<Page>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                             ----------------------

                                   FORM 10-KSB

(MARK ONE)

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

                    FOR THE FISCAL YEAR ENDED APRIL 30, 2001

   / /    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934.

                FOR THE TRANSITION PERIOD FROM _______ TO ______

                        COMMISSION FILE NUMBER: 001-12531

                               ISONICS CORPORATION
                 (Name of small business issuer in its charter)

                CALIFORNIA                                  77-0338561
     (State or other jurisdiction of                      (IRS Employer
     incorporation or organization)                     Identification No.)

                5906 MCINTYRE STREET
                  GOLDEN, COLORADO                             80403
     (Address of principal executive offices)                (Zip Code)

                    Issuer's telephone number: (303) 279-7900

    SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                           COMMON STOCK, NO PAR VALUE
                REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANTS
                     CLASS B COMMON STOCK PURCHASE WARRANTS
                REDEEMABLE CLASS C COMMON STOCK PURCHASE WARRANTS
                                (Title of Class)

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

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

     Registrant's revenues for the fiscal year ended April 30, 2001 were
$7,789,000.

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant based on the average bid and asked prices of the Registrant's
Common Stock on, July 27, 2001 was $6,472,636. Excludes approximately 3,961,689
shares of common stock held by Directors, Officers and holders of 5% or more of
the Registrant's outstanding Common Stock on that date. Exclusion of shares held
by any person should not be construed to indicate that such person possesses the
power, direct or indirect, to direct or cause the direction of the management or
policies of the Registrant, or that such person is controlled by or under common
control with the Registrant. There is no non-voting common equity of the
Registrant.

     The number of shares outstanding of the Registrant's Common Stock, no par
     value, as of July 27, 2001, was 9,310,975 shares. The following document is
     incorporated by reference into Part III of this Form 10-KSB: None.

     Transitional Small Business Disclosure Format (check one): Yes / / No /X/

                                       1
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                                     PART I

ITEM 1. BUSINESS

     BECAUSE WE WANT TO PROVIDE YOU WITH MORE MEANINGFUL AND USEFUL INFORMATION,
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS"
(AS SUCH TERM IS DEFINED IN SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED). THESE STATEMENTS REFLECT OUR CURRENT EXPECTATIONS REGARDING OUR
POSSIBLE FUTURE RESULTS OF OPERATIONS, PERFORMANCE, AND ACHIEVEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

     WHEREVER POSSIBLE, WE HAVE TRIED TO IDENTIFY THESE FORWARD-LOOKING
STATEMENTS BY USING WORDS SUCH AS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT,"
"PLAN," "INTEND," AND SIMILAR EXPRESSIONS. THESE STATEMENTS REFLECT OUR CURRENT
BELIEFS AND ARE BASED ON INFORMATION CURRENTLY AVAILABLE TO US. ACCORDINGLY,
THESE STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES, AND CONTINGENCIES,
WHICH COULD CAUSE OUR ACTUAL RESULTS, PERFORMANCE, OR ACHIEVEMENTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN, OR IMPLIED BY, SUCH STATEMENTS. WE HAVE
DESCRIBED THESE RISKS, UNCERTAINTIES AND CONTINGENCIES UNDER "ITEM 6,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - FACTORS THAT MAY
AFFECT FUTURE OPERATING RESULTS." WE HAVE NO OBLIGATION TO UPDATE OR REVISE ANY
SUCH FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF THIS REPORT.

GENERAL DISCUSSION

     We are an advanced materials and technology company. We are developing and
we anticipate commercializing products created from materials whose natural
isotopic ratios have been modified. An isotope is one of two or more species (or
nuclides) of the same chemical element that differ from one another only in the
number of neutrons in the atom's nucleus. The different number of neutrons can
create significantly different nuclear properties. The most well-known of these
properties is radioactivity. Radioactive isotopes (or radioisotopes) can be
found in nature. Most of our radioisotopes, however, are man-made. Stable
isotopes, as distinguished from radioisotopes, are not radioactive. Several
manufacturers, located primarily in republics that once were part of the Soviet
Union, produce these isotopes. We buy these isotopes from the manufacturers and
resell them in the form of common chemical compounds. For example, oxygen-18 is
sold as water, and carbon-13 is sold as carbon dioxide. Today our isotope
business addresses the material needs of two primary markets:

     o    life sciences and

     o    semiconductor materials.

     While we currently are focusing on these two markets, we continually
evaluate other applications for both stable and radioisotopes. We also sell
isotopes for use in basic scientific research and certain specific industrial
applications. We believe our core competency is our ability to identify,
develop, source, and commercialize products and services based on isotopically
engineered materials.

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     We were formed in March 1992, as a partnership, and were subsequently
incorporated in California in March 1993, as A&R Materials, Inc. In September
1996, we changed our name to Isonics Corporation. Our principal executive
offices are located at 5906 McIntyre Street, Golden, Colorado 80403. Our
telephone number is (303) 279-7900, and our facsimile number is (303) 279-7300.
Our web site is www.isonics.com. We currently have two subsidiaries through
which we conduct some of our operations. The following chart identifies those
subsidiaries and our ownership interest in each:

<Table>
<Caption>
                              PLACE OF     OWNERSHIP
NAME AND HEADQUARTERS         FORMATION    PERCENTAGE       BUSINESS
---------------------         ---------    ----------       --------
<S>                           <C>          <C>              <C>
Chemotrade GmbH               Germany         100%          Chemotrade and its subsidiary are value-added re-sellers of
Dusseldorf, Germany                                         stable and radioactive isotopes.

Chemotrade Leipzig GmbH       Germany      75% (through     They supply radioactive isotopes for pharmaceutical and
Leipzig, Germany                           Chemotrade)      industrial research as well as for industrial and medical
                                                            imaging, calibration sources and for brachytherapy
                                                            applications.

                                                            Additionally, they supply various stable isotope labeled
                                                            compounds for pharmaceutical research and drug design, as
                                                            well as oxygen-18 for use in producing a radioisotope used
                                                            in positron emission tomography. Their market is primarily
                                                            Europe, but sales are also made to North America and Asia.

</Table>

     The foregoing does not include Isonics' minority ownership in two companies
which are not considered to be subsidiaries:

     o    Interpro Zinc, LLC, a Colorado entity which engages in the research
          and development for the recovery and recycling of zinc metal from
          various sources. Isonics has a 25% interest in this entity.

     o    Institut of Umwelttechnologien GmbH ("IUT"), an entity based in
          Berlin, Germany which performs research and development, and
          manufacturing of radioisotopes. Isonics has a 6% interest in this
          entity through Chemotrade.

     OUR ISOTOPE BUSINESS. In order to develop our products, it is usually
necessary to increase ("enrich") or decrease ("deplete") the concentration of a
particular isotope or isotopes. There are over 280 naturally occurring stable
isotopes of 83 different elements. The number of isotopes of any given element
varies widely. Stable isotopes of a given element typically do not differ
significantly in their chemical behavior. Stable isotopes of an element differ
in mass and diameter, as well as several nuclear properties, such as
cross-section, spin, and magnetic movement. Differences in these properties can
result in substantially different effects, and some of these different effects
have the potential for commercial application.

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     Isotopes are typically referred to by their atomic mass number, which
number is derived from the number of protons and neutrons in the atom's nucleus.
For example, oxygen-18 has eight protons and ten neutrons in its nucleus, and
silicon-28 has fourteen protons and fourteen neutrons in its nucleus. In ultra
chemically pure crystals, grown for electronics or optical applications,
isotopic impurities can be the greatest contributor to crystal disorder because
of mass and diameter differences. Eliminating these variations by using a single
enriched isotope (i.e. an isotopically pure substance) increases thermal
conductivity and optical transparency, and thus improves product performance.
Similarly, enriching or depleting isotopes based upon their nuclear
cross-sections allows materials to be engineered for applications in the nuclear
power industry, for controlled doping of semiconductors in the computer
industry, and for use as targets to produce radioisotopes for the life sciences
and other industries.

     STABLE ISOTOPES. Stable isotopes may be thought of as extremely pure
materials. Not only are these isotopes chemically pure, but they frequently
consist of only one isotope depending on the level of enrichment. This extra
degree of purification, accomplished on the sub-atomic level, provides enhanced
performance properties as distinguished from normal (i.e., chemical only) purity
materials. Depleted isotopes are the elimination (or reduction in level) of an
isotope, or isotopes, and can prevent the creation of undesirable byproducts in
subsequent processing steps. In some instances the undesirable byproducts are
produced during the intended use of the non-depleted isotope material. Stable
isotopes have commercial uses in several areas, including, but not limited to:

     o    energy generation;

     o    medical research, diagnostics, and drug development;

     o    product tagging and stewardship;

     o    semiconductors; and

     o    optical materials.

     We have successfully developed and commercialized several isotope products
(notably, even-numbered cadmium isotopes for use with helium-cadmium lasers and
depleted zinc oxide for nuclear power plants). We intend to promote the
emergence and growth of new stable isotope applications.

     RADIOISOTOPES. The radioisotopes we acquire and sell are typically used in
medical diagnostic, treatment and therapy applications. In most cases we first
acquire an enriched or depleted stable isotope "target," which is then exposed
to an appropriate form of radiation to create a specific radioisotope. A key
property of a radioisotope is its half-life. The half-life is a measure of how
fast a radioisotope decays into either a stable isotope or another radioisotope.
Since most radioisotopes used in life science applications have short
half-lives, they are rarely found in nature. Therefore, radioisotopes have to be
made from a target material, usually in a nuclear reactor or a cyclotron, and
must generally be used immediately. A nuclear reactor or a cyclotron generates
the appropriate form of radiation required to convert the target material into
the desired radioisotope.

                                       4
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COMPANY STRATEGY

     We believe our strength lies in our ability to bring the necessary
resources together to identify, evaluate, develop, engineer and successfully
commercialize applications for stable and radioactive isotopes, and value-added
products manufactured from these isotopes. This strength is reflected in
management's experience in taking depleted zinc from a cost prohibitive concept
to a successful commercial reality.

     We believe we have created a product development model that can serve as a
basis for our current and future expansion. To capitalize on the commercial
opportunities that have been identified for stable isotopes, we have adopted a
business strategy designed to maximize the value of our technologies, business
development, and management resources, while minimizing capital costs. This
strategy involves:

     o    focusing on development of high value-added products, which products
          should give us a competitive advantage in large or growing markets;

     o    leveraging research and development expenditures through
          collaborations, government programs, and corporate and academic
          partnerships;

     o    minimizing early capital needs by obtaining stable and radioactive
          isotopes through alliances and supply agreements with existing stable
          and radioactive isotope sources, followed by investment in
          Isonics-owned isotope production facilities when markets are better
          established and the optimum production technology has been determined;

     o    obtaining value-added processing technology through sub-contract
          manufacturing agreements, joint ventures, and acquisitions of
          strategically important technologies and companies; and

     o    developing a time-balanced product pipeline to provide a continual
          supply of new business opportunities.

