectly sells any assets (whether as a sale or a transfer in lieu of foreclosure or other business combination) (individually or as a group) for a total resulting in net cash proceeds of more than $3,000,000, YA Global will release its security interest in proceeds to the extent necessary to permit a portion of the net proceeds to be paid to Chris Toffales as PTO (as defined in the Toffales Agreement) and Deferred Compensation pursuant to the terms of the Toffales Agreement.

4.COMPANY REPRESENTATIONS AND WARRANTIES.

a.The representations and warranties of the Company set forth in the Securities Purchase Agreement are hereby incorporate by reference.  The Company hereby represents and warrants that except as otherwise disclosed on a disclosure schedule attached hereto or as set forth in the SEC Documents (as defined in the Securities Purchase Agreement), such representations and warranties are true and correct on the date hereof (except for representations and warranties that speak as of a specific date).

b.The Company represents and warrants to YA Global that the Company has provided YA Global with true and correct copies of each of the Employment Agreements and all information contained therein (including without limitation, the amount of accrued PTO) is true and correct.

5.YA GLOBAL REPRESENTATIONS AND WARRANTIES.  The representations and warranties of YA Global set forth in the Securities Purchase Agreement are hereby incorporate by reference.  YA Global hereby represents and warrants that except as otherwise disclosed on a disclosure schedule attached hereto, such representations and warranties are true and correct on the date hereof (except for representations and warranties that speak as of a specific date).

6.EVENT OF DEFAULT. The parties hereto acknowledge and agree that this Agreement shall be considered a Transaction Document (as defined in the Securities Purchase Agreement) and, among other things, a breach of this Agreement will constitute an Event of Default (as defined in the Term Note).

7.FEES AND EXPENSES. Upon the consummation of the Second and Third Closing, the Company shall place into escrow $22,500 (the “Monitoring Fees”), directly from the proceeds of the Second and Third Closing.  Such Monitoring Fees shall be Escrow Funds and be treated pursuant to the Escrow Agreement (each as defined in the Securities Purchase Agreement).

8.DISCLOSURE.  The Company shall disclose the contents of this Agreement on a Form 8-K or such other form as may be applicable within four business days of the date hereof.

9.PROVISIONS OF GENERAL APPLICATION

a.Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. This letter shall be accepted, effective and binding, for all purposes, when the parties shall have signed and transmitted to each other, by telecopier or otherwise, copies of this letter.

b.Effect of this Agreement.  Except as modified pursuant hereto, no other changes or modifications to the Transaction Documents are intended or implied and in all other respects the Transaction Documents are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof.  To the extent of conflict between the terms of this Agreement and the other Transaction Documents, the terms of this Agreement shall control.  The Transaction Documents and this Agreement shall be read and construed as one agreement.

c.Governing Law.  This Agreement shall be interpreted according to the laws of the State of New Jersey and shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns.  Any notices, demands, consents, other writings or communications permitted or required by this Agreement shall be given in the manner and to the address as set forth in the Transaction Documents.

d.Mutual Waiver of Jury Trial.  BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.  THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE BETWEEN FACTOR AND CLIENT ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER FACTORING DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

e.Successors and Assigns. This letter shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, legal representatives, trustees, successors and assigns.

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

ISONICS CORPORATION
By:	/s/
Name:	Chris Toffales
Title:	Chief Executive Officer
YA GLOBAL INVESTMENTS, LP
By:	Yorkville Advisors, LLC
Its:	Investment Manager
	By:	/s/
	Name:
	Title:

EX-10.3

Exhibit 10.3

ISONICS CORPORATION

Amended and Restated

EXECUTIVE EMPLOYMENT AGREEMENT

                                THIS AGREEMENT (the “Agreement”) amends and restates that certain EXECUTIVE EMPLOYMENT AGREEMENT (“Original Agreement”), that was originally effective February 6, 2008 (“Original Effective Date”), is made between Isonics Corporation, a California corporation (“Employer”), and Christopher Toffales (“Executive”) effective as of October 16, 2008.  Collectively Employer and Executive are referred to as the “parties.”

RECITALS

                                WHEREAS, the financial situation of the Employer has deteriorated since the Original Effective Date.