RECENT BUSINESS ACQUISITIONS

SIGNED LETTER OF INTENT TO ACQUIRE CERTAIN NET ASSETS OF SILICON EVOLUTION, INC.
On July 18, 2001 we signed a letter of intent to buy the silicon-on-insulator
wafer business (SOI business) of Silicon Evolution, Inc. ("SEI") by acquiring
certain assets and assuming certain liabilities in exchange for 2,000,000
restricted shares of common stock. In addition, we may be required to issue up
to 1,600,000 additional shares of restricted common stock if the SOI business
achieves certain operating objectives. Our ability to complete the acquisition
of SEI is dependent on a number of conditions, including successful completion
of our due diligence, obtaining necessary capital, and obtaining the approval of
our shareholders. We intend to close the transaction on a timely basis, but
there can be no guarantee as to when the transaction will close, if it closes at
all.

                                       5
<Page>

     SEI was founded in February 1999 as SOI-TRONIC, Inc. to develop and
manufacture Silicon-on-Insulator (SOI) silicon wafers to integrated circuit
component (IC's or "Chips") and micro mechanical system (MEMS) manufacturers.
SEI's products center around its core IP technology of precision wafer
polishing, cleaning, and bonding silicon wafers to produce thick film SOI in the
100 mm, 150 mm, 200 mm, and 300mm form factors.

     The use of SOI wafers is growing rapidly in three major markets: integrated
circuits, MEMS manufacturing, and micro-optical chips for fiber-optic network
devices. Chip designers are relentlessly driven by the marketplace to seek
innovative ways to improve device performance in three key areas: speed, power
consumption, and size. SOI technology enables circuit designers to reduce
parasitic capacitance between adjacent circuits, thereby improving device speed
approximately 30%; and as the oxide provides a superior source of insulation,
leakage current is reduced, providing a energy savings of better than 30%, as
well as enabling circuits to be spaced on a finer pitch. SOI technology also
provides a degree of radiation hardening to integrated circuits, thus improving
circuit reliability and resistance to soft errors induced by background
radiation sources. In MEMS and micro-optical device fabrication the use of SOI
technology wafers significantly simplifies the manufacturing process.

RECENT BUSINESS DISPOSITIONS

     SALE OF DEPLETED ZINC BUSINESS - DISPUTES WITH EAGLE-PICHER. On December
1, 1999, we sold our depleted zinc business to Eagle-Picher Technologies, LLC
for $8.2 million, of which $6.7 million was paid on December 1, 1999.
Eagle-Picher was obligated to make three additional payments of $500,000 each
on November 30, 2000, 2001, and 2002, representing the balance of $1.5
million. These installments were contingent upon the performance of an
unaffiliated supplier of depleted zinc whose contract with us was assigned to
Eagle-Picher. Eagle-Picher failed to pay the first installment, failed to
meet certain other contractual requirements, and has made certain allegations
against us. As a result, we are engaged in binding arbitration with
Eagle-Picher as described in "ITEM 3 - LEGAL PROCEEDINGS," below.

REORGANIZATION AND SUBSEQUENT SALE OF INTERNATIONAL PROCESS RESEARCH CORPORATION

     On April 30, 1998, we purchased all of the outstanding capital stock of
International Process Research Corporation ("IPRC") from a previously
unaffiliated corporation (Metallurgy International, Inc.). IPRC was a materials
processing and contract research and development company. Through December 1,
1999, IPRC performed key steps in our depleted zinc manufacturing process. We
acquired IPRC to assure future availability of this critical manufacturing
technology, and to provide an infrastructure platform for performing value-added
processing of other isotopes. IPRC had also jointly developed new, lower-cost
technologies to enable its customers to better meet the various metallurgical
and mineral processing needs. In connection with the acquisition, we issued
353,982 shares of our common stock (valued at $708,000) in exchange for all of
the outstanding shares of IPRC. We accounted for the acquisition as a purchase.

                                       6
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     On May 1, 2000, we substantially reorganized IPRC to focus on the recovery
and recycling of zinc metal from various sources, including galvanized steel
scrap, electric arc furnace dust, and brass scrap. We chose this course of
action for two reasons. First, we believed the market potential for this, and
related processes, was significant. Second, the profound and lengthy slump in
the mineral processing and mining industries significantly eroded IPRC's
historical customer base. We continued to meet the demands of a few remaining
customers through various sub-contractor relationships. We also kept the
physical infrastructure in place at our Golden, Colorado location in case the
market conditions warranted a reentry into IPRC's historical markets. We used a
significant portion of this infrastructure in our zinc recovery and recycling
project.

     In January 2001, we acquired the patent rights related to the recovery and
recycling of zinc processes from three unaffiliated parties. We issued a total
of 75,000 shares of our common stock valued at $131,000 for these rights. On
February 1, 2001, we sold IPRC and transferred the patent rights for the zinc
recovery process to Interpro Zinc, LLC, a newly-formed entity owned by Dr.
Robert H. Cuttriss, formerly president of IPRC, James E. Alexander, president,
chief executive officer, and chairman of the board of directors of Isonics
Corporation, and Boris Rubizhevsky, senior vice president and director of
Isonics Corporation. Each of the three aforementioned individuals owns 25% of
Interpro Zinc, LLC. Isonics Corporation owns the remaining 25%. Each individual
contributed $100,000 to Interpro Zinc LLC to continue the development of the
zinc recovery technology. Interpro Zinc, LLC has informed us that they will be
actively seeking further investment to continue their development and
commercialization efforts.

     As a part of the February 1, 2001, transaction, Interpro Zinc assumed
approximately $700,000 in liabilities associated with the operations of IPRC and
agreed to indemnify us against any contingent liabilities related to the IPRC
site in Golden.

     We have signed a cooperation agreement with Interpro Zinc, LLC to continue
leasing office, laboratory, and storage space at our current location. This
agreement expires December 31, 2001. We anticipate relocating to another
facility, possibly in the Denver area, later this calendar year. At this time we
cannot determine what effect, if any, this will have on our operations.

     The disinterested directors of Isonics approved the transaction after
receiving advice from management not participating in the transaction, as well
as independent consultants, and believe that the transaction was fair and
reasonable to, and in the best interests of, Isonics and our shareholders.

     From May 1, 2000, through January 31, 2001, IPRC did not engage in any
revenue producing activities. We have no intention of returning to the contract
research and development activities that IPRC engaged in prior to May 1, 2000.

                                       7
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PRODUCTS

     Our revenues have historically derived from sales from a broad range of
sources. The mix of our revenues has changed significantly during the past three
years:

     In fiscal 1999, our revenues were generated from depleted zinc sales, other
     stable isotopes sales, radioisotopes sales and from contract research and
     development activities.

     In fiscal 2000, our revenues were again generated from depleted zinc sales,
     oxygen-18 and other stable isotopes sales, radioisotopes sales, and from
     contract research and development activities. We sold our depleted zinc
     business in December 1999 and did not recognize any revenues from depleted
     zinc sales after that time.

     During fiscal 2001, our revenues were solely generated from sales of stable
     and radioactive isotopes because of the prior sale of the depleted zinc
     operations and the cessation by IPRC of its contract research and
     development activities.

We are attempting to develop new product lines which we expect to add to our
revenue stream, but we do not expect any significant revenues from these new
products during fiscal 2002. The following is a more specific discussion of our
current products.

WE SUPPLY ISOTOPES FOR LIFE SCIENCES APPLICATIONS

     For the past several years, we have supplied stable isotopes in elemental
and simple compound forms for use in life science applications. In 1998, we
expanded our product offerings to include radioisotopes. We will continue
selling our current stable and radioactive isotope products, develop new
products along similar lines, and expand our product offerings by vertically
integrating. From time to time we evaluate building additional isotope
separation facilities in the United States or Western Europe. We currently do
not have the capital to do so, but it is an integral aspect of our stated
strategic plans. In addition, we intend to expand our value-added manufacturing
capabilities.

     Our existing and emerging life sciences products include isotopes used for
a large number of purposes and can be categorized as follows:

     o    stable isotope labeled compounds;

     o    isotopes used in diagnostic breath tests;

     o    isotopes used in biomedical research;

     o    isotopes used in medical imaging and therapy;

     o    isotopes used in positron emission tomography;

     o    isotopes used in brachytherapy; and

     o    isotopes used to calibrate medical diagnostic equipment.

                                       8
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     Although there is currently little FDA oversight affecting our supply of
the raw material isotopes to our customers for their use in life science
applications, FDA regulation may increase in the next few years. It is not
immediately apparent what implications any additional regulation may have for
us. The following paragraphs provide a brief summary of our existing and
emerging life sciences products:

STABLE ISOTOPE LABELED COMPOUNDS ("SILCS"). SILCs are created by incorporating
known quantities of stable isotopes including carbon, nitrogen, hydrogen
(deuterium), oxygen, and other elements, into thousands of different chemical
compounds. SILCs allow researchers to investigate living systems, determine the
chemical structure of important biological compounds, design new drugs, and
measure extremely low levels of environmental toxins. We believe that greater
availability and lower cost of stable isotopes, and advances in instrumentation
to detect stable isotopes will continue to increase the demand for SILCs.

     Our products are typically simple compound SILCs that are used by our
customers to synthesize more complex and higher-value SILCs. We market primarily
deuterium, carbon-13 and nitrogen-15 to our customers for this purpose. Examples
of existing and emerging applications for these products include:

     METABOLIC STUDIES. Increasingly, studies of new drugs are performed with
     isotope-labeled drugs to facilitate research on metabolism, distribution,
     mode of action, and elimination. The FDA one day may require the isotope
     labeling of all new drugs for investigational use during some or all phases
     of pre-clinical and clinical evaluations of these drugs, although it does
     not so mandate today.

     RATIONAL DRUG DESIGN. Drugs historically were designed using a screening
     process in which prior experience was employed to determine what chemicals
     might work to treat a condition, and then tests on subjects were performed.
     Today specialized instrumentation is routinely available to determine the
     chemical structure of large molecules, including the human proteins and
     enzymes that a drug is designed to affect. This approach is known as
     rational drug design. We believe that this new instrumentation, combined
     with sophisticated SILCs, will prove beneficial in determining the chemical
     structure of human proteins and enzymes. We believe rational drug design
     will require an increasing supply of stable isotopes.

DIAGNOSTIC BREATH TESTS (DBTS). DBTs are a new class of non-invasive diagnostic
testing that are gaining worldwide acceptance. DBTs use stable isotope labeled
compounds to detect a wide range of human abnormalities, particularly digestive
disorders such as ulcers. The FDA has approved one test and similar approvals
exist in Europe. Demand for DBTs has increased as health care insurance
providers have determined to include reimbursement in many health insurance
plans. That demand, in turn, is expected to accelerate as regulatory approval is
awarded in other countries. Many other tests based on the same principles as
DBTs are in various stages of development worldwide. We supply stable isotope
raw material to companies developing DBT chemicals. While these sales are not
currently a large source of revenues, we continue our sales and marketing
efforts in order to monitor the development and direction of this potentially
very large market.

                                       9
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     We do not manufacture the DBTs. DBT manufacture is subject to extensive
government regulation. The products and instruments in which our isotopes are
used may be subject to the scrutiny of FDA review and approval, as well as
ongoing FDA inspection of most aspects of the production, marketing,
distribution, and usage. We believe that the production and marketing of DBTs
are also subject to similar regulatory controls in foreign countries where we
might seek to market our isotopes for use in DBTs. Consequently, new products
cannot be introduced commercially until after approval which may or may not be
granted after several years.

BIOMEDICAL RESEARCH. Traditionally, numerous aspects of the many phases of drug
development have been carried out using radioisotope-labeled versions of
promising compounds. We supply precursor compounds labeled with radioisotopes,
such as carbon-14 and phosphorous-33, to manufacturers who incorporate them into
more complex radioisotope labeled compounds. These complete radioisotopes are in
turn used in basic research and pharmaceutical development. The carbon-14
precursors are produced under contract by IUT, a company in which we hold a
minority interest.

     While rational drug design and stable isotope labeled compounds represent
competition for this more traditional approach to research and drug development,
we believe a combination of increasing drug development activity and a large
body of data and experience will ensure a strong market for these products.
Importantly, we also supply some of the basic stable isotope products used to
make the compounds of these competing technologies.

MEDICAL IMAGING AND THERAPY. Radioisotopes have been used for years in the
diagnosis and treatment of many medical conditions. The trend in these two areas
has been towards increasingly more specific chemicals that, after labeling with
the radioisotope and injection into the patient, quickly concentrate at the
disease site(s). In theory, the appropriate choice of chemical and radioisotope
labels facilitate disease detection and stage determination which improves
therapy selection, administration and monitoring. The medical community is
developing and testing several classes of chemical compounds ranging from
monoclonal antibodies to peptides for use in the detection, and, eventually, the
treatment of many diseases. The FDA has approved some of these for use.

     We currently supply stable isotopes of thallium, zinc, cadmium, xenon,
strontium, and many others that are routinely used in a variety of medical
imaging and therapy applications. These are used in their enriched stable form,
such as Xenon-129, or converted to a specific radioactive isotope in a cyclotron
or nuclear reactor. We believe that the increased supply of new isotopes
combined with the ongoing development of highly specific biochemical therapies
represents a major growth opportunity in this market segment.

POSITRON EMISSION TOMOGRAPHY ("PET"). Although this very powerful nuclear
medicine imaging technology has been available for over 25 years, its complexity
and cost until recently had relegated PET to a research role. Technology and
infrastructure improvements have reduced the cost and complexity of performing
PET studies. PET's unique ability to diagnose multiple metabolic abnormalities,
particularly cancer, has resulted in recent approvals by the FDA and favorable
reimbursement levels by Medicare, Medicaid, and third party insurers. Similar
approvals are now common in Europe and parts of Asia though reimbursement levels
vary. We believe PET studies are growing at rates of approximately 20 to 50%
annually worldwide.

                                       10
<Page>

     Oxygen-18 is a rare stable isotope of oxygen. Oxygen-18 is used to produce
fluorine-18, a radioisotope which is the source of the positrons tracked by the
PET imaging equipment. Demand for oxygen-18 is currently greater than the
supply. Although we do not produce oxygen-18 ourselves, we purchase oxygen-18
from two sources and resell oxygen-18 to end users worldwide. In fiscal 1999, we
introduced a novel program to recycle "used" oxygen-18; we believe that this
program provides an economic advantage to our customers and provides a
competitive advantage for us over our competitors.

BRACHYTHERAPY. Cancer therapy continues to evolve to target specific types of
cancer more effectively. Today, external beam radiotherapy and chemotherapy are
the predominant technologies used in cancer treatment. However, another
technology, brachytherapy, is emerging in the treatment of specific cancers such
as prostate cancer.

     In brachytherapy, small sealed radioactive seeds are inserted directly into
the tumor using a variety of minimally invasive surgical methods. The
radioisotope, which is placed inside the seed, is selected and manufactured to
ensure that only the cancerous tissue immediately adjacent to the implanted seed
is irradiated. This minimizes the irradiation of nearby healthy tissue, a common
adverse side effect that occurs with external beam radiotherapy. There are three
primary criteria that govern the selection of the radioisotope to be implanted
in the patient:

     o    half-life,

     o    type of radiation emitted, and

     o    strength of the radiation emitted.

     The half-life and form of radiation emitted is dictated by the radioisotope
selected. Strength of the radiation is determined during the manufacturing
process.

     Several companies (Nycomed-Amersham, Theragenics, North American
Scientific, and others) already offer, or have plans to offer, brachytherapy
products for the treatment of prostate cancer. Studies continue in the
applicability of this technique for other tumor types, including some breast and
eye cancers. We currently supply several companies with radioisotopes (or stable
isotope targets to be made into radioisotopes) for this application. We believe
this market represents one of the largest growth opportunities for
radioisotopes. It also represents a significant opportunity to provide
value-added products/services in the form of manufactured subcomponents such as
the seeds.

CALIBRATION STANDARDS. There are many medical devices that measure levels of
radiation in patients. These devices need to be calibrated using standards of
known radiation strength and type in order to ensure their accuracy. These
standards derive from radioisotopes such as cobalt-57 and gadolinium-153. We
supply many of the stable isotope target materials, as well as radioisotopes, to
many of the manufactures of the equipment needing calibration.

                                       11
<Page>

     Medical equipment calibration standards is one of the largest markets for
radioactive source standards. These medical devices are found in the nuclear
medicine departments at thousands of hospitals around the world. The continued
growth in the numbers and complexity of nuclear medicine imaging equipment,
especially PET, ensure growth in the demand for these radioisotopes.

PRODUCT TAGGING AND STEWARDSHIP APPLICATIONS

     Thousands of chemicals used everyday in our society are fungible. That is,
chemicals meeting a certain chemical formula cannot be differentiated, even when
produced by different manufacturers or on different days. Industry can identify
and distinguish identical chemicals and the products made from them by adding
stable isotopes of carbon, nitrogen, oxygen, hydrogen and other elements to the
chemicals or products. Because the stable isotopes used as the tag are
chemically identical to the chemicals used in the product, the tag should be
free of undesirable side effects. We can add stable isotopes to identify
different production lots of the same products without changing the chemical
properties of the products themselves. To date, we have not had significant
demand for stable isotopes for these applications. We believe that the demand
for suitable isotopes will increase. We believe that there are many products
suited for isotope tagging:

     o    Products such as perfumes may be ideally suited for product tagging.
          Imitation perfumes, made by other manufacturers but sold as the
          original to unsuspecting consumers, are not uncommon. If the original
          perfume has been tagged using stable isotopes, then imitations can be
          easily identified.

     o    Similarly, product tagging may be utilized where information regarding
          the manufacture and distribution of a chemical is important. Ammonium
          nitrate, for example, is a common fertilizer. When combined with fuel
          oil, however, it becomes a powerful explosive. Knowing by whom, when
          and where the ammonium nitrate was made, and to which distributor it
          was sold, can be very useful information if authorities need to
          investigate the unlawful use of such a product. Tagging the ammonium
          nitrate with stable isotopes would provide that information, even
          after the explosion, as the isotopic ratios are unaffected by an
          explosive reaction.

These and other product tagging and stewardship applications may develop over
time.

     There are several alternative tagging methodologies in use today. These
methods typically involve the addition of extraneous materials such as dyes,
exotic chemical compounds, or radioactive compounds. We believe that adding
these extraneous materials can sometimes detract from the performance of the
product, and/or cause deleterious side effects.

ISOTOPICALLY PURE SEMICONDUCTOR MATERIALS

     The majority of semiconductor devices built today use natural silicon as
the starting material. Silicon has many desirable characteristics as compared to
other semiconductor materials, and the semiconductor industry has invested
billions of dollars to improve and optimize their

                                       12
<Page>

manufacturing technologies for silicon-based devices. Devices fabricated on
single crystal silicon have performance characteristics that are governed by the
electrical and physical characteristics of silicon including:

     o    carrier mobilities,

     o    effective mass of the carriers,

     o    energy band-gap,

     o    electrical conductivity, and

     o    thermal conductivity.

     Carrier mobilities, for example, govern signal transit times and thus place
a limit on device speed. Thermal conductivity governs power dissipation, which,
in turn, places an upper limit on the packing densities achievable for devices
on a chip, or on the amount of power that can safely be generated in the circuit
without significantly degrading circuit performance.

     The semiconductor industry trend of adding more transistors to a single
chip to increase performance, and shrinking the size of transistors to both
increase performance and decrease costs, has resulted in increased power
requirements and significantly higher operating temperatures. Nowhere is this
trend more evident than in microprocessors. Historically, the 80286, 80386, and
80486 generations of microprocessors typically did not need external heat sinks
to remove heat and function properly. High operating temperatures and thermal
management were not issues outside of mainframe or workstation computers.

     Beginning with the Pentium(R), Sparc(R), and Alpha(R) microprocessors, heat
sinks and fans became necessary to control the higher operating temperatures.
According to the Semiconductor Industry Association, when the microprocessor's
power requirements exceed approximately 110 watts, heat sinks and fans will no
longer be adequate and active cooling (refrigeration) will be required. Most of
the major computer companies have already demonstrated cryogenically cooled
computers that operate up to one-third faster than their conventionally cooled
counterparts. These cryogenic cooling devices can cost upwards of $400 per
microprocessor.

     A significant body of research, generated over the last twenty years,
supports the thesis that isotopically pure semiconductor materials have superior
thermal conductivity properties compared to natural, multi-isotopic materials.
We believe this solution (i.e., using isotopically pure semiconductor materials
to manage operating temperatures) is compatible with virtually every other heat
management solution currently implemented or envisioned to date. Critically, it
does not require changing a single device design or manufacturing process
because isotopically pure semiconductor materials are essentially chemically and
physically identical to naturally-occurring semiconductor materials. For
example, silicon has three naturally occurring stable isotopes:

     o    silicon-28 (92% natural abundance),

     o    silicon-29 (5% natural abundance), and

     o    silicon-30 (3% natural abundance).

By purifying silicon to 99.9% silicon-28, the thermal conductivity is improved
60% at room temperature and over 600% at -423 degrees Fahrenheit.

                                       13
<Page>

     In 1997, we began a program to introduce 99.9% isotopically pure silicon-28
as a superior substitute to natural silicon for the manufacture of semiconductor
devices. SEE "RESEARCH AND DEVELOPMENT." Our first efforts toward developing
isotopically pure semiconductors involved securing the intellectual property
rights to commercialize silicon-28 and similar materials. These efforts
culminated in our acquiring exclusive rights to two Yale University patents. SEE
"PATENTS AND PROPERTY RIGHTS."

     We then began acquiring sufficient quantities of pure silicon-28 to make
epitaxial wafers. These wafers have been sold or given to numerous manufacturers
and academic institutions to perform additional tests to validate previous
findings and to confirm the substitutability of pure silicon-28 for natural
silicon in their manufacturing processes. These tests support our belief that
pure silicon-28 is not only a viable substitute material for natural abundance
silicon, but that the anticipated thermal conductivity property improvements are
significant.

     The next step in our development program is to make bulk wafers of pure
silicon-28. The manufacture of bulk wafers requires substantially more material
than we could economically acquire from our existing suppliers, however. Our
efforts to secure an unlimited, U.S.-based, economical supply of silicon-28
culminated with the December 1999 signing of an agreement with Eagle-Picher to
provide silicon-28 to us on an exclusive basis. Under our agreement with
Eagle-Picher, we expected to receive the initial 200-kilogram delivery by
December 31, 2000. Eagle-Picher failed to make timely delivery of this amount.
We had identified several benefits to our contractual arrangement with
Eagle-Picher:

     o    Eagle-Picher had promised to deliver 200 kilograms of
          isotopically-pure silicon-28 by December 31, 2000;

     o    Eagle-Picher accepted full payment for the 200 kilograms in our
          equity, thus allowing us to conserve our cash for our other business
          activities; and

     o    Eagle-Picher intended to produce the silicon-28 at a reasonable
          contract price, at facilities located in the United States.