                                WHEREAS, the Employer and the Executive desire to amend the terms of the Original Agreement to provide for the continued employment of Executive.  Executive is willing to commit himself to continue to serve Employer, on the terms and conditions herein provided, although this Agreement may be amended at any time by written agreement among the parties; and

                                WHEREAS, the Executive understands that the Employer’s financial condition is such that it has only limited working capital available and, as a result, Employer may not be able to perform all of its obligations hereunder timely or completely; and

                                WHEREAS, in order to effect the foregoing, Employer and the Executive wish to enter into this Agreement on the terms and conditions set forth below.

AGREEMENT

                                NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties agree to amend the Original Agreement as follows:

                                1.             Employment.

                                (a)           Employer hereby employs Executive, and Executive agrees to continue to be employed as President, Chief Executive Officer and Chairman of the Board.   Executive will report to the Board of Directors.  Executive will devote substantially full time and attention to achieving the purposes and discharging the responsibilities of his positions.

                                (b)           Executive will comply with all rules, policies and procedures of Employer as modified from time to time, including without limitation, rules and procedures set forth in the Employer’s employee manuals and handbooks, supervisor’s manuals and operating manuals.  Executive will perform all of Executive’s responsibilities in compliance with all applicable laws

and will ensure that the operations that Executive manages are in compliance with all applicable laws.

                                (c)           Notwithstanding anything to the contrary contained in this Agreement, during the Term of employment, Executive may: (i) engage, directly or indirectly, in other businesses and ventures, including providing services and otherwise being affiliated with (A) SenseIt Corp., a Delaware corporation in which Employer is a stockholder (“SenseIt”),  (B) CTC Aero, LLC, a New York limited liability company in which Executive (in his individual capacity and not in his capacity as an officer, director and/or employee of Employer) is the sole member (“CTC Aero”), and (C) other persons or entities (and their respective affiliates) with whom Executive or CTC Aero, has any equity interest or any other business or financial relationship or arrangement as of the date of the commencement of the Employment Period; (ii) become a director of, or provide consulting or other services for, any other person or entity that is not directly competitive with Employer so long as such activities do not interfere with Executive’s duties and responsibilities under this Agreement; and (iii) devote time, attention and energies to reasonable community activities and public affairs, provided such community activities and public affairs efforts shall not conflict with the amount of time required to be devoted to Employer under this Agreement (the foregoing activities are collectively referred to as “Outside Activities”).  Neither Employer nor any of Employer’s officers, directors, employees and stockholders shall have any right, title or interest, by virtue of this Agreement or otherwise, to share in any of the businesses, ventures, equity interests, business or financial relationships or arrangements, investments or activities to which Executive may engage or participate in pursuant to the Outside Activities or in any income or revenues derived from any of such businesses, ventures, equity interests, business or financial relationships or arrangements, investments or activities relating to Outside Activities.

                                2.             Prior Agreements.  The Executive and Employer agree that all prior employment agreements and understandings between the Executive and Employer related to Executive’s employment be and hereby are cancelled and are of no further force or effect.  Without limitation of the foregoing, subject to Section 4.4 below, that certain employment agreements dated February 6, 2008 and the February 16, 2007, and any and all other understandings between the Executive and Employer related to Executive’s employment be and hereby are cancelled and are of no further force or effect.

                                3.             Term of Employment.  The term of employment (“Term”) shall be for 6 months or, if earlier, the sale by the Employer directly or indirectly (through a sale or a transfer in lieu of foreclosure or other business combination) of assets (individually or as a group, at one time or over a period of time) for a total resulting in Cash Proceeds of more than $5,000,000 at which point the term of employment will automatically revert to month to month.  As used throughout this Agreement, “Cash Proceeds” shall include the forgiveness of indebtedness and be calculated before the deduction of any brokerage or other selling costs.

                                4.             Compensation.  For the duration of Executive’s employment hereunder, the Executive will be entitled to compensation that will be computed and paid pursuant to the following subsections.

                                4.1          Base Salary.  Employer will pay to Executive a base salary (“Base Salary”) at an annual rate of Two Hundred Fifty Thousand Dollars ($250,000), subject to withholdings, ratably in accordance with Employer’s policies, so long as Executive remains employed.  Executive’s Base Salary will be reviewed annually during the term of Executive’s employment by the Compensation Committee or the Board of Directors of Employer and may be increased based on such review.  Effective October 16, 2008, the Executive will defer 25% of the salary payment otherwise due ($5,208.33 per month) (the “Deferred Compensation”) until the Employer directly or indirectly (through a sale or a transfer in lieu of foreclosure or other business combination) of assets (individually or as a group, at one time or over a period of time) for a total resulting in Cash Proceeds of more than $3,000,000, at which time the Employer will pay the entire amount of the Deferred Compensation and the deferral will cease.  The deferral will also cease if the Employer appoints a third director to its Board.