     Unfortunately, Eagle-Picher did not meet its commitments and failed to
deliver the silicon-28 when promised. As a result, we are in arbitration with
Eagle-Picher to resolve the disputes which resulted from Eagle-Picher's
failures. SEE "SALE OF DEPLETED ZINC BUSINESS - DISPUTE WITH EAGLE PICHER,"
"LEGAL PROCEEDINGS," and "MANAGEMENT'S DISCUSSION AND ANALYSIS." We do not know
whether Eagle-Picher will ever develop its technology to the point where it can
supply the necessary quantities of silicon-28. Because we are in arbitration
with Eagle-Picher, even if they can produce silicon-28 we do not know whether
they will permit us to purchase the silicon-28 from them on favorable terms.

     We have identified other sources available for supplying silicon-28, but
those sources are not domestic. We have not placed large orders with these
suppliers because of the cost involved. At an expected cost of approximately
$25.00 per gram, 200 kilograms would cost approximately $5.0 million. In
addition, certain other possible sources for bulk quantities of silicon-28 are
in the process of developing their technology and are not in commercial
production. In June 2001 we placed an order for sample quantities of silicon-28
in the form of trichlorosilane from a Russian supplier. When we receive this
delivery (anticipated to be in the fourth quarter of calendar 2001), we will
evaluate it to determine whether it will provide acceptably-pure silicon-28. If
we can use trichlorosilane for our purposes and if we can obtain it at a
reasonable price

                                       14
<Page>

and on reasonable terms, and subject to financing, we expect to place an order
for sufficient trichlorosilane to produce 200 kilograms of silicon-28.

     We anticipate very little revenue from silicon-28 based products in fiscal
2002, as we are still developing this business. Nonetheless, if we are able to
complete our development efforts successfully and market silicon-28 based
products, we project significant revenues in subsequent fiscal years.

     We are also examining other semiconductor materials including gallium. As
with silicon, gallium has multiple, naturally occurring stable isotopes. Our
development program for gallium, which we began in October 2000, is similar to
the one outlined above for silicon-28. At this time we have begun funding
development of separation technology and procuring small amounts of isotopically
pure gallium-69 and gallium-71 as trimethylgallium for use in chemical vapor
deposition reactors.

DISTRIBUTION METHOD

     We operate sales offices in Columbia, Maryland; Dusseldorf, Germany; and
Leipzig, Germany. We also identify customers through industry sales journals,
website identification and trade shows. In addition, many customers come to us
by referral from existing customers. There are a limited number of suppliers in
the isotope industry and, therefore, most customers are aware of the products
and services we offer. Customers directly place the orders and we either ship
directly to the customer through our sales offices or the product is shipped
directly from the supplier. We use commercial courier services such as Federal
Express and DHL to ship all products.

SIGNIFICANT CUSTOMERS

     As of April 30, 2001, five customers accounted for approximately 50.2% of
total net accounts receivable. One of these customers, and four other customers,
accounted for approximately 41.0% of net revenues during the year ended April
30, 2001. Two different customers accounted for approximately 25% of net
revenues during the year ended April 30, 2000. One of these customers accounted
for 18% of accounts receivable as of April 30, 2000. Two customers accounted for
approximately 34.9% of the German segment's revenue for the year ended April 30,
2001. One of these customers accounted for approximately 23.3% of the German
segment's accounts receivable at April 30, 2001.

RESEARCH AND DEVELOPMENT

     Consistent with our product development strategy, we are seeking to
identify and evaluate new stable and radioactive isotope products and potential
markets for economic and technical feasibility. We will, in addition, continue
funding research and development to improve technologies for isotope separation
and materials processing technologies. During fiscal 2001 and 2000, research and
development expenses were $1.134 million and $1.224 million, respectively.

     In fiscal 2001, we focused our research and development efforts on the
production of high chemical-purity silicon-28 silane gas and silicon-28
epitaxial wafers. Through IPRC (which we owned 100% through January 31, 2001),
we also performed research and development for the

                                       15
<Page>

recovery and recycling of zinc from various sources such as scrap metals,
including galvanized steel and brass, and electric arc furnace dust.

     In fiscal 2000, we focused our efforts on the production of high
chemical-purity silicon-28 silane gas and silicon-28 epitaxial wafers as
described above; and the zinc recovery and recycling, also as described above.

     We transferred the zinc recovery program in conjunction with the sale of
our former subsidiary to Interpro Zinc, LLC and we are no longer directly
engaged in research and development efforts for zinc recovery and recycling. (We
continue to be engaged in these efforts indirectly through our 25% ownership of
Interpro Zinc, LLC.)

     SILICON-28. To expand our capacity and to ensure product quality, we were
proceeding to build our own silane gas facility in Golden, Colorado. We have
postponed building this plant due to Eagle-Picher's inability to supply
silicon-28 as silicon tetrafluoride. We will continue to use outside sources to
perform processing as required for our needs until circumstances and financing
warrant proceeding with our contemplated facility.

     In August 2001, we entered into a marketing agreement with a major wafer
manufacturer. We will supply silicon-28 as trichlorosilane to the wafer producer
for the manufacture of silicon-28 epitaxial wafers. These wafers will be
supplied to interested customers worldwide for evaluation in a number of
semiconductor devices. This agreement is critical in assuring that silicon-28
epitaxial wafers will be available to meet the increasingly stringent quality
demands of the semiconductor industry. Any revenues generated under this
agreement will be split 50-50 with the wafer manufacturer.

     In May 2001, we entered into a one-year silicon-28 joint development
program with Advanced Micro Devices (AMD), a major microprocessor manufacturer.
We will supply AMD with silicon-28 wafers. AMD will use our products to make and
rigorously test state-of-the-art microprocessors to accurately quantify the
benefits of high thermal conductivity silicon-28 in this application. We expect
to use the results of the testing program to find the proper balance between
performance and cost. In addition to AMD, another major microprocessor
manufacturer is currently evaluating silicon-28 epitaxial wafers that were
delivered in September 2000.

     In fiscal 2001, we delivered a second batch of epitaxial wafers to Cypress
Semiconductor, and we also sold a small quantity of silicon-28 epitaxial wafers
to two Japanese semiconductor manufacturers for their evaluation.

     In fiscal 2001, we entered into two new research programs at universities;

     o    The University of Texas (Austin) will evaluate the use of silicon-28
          epitaxial wafers as substrates for SiGe:C based transistors, and

     o    The University of California (Santa Cruz) will use silicon-28
          epitaxial wafers to build novel thermoelectric coolers


                                       16
<Page>

     In fiscal 2000, we funded two new university research programs and
participated in two others.

     o    The first funded program is at Southern Methodist University, Dallas,
          Texas. The Southern Methodist University Program will measure the
          thermal conductivity of silicon-28 thin films with various electrical
          dopants, and model the effect of epitaxial layer thickness on the
          temperature of silicon and gallium arsenide transistors. This program
          is still underway.

     o    The second funded program was at North Carolina State University,
          Raleigh, North Carolina. The North Carolina State University Program
          modeled and built power semiconductor devices and determined the
          effect of silicon-28 epitaxial layers on the device's temperature
          distribution. This program has been completed, and the unpublished
          results indicate that significantly smaller leakage currents were
          found in diodes built on silicon-28 wafers, as compared to natural
          silicon wafers, indicating that lower temperatures were achieved.

     o    Innovations for High Performance Microelectronics (IHP), a German
          research organization, is evaluating silicon-28 epitaxial wafers in
          their SiGe:C technology being developed for wireless
          telecommunications applications. This program is still underway.

     o    DIMES, a research organization associated with Delft University in the
          Netherlands is evaluating silicon-28 SOI wafers to determine if
          improved cooling can be accomplished. This program is still underway.

     Additionally, in fiscal 2000, we entered into a Cooperative Research &
Development Agreement with Lawrence Berkeley Laboratory in Berkeley, California,
to study the properties of various silicon isotopes. This agreement is part of a
U.S. Department of Energy program to re-deploy Russian nuclear weapons
technology to commercial applications. Delays within the Department of Energy
have pushed the start of this program to our fiscal year 2002.

     We also supplied silicon-28 silane gas to ATMI, Inc. in Danbury,
Connecticut, and will participate in their Office of Naval Research funded
program to investigate isotopically pure silicon carbide. Initial data from this
program have shown an improvement in the thermal conductivity of isotopically
pure silicon carbide epitaxial layers. This is the first data that we are aware
of that has shown improvement in an isotopically modified compound
semiconductor. This program is still underway.

     During fiscal 1999, we signed a joint research and development agreement
with Silex Systems, Ltd. The agreement calls for Silex to partially fund some of
our development activities and for Silex to assess the feasibility of building a
silicon isotope separation plant using Silex's patented laser isotope separation
process. This agreement reflects our effort to ensure a large supply of silicon
isotopes at a reasonable cost to support the large-scale manufacture of
isotopically pure silicon wafers. According to Silex, in 2001 they started a
stable isotope separation program that includes silicon.

                                       17
<Page>

     The adoption of silicon-28 by semiconductor manufacturers will depend on
the outcome of the evaluations underway. Even though silicon-28 is a one-for-one
substitution for normal silicon, semiconductor companies are very conservative
about changing anything in their manufacturing process, for fear that their
yields will suffer. Typically the testing sequence at these companies is:

     1)   A detailed analysis of the silicon-28 wafers to make sure that they
     are equivalent to standard wafers and that their is no risk of
     contamination to the fab or other wafers in process,

     2)   Manufacture and testing of test transistors to ensure that the
     electrical parameters are unchanged,

     3)   Gate oxide integrity testing as a function of oxide thickness to
     determine any changes from standard wafers,

     4)   Manufacture and testing of a device using a well documented (generally
     older) technology to determine any yield or performance improvements,

     5)   Manufacture and testing of a device using state-of-the-art technology
     to determine any yield or performance improvements. Depending on the
     specific company, this could be technology already in production or
     technology scheduled for future production such as 0.18 or 0.13 micron
     design rules,

     6)   Repeat step 5 with a sufficient quantity of wafers from a qualified
     wafer supplier to generate a statistically valid conclusion, and finally

     7)   Production planning for the introduction of a new product based on
     silicon-28.

     This a very time consuming process. While several companies are well into
in the evaluation process, we do not expect the introduction of products based
on silicon-28 wafers in our fiscal year 2002, and therefore do not expect
significant revenues from silicon-28 product sales in fiscal 2002.

     OTHER SILICON ISOTOPES. We have an oral agreement with Voltaix, Inc. of
North Branch, New Jersey to act as a distributor of our products for the ion
implantation industry. The first product sold in accordance with the Voltaix
agreement is silicon tetrafluoride enriched in the silicon-29 isotope. This
isotopically enriched material allows higher beam currents and higher
productivity than the natural silicon tetrafluoride currently used in the
gallium arsenide industry today.

                                       18
<Page>

ZINC RECOVERY AND RECYCLING. Until February 1, 2001, we owned 100% of IPRC. It
had been engaged in contract research and development activities. During the
course of its contract research and development activities, IPRC was introduced
to a patented technology using chlorine gas to recover and recycle zinc from
galvanized steel scrap. Because we sold IPRC effective February 1, 2001, we do
not expect to incur additional research or development expenses relating to zinc
recovery and recycling, and we are no longer involved in this or any related
activities. We received a 25% interest in the purchaser and, therefore, still
retain an interest should the purchaser's research and development of zinc
recovery prove to be successful.