                                4.2          Bonus.  It is unlikely that the Employer will pay the Executive any bonus.

                                4.3          Equity-based Compensation.  The Executive shall be entitled to participate in all equity-based compensation plans offered by Employer to its employees and as determined by the Employer’s board of directors.  There is no commitment by the Employer to provide the Executive with any equity-based compensation beyond that compensation that the Executive possesses at the current time.

                                4.4          Previously-Accrued Paid Time Off (“PTO”).  Through October 15, 2008, the Executive has accrued unused PTO pursuant to his earlier employment relationships, totaling in value $19,230.40.  The Employer will pay the Executive the amount of this PTO and all other accrued PTO on the earlier of the sale, directly or indirectly, by the Employer of assets (through a sale or a transfer in lieu of foreclosure or other business combination) (individually or as a group, at one time or over a period of time) for Cash Proceeds of more than $3,000,000 or the termination by the Employer or the Executive of this Agreement (whether or not such termination is as a result of the Employer making the Severance Payment contemplated by Section 5.4 hereof).

                                5.             Other Benefits.

                                5.1          Certain Benefits.  The Executive will be eligible to participate in all employee benefit programs established by Employer that are applicable to management personnel on a basis commensurate with Executive’s position and in accordance with Employer’s policies from time to time, including, but not limited to, life insurance, disability insurance, retirement plans, profit-sharing plans, savings plans, stock option plans and other employee benefit plans and policies, but nothing herein shall require the adoption or maintenance of any such plan.  Notwithstanding the foregoing, Employer shall provide full medical and dental insurance coverage for the Executive as currently provided by Administaff (or its successor) on the same terms as are then generally available to the Company’s senior executive officers, at no cost to the Executive.

                                5.2          Paid Time Off and Expenses.  For the duration of Executive’s employment hereunder, Executive will be provided such PTO (which includes vacations and sick leave) as Employer makes available to its management level employees generally as described in, and subject to the provisions of, Employer’s employee manual. Employer will reimburse Executive in accordance with company policies and procedures for reasonable expenses necessarily incurred in the performance of duties hereunder against appropriate receipts and vouchers indicating the specific business purpose for each such expenditure.

                                5.3          Directors and Officers Insurance.  During the term of this Agreement and for a three year period thereafter, and subject to the availability of adequate financing, Employer shall use its best efforts to have in effect at all times, at its expense and no cost to Executive, one or more directors and officers liability indemnification insurance policies (the “D&O Policies”) covering liabilities which may have accrued or that will be incurred by the performance of Executive’s services on behalf of Employer in the minimum benefit amount to be determined in good faith by the Board of Directors, and provided that all officers and directors are treated alike.

                                5.4          Severance Pay.  Upon the sale by the Employer directly or indirectly (through a sale or a transfer in lieu of foreclosure or other business combination) of assets (individually or as a group, at one time or over a period of time), the Executive will have earned severance pay (the “Severance Payment”) to be paid to the Executive (directly from closing and not through the Employer, if practicable) as follows:

                (a)           If such assets are sold during the term of this Agreement for a total resulting in Cash Proceeds of less than $5,000,000, the Executive will be entitled to no Severance Payment.

                (b)           If such assets are sold for a total resulting in Cash Proceeds of at least $5,000,000 in the aggregate but less than $6,000,000 (i) during the term of this Agreement or (ii) if the Employer terminates this Agreement (other than a termination for Cause), within six months of the date hereof, the Executive will be entitled to a Severance Payment of six months’ salary ($125,000) upon termination of this Agreement.

                (b)           If such assets are sold for a total resulting in Cash Proceeds at least $6,000,000 in the aggregate but less than $7,500,000 (i) during the term of this Agreement or (ii) if the Employer terminates this Agreement (other than a termination for Cause), within six months of the date hereof, the Executive will be entitled to a Severance Payment of nine months’ salary ($192,500) upon termination of this Agreement.

                (c)           If such assets are sold for a total resulting in Cash Proceeds that exceed $7,500,000 (i) during the term of this Agreement or (ii) if the Employer terminates this Agreement (other than a termination for Cause), within six months of the date hereof, the Executive will be entitled to nine months’ salary ($192,500) plus an additional one months’ salary ($22,500) for each $400,000 of Cash Proceeds received in excess of $7,500,000.  No amount will be earned for amounts less than full multiples of $400,000 and in no event will the amount of the Severance Payment exceed $400,000.

                                6.             Termination Or Discharge.

                                6.1          For Cause.  Employer will have the right to immediately terminate Executive’s services and this Agreement for “Cause.”  For the purposes of this Agreement, the term “for cause” shall mean:

                                (a)           any act of fraud or embezzlement materially adversely affecting the financial, market, reputation or other interests of Employer,

                                (b)           in the event of a conviction of Executive of, or a plea of nolo contendere to, (A) any violent felony or misdemeanor resulting in a jail sentence, (B) any felony involving moral turpitude or (C) a criminal violation of federal or state securities laws,

                                (c)           any material failure to perform Executive’s duties as set forth in this Agreement which results in material harm to Employer, after reasonable notice and the opportunity to cure,

                                (d)           gross negligence, incompetence or willful misconduct in the performance by the Executive of his duties,

                                (e)           refusal by the Executive, without proper reason, to perform his duties,

                                (f)            the Executive willfully engaging in conduct that is materially injurious to Employer or its subsidiaries (monetarily or otherwise),

                                (g)           unauthorized disclosure by the Executive of Confidential Information, as such term is defined in Section 10 of this Agreement, or the unauthorized disclosure of proprietary material information of Employer or an affiliate), or

                                (h)           Employer’s reasonable belief supported by a legal opinion that Executive has engaged in a violation of any statute, rule or regulation, any of which in the judgment of Employer is harmful to Employer’s business or to Employer’s reputation.

                                Upon termination of Executive’s employment hereunder for Cause, Executive will have no rights to any unvested benefits or any other compensation or payments (including without limitation the Severance Payment) after the termination date.  Upon a termination of this Agreement pursuant to this Section 6.1, the Employer shall pay to the Executive compensation and benefits through the Date of Termination.

                                6.2          Termination Other Than For Cause.  The Employer or the Executive may terminate the Executive’s employment hereunder without any breach of this Agreement upon not less than two weeks’ notice given to the other party in writing.  Upon a termination of this Agreement by the Employer pursuant to this Section 6.2 the Employer shall pay to the Executive all accrued PTO in one lump sum payment upon such termination.  Severance Payments, if any, will be paid in accordance with Section 5.4 hereof.  If the Executive terminates this Agreement for any reason other than a breach of this Agreement by the Employer, he waives

all rights to any severance payment (including the Severance Payment) that would otherwise be due to the Executive.  If the Executive terminates this Agreement for any reason other than a breach of this Agreement by the Employer, Employer will pay PTO as contemplated in Section 4.4, above.

                                6.3          Notice of Termination.  Any termination of the Executive’s employment by the Employer or by the Executive (other than termination pursuant to Section 6.2(b) above) shall be communicated by written Notice of Termination to the other party.

                                7.             No Termination by Executive due to Change of Control.  The Executive shall have no further right (beyond that provided in Section 6.2, above) to terminate this Agreement upon the occurrence of any change of control.

                                8.             Covenant Not To Compete.

(a)           Except as otherwise provided for in this Agreement, during the Term of this Agreement and, if this Agreement is terminated for any reason during the Term, for one year following such date of termination (the “Termination Period”), the Executive shall not, directly or indirectly, compete with respect to any Semiconductor or Guarded Security services or products of Employer which are either offered or are being developed by Employer as of the date of termination; or, without limiting the generality of the foregoing, be or become, or agree to be or become, interested in or associated with, in any capacity (whether as a partner, shareholder, owner, officer, director, executive, principal, agent, creditor, trustee, consultant, co-venturer or otherwise), any individual, corporation, firm, association, partnership, joint venture or other business entity, which competes with respect to any services or products of Employer which are either offered or are being developed by Employer as of the date of termination; provided, however, that the Executive may own, solely as an investment, not more than 9.99% of any class of securities of any corporation in competition with Isonics whose securities are traded on any national securities exchange in the United States of America.