PATENTS AND PROPRIETARY RIGHTS

     We rely primarily on a combination of trade secrets, confidentiality
procedures and contractual provisions to protect our technology. Despite our
efforts to protect our rights, unauthorized parties may attempt to copy aspects
of our products or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our technology and products is difficult. In
addition, the laws of many countries do not protect our rights in information,
materials and intellectual property that we regard as proprietary to as great an
extent as do the laws of the United States. There can be no assurance that our
means of protecting our rights in proprietary information, materials and
technology will be adequate or that our competitors will not independently
develop similar information, technology, or intellectual property.

     We currently have no patents in our own name, although we have filed
several patent applications. We have rights to several isotopically engineered
innovations regarding electronic and optical materials, which we believe may be
patentable. Ongoing work in the area of isotope separation by chemical means may
also lead to patentable inventions.

     In April 1999, we announced that we had entered into an exclusive licensing
agreement with Yale University that entitles us to exclusive intellectual
property rights to patents covering semiconductor devices derived from
isotopically engineered materials. The license requires payment by us of a
royalty based on a percentage of our, or our sublicensees', net sales of
products derived from technology covered by the Yale patents (#5,144,409, dated
September 1, 1992, and #5,442,191, dated August 15, 1995). Each of these patents
expire seventeen years after issuance.

COMPETITION

     Many of our potential competitors, are larger and have significantly
greater financial, technical, marketing and other resources than us. Some of our
competitors may form partnerships or alliances with large pharmaceutical or
electronics companies, with the resulting entity possessing greater market
strength than we have. We face competition relative to many of our products,
including:

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<Page>

STABLE ISOTOPE LABELED COMPOUNDS AND DIAGNOSTIC BREATH TEST PRODUCTS. Several
companies compete with us for a piece of the stable isotope labeled compounds
market. We will have additional competitors if we offer diagnostic breath test
products and additional stable isotope label compounds in the future. Two of
these companies, Cambridge Isotope Laboratories Inc. and Isotec, Inc., have
their own isotope separation facilities, while all of our competitors produce
some combination of stable isotope labeled compounds and diagnostic breath test
substrates. We are aware of at least one company in the United States who has
received FDA approval for a carbon-13 Urea Breath Test, a specific type of
diagnostic breath test. Several companies in Europe have also received
regulatory approval for diagnostic breath tests. Our principal current
competitors and potential competitors also include:

     o    Euriso-top,

     o    Aldrich Chemicals,

     o    Icon Services,

     o    Omicron,

     o    C/D/N Isotopes and

     o    Martek Biosciences.

SEMICONDUCTOR MATERIALS. Although we have not yet identified significant
competitors in the semiconductor markets, numerous companies in the United
States and throughout the world are currently manufacturing semiconductor
materials and are working to improve the thermal conductivity and other
beneficial characteristics of semiconductor materials. Many of these companies
are larger than Isonics and have significantly greater financial resources at
their disposal. Given the size and importance of these potential markets, we
anticipate that substantial competition will emerge as the markets develop.

ZINC RECOVERY AND RECYCLING. Other companies have attempted over the last twenty
years to recover and recycle zinc from galvanized steel and brass scrap. Many of
these organizations are larger than Isonics and have significantly greater
financial resources at their disposal. The companies' attempts have proven cost
ineffective or difficult to implement because of the complex metallurgy
involved. Additionally, primary zinc from ore deposits around the world
continues to be relatively inexpensive and plentiful. Because we sold IPRC, we
are no longer competing directly in the area of zinc recovery and mining.

SUMMARY. Many of the areas in which we either compete or intend to compete are
rapidly evolving. Competition may develop a patentable product or process that
may prevent us from competing in our intended markets. While we expect to
compete primarily on the basis of product performance, proprietary position and
price, in many cases the first company to introduce a product to the market will
obtain at least a temporary competitive advantage over subsequent market
entrants.

                                       20
<Page>

MANUFACTURING AND SUPPLY

     We obtain stable isotopes from a variety of isotope sources, primarily
located in Russia or other former Soviet republics. We may invest in our own
isotope production facilities in the future upon our determining the optimum
production technology for a given isotope or family of isotopes. Other
facilities elsewhere in the world, including the Oak Ridge National Laboratory
in Oak Ridge, Tennessee, and private and pseudo-governmental facilities in Great
Britain, Germany, the Netherlands and the Republic of South Africa, have the
potential to produce stable isotopes.

     To date, we have only been able to obtain limited quantities of silicon-28
for use in manufacturing epitaxial wafers. We are testing supplies of silicon-28
to determine their suitability for the manufacture of a bulk wafer needed to
continue our silicon-28 research and development program discussed above. We
believe that we will be able to obtain adequate supplies of silicon-28, but we
are unable to commit to the suppliers because of our lack of working capital. We
do not anticipate that Eagle-Picher will be a source of supply of silicon-28 to
us during the continuation of the arbitration process even if they resolve their
technical problems and are able to produce the product.

     We have historically depended on a limited number of suppliers and
processors for most of our manufacturing processes. Except for our agreement
with Eagle-Picher (which is in default), we do not have any written agreements
with our suppliers and processors. Although we attempt to reduce our dependence
on our suppliers, disruption or termination of any of the sources could occur,
and such disruptions or terminations could have at least a temporary, materially
adverse, affect on our business, financial condition, and results of operations.
Moreover, a prolonged inability to obtain alternative sources for processing
could have a materially adverse affect on our relations with our customers.

GOVERNMENT REGULATION

     Regulation by government authorities in the United States and other
countries is a significant consideration in the research, development,
production, distribution and marketing of our products. In order to clinically
test, manufacture, distribute, market and sell products, we must follow safety
and other standards established by applicable regulatory authorities. We may be
subject to various laws, regulations and requirements relating to such matters
as the import and export of our products, ensuring safe working conditions,
laboratory and manufacturing practices, and the use, storage and disposal of
hazardous or potentially hazardous substances used in connection with our
research, development and manufacturing activities. The regulations potentially
material to our business are summarized below.

FDA REGULATION

     We are not currently subject to any FDA regulation because we do not
currently manufacture any Diagnostic Breath Tests, drug products or other
medical devices. Our customers may in many cases be subject to FDA regulation.
However, if we test, manufacture, market, distribute, export or sell diagnostic
products or medical devices in the future, we will also likely be subject to
extensive regulation nationally and internationally. We have not yet determined
from what specific countries, other than the United States, we might seek
regulatory approvals to market

                                       21
<Page>

such products, though we anticipate seeking approval in Europe and Japan. We
intend to develop products that are subject to rigorous pre-clinical and
clinical testing both domestically and internationally.

     Because of these regulatory hurdles, products developed by us may not meet
the requisite standards to receive marketing approval. Nor is there any
guarantee that such approval will be granted on a timely basis, if at all, or
that such products if approved will be commercially successful. Delays and costs
in obtaining these regulatory approvals could adversely affect our ability to
commercialize our products and our ability to generate revenues. Even if
regulatory approvals for a product are obtained, such approvals may involve
restrictions and limitations on the labeling and clinical use of the product.
Following market approval, the product will continue to be subject to compliance
with applicable federal and state laws and regulations.

DIAGNOSTIC MEDICAL DEVICE PRODUCTS

     Our carbon-13 based proposed diagnostic products may be regulated as
medical devices. Diagnostic products may be subject to one of two marketing
approval procedures. One procedure, known as a "510(k) review," is available
when the manufacturer can demonstrate that the proposed product is
"substantially equivalent" to another product that either was in commercial
distribution in the United States before May 28, 1976, or that has been
subsequently classified as a Class I or Class II medical device. When a 510(k)
review is used, a sponsor is required to submit a Pre-Market Notification to the
FDA at least 90 days before it plans to initiate commercial distribution of the
product.

     Where there is no existing legally marketed product "substantially
equivalent" to a contemplated product, the sponsor is required to seek marketing
approval of the product by a different process. This process, a Pre-Market
Approval application, implicates a lengthy, more burdensome procedure that would
likely require clinical studies. Together with the FDA review of the Pre-Market
Approval, this application process may take three-to-five years before
commercial marketing can occur. Of course, we do not know whether the FDA will
determine that any future product we develop will have an intended use and
characteristics that qualifies the product for commercial distribution for
clinical use under 510(k) Pre-Market Notification. Thus, Pre-Market Approvals
may be required for some or all of our future contemplated and proposed
products.

     We have not developed any product that requires any clearance procedure
with the FDA, and no such product is under active development. We believe that
any Diagnostic Breath Test instruments we develop in the future will be eligible
for marketing under a 510(k) Pre-Market Notification, but that the substrate
would require approval of a New Drug Application. We believe that clinical
studies would be required to obtain FDA approval of the 510(k)/New Drug
Application for the DBT instrument/substrate and would be conducted under an
investigational device exemption approved by the FDA. An investigational device
exemption normally restricts the transfer of an investigational device to a
limited number of institutions for a limited number of investigators. The FDA
may not allow us to conduct such clinical studies. Furthermore, such studies may
not provide the data necessary to obtain the approval of the 510(k)/New Drug
Application for any DBT or other product that we may develop. Moreover, the FDA
may not provide the necessary approval of the 510(k)/New Drug Application in a
timely manner, if at all.

                                       22
<Page>

     In addition, use of DBTs and other diagnostic products that we develop may
be subject to regulation under the Comprehensive Laboratory Improvement Act of
1986. Under this Act, clinical laboratories must be certified to perform
diagnostic tests. Such certification specifies the highest "complexity level" of
tests that the laboratory can perform. The specific complexity level of a given
diagnostic product is determined by the U.S. Centers for Disease Control. Our
ability to successfully market diagnostic products within the U.S. may depend on
our obtaining a complexity level determination that allows the broadest use. We
may not obtain such complexity level determination in a timely manner, if at
all. Failure to obtain the requisite complexity level may have a material
adverse effect on us and our operations.

DRUG PRODUCTS

     We have not yet developed any drug products, as defined by the FDA, and our
research and development efforts for such products are only in the very
preliminary stages. The development and marketing of drugs is highly regulated
by the FDA. Development of a drug product for use in humans is a multi-step
process. First, laboratory and animal testing establish reasonable safety and
potential efficiency of the experimental product for testing in humans. After
the general investigative plan and protocols for specific human studies are
developed, an investigational new drug application is submitted to the FDA for
approval. Once approved, clinical investigations may commence.

     Following the successful completion of clinical trials, the accumulated
clinical evidence is submitted to the FDA as part of a new drug application.
Approval of the New Drug Application is necessary before a company may market
the product. The approval process can be lengthy, frequently taking one, two or
more years after submission. Timely approval depends in part upon the speed of
the FDA's application review and the time required for the company to provide
satisfactory answers or additional data when specified by the FDA. A New Drug
Application may not be approved in a timely manner, if at all. Failure to obtain
such approvals would prevent us from commercializing our products and would have
a material adverse effect on our business. Furthermore, the process of seeking
and obtaining FDA approval for a new product generally requires substantial
funding. We cannot now say that we will have the funds to pursue such approval.

CURRENT GOOD MANUFACTURING PRACTICES  AND OTHER CONTROLS

     The FDA also has extensive regulations concerning manufacturing of
regulated products in accordance with current good manufacturing practices. If
we commence the manufacture of any products subject to FDA regulation (and we
are not currently manufacturing any such products), we will have to comply with
current good manufacturing practices and we will have to ensure, compliance by
our third-party manufacturers. Continued compliance with such practices is
required to market both drugs and medical devices once they are approved.
Failure to comply with the current good manufacturing practices regulations or
other applicable legal requirements can lead to the seizure of non-complying
products, injunctive relief actions brought by the federal government and
potential criminal investigation and prosecution of violators and its officers
and employees who are responsible for the activities that lead to the
violations.

                                       23
<Page>

OTHER GOVERNMENT REGULATION

     The import, export, handling, transportation, sale, storage and other
activities undertaken in connection with our non-medical products are subject
to, or potentially subject to, significant federal, state, local and foreign
government controls pertaining to hazardous chemicals, import export controls
and other matters. These regulations are complex, pervasive, and constantly
evolving. Our ability to effect and maintain compliance with these controls is
important to our commercial success. We are not currently engaged in any
activities that may require us to incur significant expenses related to
environmental compliance.

     We rely predominantly on Russian and U.S. freight carriers to handle and
deliver all our shipments, and utilize domestic overnight courier services for
shipments to our customers. These carriers must comply with Department of
Transportation regulations in the shipping and packaging of the stable isotope
chemicals. We must also comply with Department of Transportation regulations
when packaging material kept in inventory for domestic shipment. As required
under federal and state law, we have prepared Material Safety Data Sheets, which
are enclosed with each product shipment. We must periodically update these Data
Sheets based on new literature reports.

     The shipments received at our Columbia, Maryland facility are subject to
Federal and State regulations pertaining to hazardous chemicals and hazardous
waste disposal. These shipments are stored in an area of the facility designated
for such materials. We believe we are in compliance, in all material respects,
with applicable federal and state environmental regulatory requirements.

     The shipments from Russian manufacturing sources now enter the U.S. duty
free (without tariff). If the shipments become subject to tariff, we may not be
able to sell the imported products. Further, the products may cease to be
commercially viable because of these increased tariff costs.

     The Nuclear Regulatory Commission has authority to regulate importation and
exports of deuterium containing chemicals whose ratio of deuterium atoms to
hydrogen atoms exceed 1:5,000. At present, the deuterium containing compounds
that we import do not require any special licenses or importation authorization.
The Nuclear Regulatory Commission regulates exports of deuterium containing
chemicals under general license. We will not be able to ship these chemicals to
countries that require a special license for such shipments. None of these
countries represents significant current or expected future markets for our
products.

     Our facilities and employees must also comply with environmental and other
regulations concerning our operations. Failure to ensure compliance with such
federal, state, or local laws and regulations could have a material adverse
effect on us.

     In addition, the manufacture, distribution and export of some of our
current or potential products and technology may be subject to governmental
controls pertaining to materials and technology that have potential military,
nuclear power or nuclear weapons purposes. These controls include export license
requirements or other restrictions. We may be unable to obtain or maintain such
licenses. Further, the failure to obtain or maintain such licenses, or comply
with other restrictions that might be placed on such manufacturing and exports,
may have a material adverse effect on us and our operations.

                                       24
<Page>

PRODUCT LIABILITY AND INSURANCE

     Our business exposes us to substantial product, environmental, occupational
and other liability risks. These risks are inherent in product research and
development, manufacturing, marketing, distribution, and in the use of our
products and operations. We have product liability insurance in order to protect
ourselves from such potential exposures, however there can be no guarantee that
upon expiration of our current coverage that adequate insurance coverage will be
available, and at an acceptable cost. Furthermore, a product liability or other
claim could materially and adversely affect our business or financial condition.
The terms of our customer agreements provide that liability is limited to our
standard warranty to replace non-conforming product, and liability for
consequential damages caused by the improper use of our products is limited by
contractual terms. Nevertheless, one or more third parties could file suit
against us based on product liability, breach of warranty or other claims. The
foregoing contract clauses might effectively limit our liability in any such
actions.

EMPLOYEES

     As of July 27, 2001, we had 15 full and part-time employees. Five of our
employees have Ph.D.s in scientific or engineering disciplines. Approximately
five employees are involved in research and product development, two in
sourcing, and eight in business development and administration. An employee's
responsibilities may also encompass areas other than his or her primary area of
responsibility. We consider our relations with our employees to be good. None of
our employees is covered by a collective bargaining agreement.

                                       25
<Page>

ITEM 2. PROPERTIES

     We relocated our headquarters to Golden, Colorado in December 1998, into
facilities leased by IPRC. This lease expires in June 2002. Following the sale
of IPRC in February 2001, we entered into a cooperation agreement with Interpro
Zinc, LLC that allows us to continue to use the facility for a total cost to us
of approximately $2,500 per month through December 31, 2001.

     We lease 1,750 square feet of office space in Columbia, Maryland that
expires December 1, 2003. Chemotrade leases office space in Dusseldorf and
Leipzig, Germany that expires July 31, 2003. IUT leases production and
administration facilities in Berlin, Germany.

ITEM 3. LEGAL PROCEEDINGS

     We are involved in an arbitration matter pending before the American
Arbitration Association in Dallas, Texas (the "AAA") involving our dispute with
Eagle-Picher. We filed this arbitration demand on March 26, 2001, and
Eagle-Picher filed a competing claim. These competing claims have been
consolidated into a single proceeding (No. 71Y1980017501) before the AAA in
which Eagle-Picher is the claimant, and we are the respondent and
counter-claimant.

     The matter derives from the Asset Purchase Agreement between Eagle-Picher
and the Company dated November 30, 1999 and completed on December 1, 1999, which
contemplated the completion of a number of different transactions:

     We sold our depleted zinc business to Eagle-Picher for total consideration
     of $8.2 million, of which we have received $6.7 million and Eagle-Picher
     has defaulted on at least the first installment of the remaining amount
     due.

     Eagle-Picher promised to deliver to us by no later than December 31, 2000,
     200 kilograms of silicon-28 to be used in our research and development
     activities. Eagle-Picher has defaulted on this obligation.

     We signed a long-term isotope supply agreement with Eagle-Picher and placed
     an order to purchase 300 kilograms of silicon-28 pursuant to that
     agreement. Eagle-Picher has defaulted on this obligation.

     We gave Eagle-Picher a warrant to obtain 4,000,000 shares of our common
     stock, however, these warrants and the underlying shares, were contingent
     upon the delivery of 200 kilograms of silicon-28 by Eagle-Picher by
     December 31, 2000. Eagle-Picher exercised its warrant, under a net exercise
     provision in the warrant agreement, and we issued 3,130,435 shares of our
     common stock to Eagle-Picher in March 2000. Because Eagle-Picher exercised
     its warrant pursuant to the terms of the net exercise provision,
     Eagle-Picher did not pay us cash. Eagle-Picher disputed our calculation and
     believed we should have issued it an additional 155,279 shares of common
     stock. We believe Eagle-Picher improperly exercised the warrant because of
     its failure to execute the required subscription agreement and because of
     its failure to deliver silicon-28 as agreed. We had

                                       26
<Page>

     retained the certificate pending Eagle-Picher's performance under its
     agreements, and surrendered the certificate and cancelled the shares on
     February 20, 2001.

     Eagle-Picher has claimed that the Company failed to disclose that a
principal purchaser of depleted zinc had advised the Company that it did not
intend to purchase further depleted zinc from the Company after the expiration
of the then-existing purchase order. While we do not believe Eagle-Picher's
claims are accurate, subsequently, Eagle-Picher negotiated a termination of this
then-existing purchase order with this purchaser. The Company has denied any
liability to Eagle-Picher, and has affirmatively stated that, in any event, it
had fully disclosed the status of the arrangement with the purchaser to
Eagle-Picher, and that no action taken or omitted by the Company has resulted in
any damages to Eagle-Picher. Eagle-Picher has claimed damages of up to
$10,000,000.

     Our claim for damages against Eagle-Picher includes a number of separate
components, resulting under the Asset Purchase Agreement and the Isotope Supply
Agreement. These components are generally as follows:

     o    Eagle-Picher has failed to pay us $500,000 that was due November 30,
          2000, under the Asset Purchase Agreement for the sale of our depleted
          zinc business. We have also claimed anticipatory breach of two
          additional $500,000 payment obligations due November 30, 2001 and
          2002, respectively.

     o    Eagle-Picher has failed to deliver to us 200 kilograms of silicon-28
          on or before December 31, 2000, as required by the Asset Purchase
          Agreement. We gave Eagle-Picher the 30 days notice of this failure,
          and, after Eagle-Picher failed to cure its default during that period,
          we cancelled a warrant to purchase 4,000,000 shares issued to
          Eagle-Picher and also cancelled the underlying shares.

     o    Eagle-Picher has wrongfully refused to honor a purchase order for 300
          kilograms of silicon-28 which we submitted under Eagle-Picher's
          agreement to supply silicon-28 to us "commencing upon Eagle-Picher's
          completion of the delivery requirements" for the 200 kilograms of
          silicon-28. In addition, we are claiming anticipatory breach of the
          ten-year supply agreement for future years.

     Eagle-Picher's principal defense to the breach of its various obligations
appears to be its claims that it is technically difficult to produce silicon-28
at Eagle-Picher's production facility in Oklahoma. Eagle-Picher refers to its
inability to produce silicon-28 at its plant as a FORCE MAJEURE which
Eagle-Picher believes entitles Eagle-Picher to delay its obligations to deliver
silicon-28. We believe that Eagle-Picher's technical difficulties do not meet
the legal definition of FORCE MAJEURE per our agreements.

     We are claiming damages against Eagle-Picher of $75,500,000. We have
cancelled the warrant and the shares of common stock underlying the warrant.
Eagle-Picher has denied our claims.

                                       27
<Page>

     Discovery has not yet commenced in this arbitration proceeding.
Consequently, it is premature for us to predict any likely outcome. We intend to
vigorously defend against Eagle-Picher's claim and to prosecute our own claims
against Eagle-Picher until successfully resolved or a settlement is reached.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     We did not hold a meeting of our shareholders during the fourth quarter of
the fiscal year ended April 30, 2001.


                                       28
<Page>

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     On September 22, 1997, our Units (consisting of one share of common stock
and one Class A warrant) started trading on the Over The Counter (OTC) Bulletin
Board under the symbol ISONU. In October 1997, we unbundled the Units and the
common stock and Class A warrants commenced trading on the OTC Bulletin Board.
Currently the trading symbols for our outstanding securities are as follows:

<Table>
<S>                                               <C>
     Common Stock..............................    "ISON"
     Class A Warrants..........................    "ISONW"
     Class B Warrants..........................    "ISONL"
     Class C Warrants..........................    "ISONZ"
</Table>

     The common stock and the Class A warrants are quoted on the Nasdaq SmallCap
Market. As of July 27, 2001, we have issued 202,500 Class C warrants, 632,610
registered Class B warrants (of which 202,500 have been exercised), as well as
1,350,000 restricted Class B warrants. The Class B warrants and the Class C
warrants are quoted on the OTC Bulletin Board.

     The following table sets forth the high and low bid prices for the common
stock (quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions) from May 1, 1999
through July 27, 2001, as reported by OTC Bulletin Board, and beginning July 13,
2000, by the Nasdaq SmallCap Market.