                                (b)           Employer and Executive agree to the following: this provision does not impose an undue hardship on Executive and is not injurious to the public; this provision is necessary to protect the business of Employer and its affiliates; the nature of Executive’s responsibilities with Employer under this Agreement require Executive to have access to Confidential Information, as such term is defined in Section 10 of this Agreement, which is valuable and confidential to all of the business; the scope of this Section 8 is reasonable in terms of length of time and geographic scope; and adequate consideration supports this Section 8, including consideration herein.

                                (c)           In the event that any of the covenants in this Section 8 shall be determined by any court of competent jurisdiction to be unenforceable by reason of extending for too great a period of time or by reason of being too extensive in any other respect, it shall be interpreted to extend over the maximum period of time for which it may be enforceable and to the maximum extent in all other respects as to which it may be enforceable, and enforced as so interpreted, all as determined by such court in such action.  Executive acknowledges the uncertainty of the law

in this respect and expressly stipulates that this Agreement is to be given the construction that renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law.

                                9.             Non-solicitation.  During the term of this Agreement and for a period of one year thereafter, the Executive shall not, directly or indirectly, (i) induce or attempt to influence any employee of Isonics to leave its employ, (ii) aid or agree to aid any competitor, customer or supplier of Isonics in any attempt to hire any person who is an employee of Isonics, or (iii) induce or attempt to influence any person or business entity who was a customer or supplier of Isonics during any portion of said period to transact business with a competitor of any aspect of Isonics’ business.

                                10.          Confidentiality.

                                (a)           Executive acknowledges that, during the course of Executive’s employment with Employer, Executive may have developed Confidential Information (as defined below) for Employer, and Executive may have learned of Confidential Information developed or owned by Employer or its affiliates or entrusted to Employer or its affiliates by others.  Executive agrees that Executive will not, directly or indirectly, use any Confidential Information or disclose it to any other person or entity, except as otherwise required by law.

                                (b)           “Confidential Information” means any and all information relating to Employer that is not generally known by the public or others with whom Employer does (or plans to) compete or do business, as well as comparable information relating to any of Employer’s affiliates.  Confidential Information includes, but is not limited to, information relating to the terms of this Agreement, as well as Employer’s business, technology, practices, products, marketing, sales, services, finances, strategic opportunities, internal strategies, legal affairs (including pending litigation), the terms of business relationships not yet publicly known, intellectual property and the filing or pendency of patent applications.  Confidential Information also includes, but is not limited to, comparable information that Employer may receive or has received belonging to customers, suppliers, consultants and others who do business with Employer, or any of Employer’s affiliates.

                                (c)           “Confidential Information” does not include any information that is: (i) shown to have been developed independently by Executive prior to Executive’s employment with Employer; or (ii) required by a judicial tribunal or similar governmental body to be disclosed under law (provided that Executive have first promptly notified Employer of such disclosure requirement and have cooperated fully with Employer (at Employer’s expense) in exhausting all appeals

                                11.          Property of Employer.  Upon any termination from Employer, Executive agrees to return to Employer any and all records, files, notes, memoranda, reports, work product and similar items, and any manuals, drawings, sketches, plans, tape recordings, computer programs, disks, cassettes and other physical representations of any information, relating to Employer, or any of its affiliates, whether or not constituting confidential information; and

Executive agrees to return to Employer any other property, including but not limited to a laptop computer, belonging to Employer, no later than the date of Executive’s termination from employment for any reason, and Executive further agrees not to retain copies of any Confidential Information.  Upon termination of this Agreement or employment hereunder, Executive who has been using a computer owned by the Employer may purchase said computer from the Employer for fair market value provided the information in the computer is backed up in the Employer’s data files and all Confidential Information has been deleted from the computer in a manner reasonably satisfactory to the remaining senior officers of the Employer.  The Executive will pay the Employer the fair market value of such computer as may be reasonably determined by the Employer.