<Table>
                                    QUARTER ENDED
                                    JULY 31, 2001
                               (through July 27, 2001)
                               -----------------------
<S>                            <C>
Common Stock (ISON)
    High                                $1.85
    Low                                 $1.14
</Table>

<Table>
<Caption>
                                     QUARTER ENDED
                                     JULY 31, 2000     OCT. 31, 2000     JAN. 31, 2001     APR. 30, 2001
                                     -------------     -------------     -------------     -------------
<S>                                  <C>               <C>               <C>               <C>
Common Stock (ISON)
    High                                7.0625              4.0000           2.6250            1.6250
    Low                                 3.3750              1.4375           1.0625            0.8125
</Table>

                                       29
<Page>

<Table>
<Caption>
                                     QUARTER ENDED
                                     JULY 31, 1999     OCT. 31, 1999     JAN. 31, 2000     APR. 30, 2000
                                     -------------     -------------     -------------     -------------
<S>                                  <C>               <C>               <C>               <C>
Common Stock (ISON)
    High                                  3.6250            2.1250          10.5000           17.9375
    Low                                   1.8750            0.8750           1.2500            5.5625
</Table>

     As of July 27, 2001, there were approximately 76 holders of record of our
common stock. This does not include an indeterminate number of persons who hold
our common stock in brokerage accounts and otherwise in "street name."

     We have never declared or paid a cash dividend on our common stock. We
presently intend to retain our earnings to fund development and growth of our
business and, therefore, we do not anticipate paying cash dividends in the
foreseeable future. Additionally, the certificate of designation for the Series
A convertible preferred stock contains restrictions on our ability to pay
dividends to holders of our common stock.


                                       30
<Page>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION

(a)  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

THE STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT PURELY HISTORICAL ARE
FORWARD-LOOKING STATEMENTS. "FORWARD LOOKING STATEMENTS" INCLUDE STATEMENTS
REGARDING OUR EXPECTATIONS, HOPES, INTENTIONS, OR STRATEGIES REGARDING THE
FUTURE. FORWARD LOOKING STATEMENTS INCLUDE: STATEMENTS REGARDING FUTURE PRODUCTS
OR PRODUCTS OR PRODUCT DEVELOPMENT; STATEMENTS REGARDING FUTURE SELLING, GENERAL
AND ADMINISTRATIVE COSTS AND RESEARCH AND DEVELOPMENT SPENDING, AND OUR PRODUCT
DEVELOPMENT STRATEGY; STATEMENTS REGARDING FUTURE CAPITAL EXPENDITURES AND
FINANCING REQUIREMENTS; AND SIMILAR FORWARD LOOKING STATEMENTS. IT IS IMPORTANT
TO NOTE THAT OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE IN SUCH
FORWARD-LOOKING STATEMENTS.

RESULTS OF OPERATIONS

     The following table sets forth operations data expressed as a percentage of
net revenues. The table and the discussion below should be read in conjunction
with the audited financial statements and the notes thereto appearing elsewhere
in this report.

<Table>
<Caption>
                                                       Year Ended
                                                        April 30,
                                                   ------------------
                                                    2001         2000
                                                   -----        -----
<S>                                                <C>          <C>
Net revenues                                       100.0%       100.0%
Cost of revenues                                    77.3         79.8
                                                   -----        -----
        Gross margin                                22.7         20.2

Operating expenses:
        Selling, general and administrative         59.6         29.5
        Research and development                    14.6          9.6
                                                   -----        -----
             Total operating expenses               74.2         39.1
                                                   -----        -----
Operating (loss)                                   (51.5)       (18.9)
Other income (expense), net                         (6.3)        41.0
                                                   -----        -----
Income (loss) before income tax expense            (57.8)        22.1
Income tax expense                                  --            1.0
                                                   -----        -----
Net income (loss)                                  (57.8%)       21.1%
                                                   =====        =====

</Table>

                                       31
<Page>

SALE OF DEPLETED ZINC BUSINESS IN DECEMBER 1999

     A primary factor that significantly affected our financial condition and
results of operations in fiscal year 2000, and as fiscal 2000 compares to fiscal
2001 is the sale of our depleted zinc business to Eagle-Picher (which
transaction has resulted in an arbitration proceeding as described in "ITEM 3 -
LEGAL PROCEEDINGS"). Because of the one time gain associated with the Eagle
Picher transaction, we believe that the financial results expressed in our
fiscal 2000 financial statements are not comparable to our anticipated future
operations.

NET REVENUES

     Net revenues decreased from $12,733,000 in fiscal 2000 to $7,789,000 in
fiscal 2001, a decrease of $4,944,000 or 38.8%. The decrease is primarily
because our net revenues from isotope product sales decreased approximately
$3,788,000. This reduction is primarily because of the lack of depleted zinc
revenues after the sale of the depleted zinc business to Eagle-Picher in
December 1999, and the acquisition of a major customer by one of our
competitors. We expect that the loss of this customer will have a short-term
effect until we are able to replace the revenues generated by that customer
through sales to other customers.

     Net revenues from contract research and development services sales
decreased approximately $1,156,000 to $0, because of our cessation of these
activities in May 2000.

     Depleted zinc revenues for fiscal 2000, through December 1999, the date we
sold our depleted zinc business, were approximately $2,645,000. Accordingly,
depleted zinc revenues for fiscal 2001 were $0.

     Our revenues for fiscal 2001 were also reduced as a result of our decision
to cease shipping product to one of our customers who had failed to pay
approximately $218,000 in invoices due. We did not accept any orders from this
customer during the last six months of fiscal 2001. Revenues recognized from
this customer during the first six months of fiscal 2001 were approximately
$300,000. Additionally, we had ordered, based on purchase orders placed by this
customer, approximately $131,000 in product specific to this customer that was
charged to cost of sales during fiscal 2001.

     We do not anticipate significant revenues from sales of silicon-28 based
products in fiscal 2002. We are collaborating with academia and industry to
evaluate the benefits of isotopically pure silicon-28. We believe that if
evaluations demonstrate the commercial feasibility of one or more products,
demand could emerge in the high-performance micro-processor segment of the
semiconductor market. We can offer no assurance, however, that these evaluations
will demonstrate the commercial feasibility of any products, that we will be
able to commercialize any such products, or that a market will emerge for any
such products.

     The sale of our subsidiary, IPRC, effective February 1, 2001, will not
adversely affect revenues as we had ceased all revenue producing activities at
IPRC effective May 1, 2000.

                                       32
<Page>

     International sales decreased approximately $3,045,000, to approximately
$5,187,000, in fiscal 2001, from approximately $8,232,000, in fiscal 2000.
International sales represented approximately 67% of net revenues in fiscal
2001, and 65% of net revenues in fiscal 2000. The dollar decrease is due
primarily to the acquisition of a major customer by one of our competitors and
the lack of depleted zinc revenues after the sale of the depleted zinc business
to Eagle-Picher in December 1999. The percentage increase is primarily
attributable to significantly lower domestic revenues from IPRC substantially
offset by a decrease in international revenues during fiscal 2001. Lower
depleted zinc sales had a comparable effect on both international and domestic
sales on a percentage basis.

GROSS MARGIN

     Gross margin decreased approximately $807,000, to approximately $1,770,000,
in fiscal 2001, from approximately $2,577,000, in fiscal 2000. On a percentage
of net revenues basis gross margin increased 2.5 percentage points to
approximately 22.7% in fiscal 2001, from approximately 20.2%, in fiscal 2000.
The dollar decrease is due to the sale of the depleted zinc business in December
1999, the cessation of contract research and development service activities in
May 2000, and the recent acquisition of a major customer by one of our
competitors. The percentage increase is due to increases in the margins on the
sale of stable and radioisotopes and the cessation of contract research and
development services which typically had lower margins. The percentage increase
was partially offset by a decrease in sales of depleted zinc which was typically
a higher margin product.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses increased approximately
$891,000, to approximately $4,645,000, in fiscal 2001, from approximately
$3,754,000, in fiscal 2000. On a percentage of net revenues basis selling,
general and administrative expenses increased approximately 30.1 percentage
points to approximately 59.6% in fiscal 2001, from approximately 29.5%, in
fiscal 2000. The dollar increase is primarily attributable to increased usage of
professional services including legal, business development and accounting
services, increased bad debt expense resulting from the net write off of $96,000
attributable to a single customer, and remediation expenses related to the
Golden, Colorado facility that was leased by the Company. During fiscal 2001 we
recognized a $270,000 expense to remediate the Golden, Colorado facility that
was leased by the Company. The lease and related remediation liability were
assumed by the buyers of IPRC effective February 1, 2001. The dollar increase in
fiscal 2001 was partially offset by the sale of our subsidiary, IPRC, effective
February 1, 2001. The percentage increase was caused by significantly lower
revenues and higher levels of spending.

RESEARCH AND DEVELOPMENT EXPENSES

     Consistent with our product development strategy, we are seeking to
identify and evaluate new stable and radioactive isotope products and potential
markets for economic and technical feasibility. We will, in addition, continue
funding research and development to improve technologies for isotope separation
and material processing technologies. Because of the uniqueness of our business,
the unique chemicals and processes we deal with and the handling precautions
required, these expenses are significant. During fiscal 2001 and 2000, research
and development expenses were approximately $1,134,000 and $1,224,00,
respectively.

                                       33
<Page>

We cannot offer any assurance that our current or future lines of business or
products resulting for our research and development efforts will be profitable
or generate significant revenues.

     Research and development expenses decreased approximately $90,000, to
approximately $1,134,000, in fiscal 2001, from approximately $1,224,000, in
fiscal 2000. On a percentage of net revenues basis research and development
expenses increased approximately 5.0 percentage points to approximately 14.6% in
fiscal 2001, from approximately 9.6%, in fiscal 2000. The dollar decrease is
primarily related to decreased research and development expenses associated with
silicon-28 product development. This decrease is due primarily to the failure of
Eagle-Picher to meet its obligation to deliver 200 kilograms of silicon-28 as
described in "ITEM 3 - LEGAL PROCEEDINGS". The dollar decrease in fiscal 2001
was partially offset by an increase in research and development costs associated
with the development of our zinc recovery and recycling project prior to the
sale of our subsidiary, IPRC on February 1, 2001. The percentage increase is
primarily attributable to lower revenues as described above.

     We believe that the development and introduction of new product
applications is critical to our future success. We expect that research and
development expenses may increase assuming sufficient cash remains available and
we are able to procure necessary materials and outside services, but will likely
continue to vary as a percentage of revenues because of the timing and amount of
future revenues. We operate no facilities of our own for research and
development. All research and development work is performed by outside entities,
none of which we control. None of the companies that currently perform research
and development work for us do so on an exclusive basis.

OTHER INCOME (EXPENSE), NET

     Other income (expense), net includes interest income and expense, gains or
losses on the sale of lines of businesses or subsidiaries, impairment
write-downs related to contract research and development assets held by IPRC and
foreign currency gains and losses. Other income (expense), net decreased
approximately $5,708,000, to approximately ($489,000), in fiscal 2001, from
approximately $5,219,000, in fiscal 2000. Interest expense decreased by
approximately $319,000 due to lower debt levels following the sale of our
depleted zinc business. During Fiscal 2001, we also realized a gain of
approximately $59,000 on the sale of IPRC. These increases in other income were
offset by a decrease of approximately $5,296,000 related to the initial gain
recognized on the sale of the depleted zinc business to Eagle-Picher in fiscal
year 2000 and the reversal of $208,000 of additional gain from the depleted zinc
sale recognized in fiscal 2000. In addition, in fiscal 2001 we recorded
impairment losses of approximately $354,000 related to contract research and
development assets held by IPRC. During fiscal 2001 we also realized a foreign
currency loss of approximately $66,000 upon translation of the German Mark
financial statements of Chemotrade to US dollars. During fiscal 2000, we
recognized a gain of $110,000 resulting from the favorable settlement of a
dispute with a vendor.