                                12.          Section 280G Safe Harbor Cap.  In the event it shall be determined that any payment or distribution or any part thereof of any type to or for the benefit of Executive whether pursuant to the Agreement or any other agreement between Executive and the Employer, or any person or entity that acquires ownership or effective control the Employer or ownership of a substantial portion of the Employer’s assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”)) whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or any other agreement, (the “Total Payments”), is or will be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Total Payments shall be reduced to the maximum amount that could be paid to Executive without giving rise to the Excise Tax (the “Safe Harbor Cap”), if the net after-tax payment to Executive after reducing Executive’s Total Payments to the Safe Harbor Cap is greater than the net after-tax (including the Excise Tax) payment to Executive without such reduction.  The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payment made pursuant to the Agreement and then to any other agreement that triggers such Excise Tax, unless an alternative method of reduction is elected by Executive.  All mathematical determinations, and all determinations as to whether any of the Total Payments are “parachute payments” (within the meaning of Section 280G of the Code), that are required to be made under this Section 12, including determinations as to whether the Total Payments to Executive shall be reduced to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by a nationally recognized accounting firm selected by the Employer (the “Accounting Firm”).  If the Accountant determines that the Total Payments to Executive shall be reduced to the Safe Harbor Cap (the “Cutback Payment”) and it is established pursuant to a final determination of a court or an Internal Revenue Service (the “IRS”) proceeding which has been finally and conclusively resolved, that the Cutback Payment is in excess of the limitations provided in Section 6(e) (hereinafter referred to as an “Excess Payment”), such Excess Payment shall be deemed for all purposes to be an overpayment to Executive made on the date such Executive received the Excess Payment and Executive shall repay the Excess Payment to the Employer on demand; provided, however, if Executive shall be required to pay an Excise Tax by reason of receiving such Excess Payment (regardless of the obligation to repay the Employer), Executive shall not be required to repay the Excess Payment (if Executive has already repaid such amount, the Employer shall refund the amount to the Executive), and the Employer shall pay Executive an amount equal to the difference between the Total Payments and the Shortfall Cap.

                                13.          Remedies.  Notwithstanding other provisions of this Agreement regarding dispute resolution, Executive agrees that Executive’s violation of any of Sections 8, 9, 10 or 11 of this Agreement would cause Employer irreparable harm that would not be adequately compensated by monetary damages and that an injunction may be granted by any court or courts having jurisdiction, restraining Executive from violation of the terms of this Agreement, upon any breach or threatened breach of Executive of the obligations set forth in any of the Sections 8, 9, 10 or 11.  The preceding sentence shall not be construed to limit Employer from any other relief or damages to which it may be entitled as a result of Executive’s breach of any provision of this Agreement, including Sections 8, 9, 10 or 11.  Executive also agrees that a violation of any of Sections 8, 9, 10 or 11 would entitle Employer, in addition to all other remedies available at law or equity, to recover from Executive any and all funds, including, without limitation, wages, salary and profits, which will be held by Executive in constructive trust for Employer, received by Executive in connection with such violation.

                                14.          Indemnification.

                                (a)           Employer agrees to indemnify Executive and hold Executive harmless from and against any and all losses, claims, damages, liabilities and costs (and all actions in respect thereof and any legal or other expenses in giving testimony or furnishing documents in response to a subpoena or otherwise), including, without limitation, the costs of investigating, preparing or defending any such action or claim, whether or not in connection with litigation in which Executive is a party, as and when incurred, directly or indirectly caused by, relating to, based upon or arising out of any work performed by Executive in connection with this Agreement to the full extent permitted by the California Corporation Code, and by the Articles of Incorporation and Bylaws of Employer, as may be amended from time to time, and pursuant to any indemnification agreement between Executive and Employer.

                                (b)           The indemnification provision of this Section 14 shall be in addition to any liability which Employer may otherwise have to Executive.

                                (c)           If any action, proceeding or investigation is commenced as to which Executive proposes to demand such indemnification, Executive shall notify Employer with reasonable promptness.  Executive shall have the right to retain counsel of Executive’s own choice to represent Executive and Employer shall pay all reasonable fees and expenses of such counsel; and such counsel shall, to the fullest extent consistent with such counsel’s professional responsibilities, cooperate with Employer and any counsel designated by Employer.  Employer shall be liable for any settlement of any claim against Executive made with Employer’s written consent, which consent shall not be unreasonably withheld or delayed, to the fullest extent permitted by the California General Corporation Law and the Certificate of Incorporation and Bylaws of Employer, as may be amended from time to time.

                                15.          Arbitration.

                                (a)           Any dispute arising between the parties to this Agreement, including, but not limited to, those pertaining to the formation, validity, interpretation, effect or alleged breach

of this Agreement (“Arbitrable Dispute”) will be submitted to arbitration in the Nassau or Suffolk counties of the State of New York, before an experienced employment arbitrator and selected in accordance with the rules of the American Arbitration Association labor tribunal.  Each party shall pay the fees of their respective attorneys, the expenses of their witnesses and any other expenses connected with presenting their claim.  Other costs of the arbitration, including the fees of the arbitrator, cost of any record or transcript of the arbitration, administrative fees, and other fees and costs shall be borne equally by the parties hereto.

                                (b)           Should any party to this Agreement hereafter institute any legal action or administrative proceedings against another party with respect to any claim waived by this Agreement or pursue any other Arbitrable Dispute by any method other than said arbitration, the responding party shall be entitled to recover from the initiating party all damages, costs, expenses and attorney’s fees incurred as a result of such action.

                                16.          Fees.  Unless otherwise agreed, the prevailing party will be entitled to its costs and attorneys’ fees incurred in any litigation or dispute relating to the interpretation or enforcement of this Agreement.

                                17.          Professional Fees and Costs.  Each of the Parties shall be responsible to pay his or its respective attorneys’ and other professional fees and costs incurred in connection with the negotiation and drafting of this Agreement.

                                18.          Disclosure.  Executive agrees fully and completely to reveal the terms of this Agreement to any future employer or potential employer of Executive and authorizes Employer, at its election, to make such disclosure.

                                19.          Representation of Executive.  Executive represents and warrants to Employer that Executive is free to enter into this Agreement and has no contract, commitment, arrangement or understanding to or with any party that restrains or is in conflict with Executive’s performance of the covenants, services and duties provided for in this Agreement.  Executive agrees to indemnify Employer and to hold it harmless against any and all liabilities or claims arising out of any unauthorized act or acts by Executive that, the foregoing representation and warranty to the contrary notwithstanding, are in violation, or constitute a breach, of any such contract, commitment, arrangement or understanding.  Executive further represents and warrants to Employer that Executive has consulted with his legal, tax, accounting, and investment advisors with respect to the advisability of entering into this Agreement to the extent that the Executive has determined such consultation to be necessary or appropriate.

                                20.          Assignability.  During Executive’s employment, this Agreement may not be assigned by either party without the written consent of the other; provided, however, that Employer may assign its rights and obligations under this Agreement without Executive’s consent to a successor by sale, merger or liquidation, if such successor carries on the Employer’s business substantially in the form in which it is being conducted at the time of the sale, merger or liquidation.  This Agreement is binding upon Executive, Executive’s heirs, personal representatives and permitted assigns and on Employer, its successors and assigns.

                                21.          Notices.  For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

IF TO EMPLOYER TO:	Isonics Corporation 535 8th Avenue, 3rd FloorNew York, NY 10018-2491
IF TO EXECUTIVE TO:	Christopher Toffales 21 Motts Hollow Road Port Jefferson, New York 11777

                                22.          Severability.  If any provision of this Agreement or compliance by any of the parties with any provision of this Agreement constitutes a violation of any law, or is or becomes unenforceable or void, then such provision, to the extent only that it is in violation of law, unenforceable or void, shall be deemed modified to the extent necessary so that it is no longer in violation of law, unenforceable or void, and such provision will be enforced to the fullest extent permitted by law.  If such modification is not possible, said provision, to the extent that it is in violation of law, unenforceable or void, shall be deemed severable from the remaining provisions of this Agreement, which provisions will remain binding on the parties.

                                23.          Waivers.  No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder will operate as a waiver thereof; nor will any single or partial waiver of a breach of any provision of this Agreement operate or be construed as a waiver of any subsequent breach; nor will any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by law.

                                24.          Governing Law.  The validity, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to the conflicts of law provisions of such laws.

                                25.          Entire Agreement.  This instrument contains the entire agreement of the parties with respect to the relationship between Executive and Employer and supersedes all prior agreements and understandings, and there are no other representations or agreements other than as stated in this Agreement related to the terms and conditions of Executive’s employment.  This Agreement may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought, and any such modification will be signed by the Chief Executive Officer.

                                26.          Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

                                IN WITNESS WHEREOF, the parties have duly signed and delivered this Agreement as of the day and year first above written.

EMPLOYER:	EXECUTIVE:
ISONICS CORPORATION
/s/	/s/
George O’Leary, CFO	Christopher Toffales