                                       34
<Page>

     Part of the consideration for the depleted zinc sale was a $1.5 million
note payable in three installments of $500,000 on November 30, 2000, 2001 and
2002. Eagle-Picher failed to make the first additional payment due November 30,
2000. We had been recognizing the contingent gain of $1,500,000 on a
straight-line basis over the thirty-six month period (approximately $41,667 per
month), as an unaffiliated supplier performed under a contract that was assigned
to Eagle-Picher. Through November 1, 2000, we had recognized $458,000 of the
additional gain. As of November 1, 2000, we ceased recognizing any additional
gain and reversed the previously recognized $458,000.

INCOME TAXES

     We currently operate at a loss and expect to operate at a loss until the
products currently under development begin to generate sufficient revenue. While
we recognized a taxable gain upon the sale of our depleted zinc product line,
the tax expense incurred was offset by the realization of previously
unrecognized deferred tax assets related to the net operating losses used to
offset the taxes paid. As a result, for fiscal 2000, our reported tax expense
was limited to the taxes payable in Germany on the income of our Chemotrade
subsidiary.

     The losses incurred in the current year are not expected to generate an
income tax benefit because of the uncertainty of the realization of the deferred
tax asset. As such we have provided a valuation allowance against the deferred
tax assets for the amount in excess of the taxes paid in prior years that are
subject to refund. We anticipate receiving a tax refund of approximately
$419,000 from the Internal Revenue Service resulting from a carry-back claim
associated with the current year taxable loss. This refund will be received
after we file our fiscal year 2001 consolidated tax return.

     Income tax expense was $0 for fiscal 2001, and approximately $129,000 for
fiscal 2000. Both of the United States entities and the Chemotrade subsidiary in
Germany had net losses in fiscal 2001 and as a result did not have income tax
expense.

 NET INCOME (LOSS)

     We recognized a net loss of approximately $4,498,000 for fiscal 2001, as
compared to net income of approximately $2,689,000 for fiscal 2000. Losses, as
incurred during the current fiscal year, of this magnitude will likely continue
until revenues increase from our current operations or until we generate
revenues from products introduced as a result of our research and development
projects. The net income recorded for fiscal 2000, was the result of the
$5,296,000 gain recognized on the sale of our depleted zinc business to
Eagle-Picher on December 1, 1999. Without this one-time gain, we would have
recognized a net loss in fiscal 2000.

     Net income in future years will be dependent on our ability to increase net
revenues faster than we increase our selling, general and administrative
expenses, research and development expense and other expenses. Because of our
continuing research and development efforts on new products, we do not expect to
generate any significant increase in net revenues in fiscal 2002. Consequently,
we anticipate that the operations in fiscal 2002 will result in a significant
loss unless we are able to increase our revenues from our existing products or
generate additional sales from the new products we may develop.

                                       35
<Page>

LIQUIDITY AND CAPITAL RESOURCES

     Our working capital and liquidity have eroded significantly during fiscal
2001. Working capital decreased approximately $2,145,000, to approximately
$1,609,000, at the end of fiscal 2001, from approximately $3,754,000, at the end
of fiscal 2000.

     Our principal sources of funding have been cash from the sales of lines of
business, sales of common and preferred stock and borrowed funds. We used cash
in operations of approximately $3,147,000 and $4,327,000 during fiscal 2001 and
2000, respectively. Our investing activities used cash of approximately $43,000
and provided cash of approximately $6,715,000 during fiscal 2001 and 2000,
respectively. The cash provided in fiscal 2000 was primarily due to proceeds
from the sale of the depleted zinc business to Eagle-Picher on December 1, 1999.

     Financing activities generated cash of approximately $895,000 and $545,000
for fiscal 2001 and 2000, respectively. Cash provided by financing activities
during fiscal 2001 resulted primarily from the December 13, 2000 issuance of
units, comprised of one share of common stock bundled with two Class B warrants
for cash of approximately $675,000 and the exercise of stock options for
approximately $208,000. Cash provided by financing activities during fiscal 2000
resulted primarily from the issuance of convertible preferred stock for cash of
approximately $2,250,000, the issuance of common stock for cash of approximately
$94,000 and proceeds from the issuance of long-term debt of approximately
$75,000. Net repayments on a line of credit and other borrowings of
approximately $1,931,000 were the primary uses of cash in financing activities
during fiscal 2000.

     The private placement agreement associated with the private placement
completed on December 13, 2000 required that we effectively register the common
stock and the common stock underlying the Class B common stock warrants by June
14, 2001 or certain penalty provisions as defined, would apply. As we were
unable to complete the effective registration of such shares by June 14, 2001,
on July 26, 2001, we rectified the situation by issuing an additional 112,500
shares of common stock and an additional 675,000 Class B warrants to the
accredited investors of the private placement.

     On April 30, 2001, we completed an exchange offer whereby the holders of
Class A warrants could exchange each Class A warrant for a Class B warrant. In
order to participate in the exchange offer, each holder of the Class A warrants
was required to submit their election by April 30, 2001. As of April 30, 2001,
124,400 of the 810,000 Class A warrants had been processed and exchanged for
Class B warrants. As of June 20, 2001, 632,610 of the Class A warrants have been
exchanged for Class B warrants.

     At April 30, 2001 we had approximately $1,090,000 of cash and cash
equivalents, a decrease of approximately $2,295,000, compared to $3,385,000 as
of April 30, 2000. The decrease is largely attributable to funding our net loss
with our existing working capital.

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<Page>

     Two events adversely impacted our cash and working capital position at
April 30, 2001. The first adverse event was that we were forced to settle in the
amount of $122,000 related accounts receivable of $218,000 and $131,000 of
specialized product we had purchased based on purchase orders placed by this
customer that we wrote off. The second adverse event was Eagle-Picher's failure
to make the annual installment payment of $500,000 due November 30, 2000,
related to the sale of our depleted zinc business.

     On July 29, 1999, we completed a $2,745,000 private placement financing to
a limited number of accredited investors (including some creditors who converted
debt). We issued 1,830,000 units, each consisting of one share of Series A
convertible preferred stock and one warrant. We received cash proceeds of
$2,250,000 and converted $425,000 of long-term debt in connection with the
private placement. Each share of the Series A convertible preferred stock is
convertible into one share of our common stock at a conversion price of $1.50.
The liquidation preference for the Series A convertible preferred stock is
$1.50. Each warrant allowed the investor to purchase one share of Isonics common
stock for $3.75 through July 29, 2002. We granted registration rights to the
holders of the shares of common stock underlying the Class A convertible
preferred stock and the warrants.

     Under the terms of the preferred stock private placement on July 29, 1999,
the related shareholders have anti-dilution rights if we issue or sell common
stock after July 29, 1999 for a per share consideration less than the current
exercise price of the related warrants. As a result of potential dilution
triggered by the December 13, 2000 private placement, we issued an additional
146,301 common stock warrants to the preferred shareholders and reduced the
exercise price to $3.52 on all related warrants in order to satisfy the
anti-dilution provisions.

     As a result of the exchange offer completed on April 30, 2001 and the
issuing of the additional 112,500 shares of common stock and an additional
675,000 Class B warrants to the accredited investors of the December 13, 2000
private placement; on July 26, 2001 we issued approximately 255,000 additional
common stock warrants and reduced the exercise price on all related warrants to
$3.17 in order to satisfy the anti-dilution provisions related to the July 29,
1999 private placement.

     The purchase agreement relating to the acquisition of Chemotrade required
that the former shareholders of Chemotrade receive additional consideration in
the event that defined levels of pretax earnings are achieved for fiscal 2001.
As a result of the performance of Chemotrade during fiscal 2001, we are required
to pay the former shareholders of Chemotrade contingent consideration of
approximately $114,000 during fiscal 2002. There are no other events of
contingent consideration under the terms of the purchase agreement.

     As of July 27, 2001 we have no material agreements with banks or other
financial institutions to borrow funds. Chemotrade has one unsecured revolving
line of credit for DM 400,000 (approximately $182,000) that we have not utilized
to date.

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<Page>

     We expect that our working capital will continue to decrease over time as
we continue to use our capital for operations, research and development, and
investing activities. We do not expect working capital to increase until we are
able to increase our revenues to exceed our cash out-flow (assuming we are able
even to increase our revenues) or complete a financing arrangement. We cannot
offer any assurance that we will be able to do so in the near term. We have
sufficient cash available to fund our working capital requirements for
approximately 5 months.

     We continue to pursue several items that will help us meet our future cash
needs. We expect to receive an income tax refund of approximately $419,000
resulting from a carry-back claim associated with the current year taxable loss.
In addition, we continue to aggressively pursue our claim of $75,500,000 against
Eagle-Picher. We are currently in the arbitration process and hope to come to
resolution in Fiscal 2002 (see "ITEM 3 - LEGAL PROCEEDINGS"). Management is also
currently working with several different sources, including both strategic and
financial investors, in order to raise sufficient capital to finance both our
continuing operations and our proposed acquisition of SEI (see "ITEM 1 -
BUSINESS"). Although there is no assurance that funding will be available or
that the outcome in the Eagle-Picher case will be positive, we believe that our
current business plan, if successfully funded, will significantly improve our
operating results and cash flow in the future.

(b)  RISK FACTORS

     An investment in and ownership of our common stock is one of high risk. You
should carefully consider the risks described below before deciding whether to
invest in or continue to hold our common stock. If any of the contingencies
discussed in the following paragraphs or other materially adverse events
actually materializes, the business, financial condition, and results of
operations could be materially and adversely affected. In such a case, the
trading price of our common stock could decline, and you could lose all or part
of your investment.

UNLESS WE ARE ABLE TO DEVELOP AND SELL NEW PRODUCTS PROFITABLY, WE MAY BE UNABLE
TO REMAIN COMPETITIVE, FURTHERING THE LIKELIHOOD THAT OUR LOSSES AND NEGATIVE
CASH FLOW WILL CONTINUE

     We have not operated profitably since our 1996 fiscal year. We recognized
net income for the year ended April 30, 2000, only because of the gain
recognized on the sale of our depleted zinc assets to Eagle-Picher. In addition,
through November 30, 1999, our revenues had historically been derived from our
depleted zinc operations.

     As a consequence of our sale of the depleted zinc operations, our
operations and our ability to generate revenues are more heavily dependent upon
our ability to develop new products using stable and radioactive isotopes, and
to market and sell those products profitably. We may be unable to develop
products that can be profitably marketed and sold, which may prevent us from
paying creditors as debts are due, and, in turn, may materially impact our
ability to continue our business operations. SEE "ITEM 1 - BUSINESS."

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<Page>

WE ARE CRITICALLY SHORT OF WORKING CAPITAL

     We are critically short of working capital for our operations for a number
of reasons. These reasons include:

     o    Eagle-Picher's failure to pay the cash amounts it owes to us under our
          contractual arrangements;

     o    Eagle-Picher's failure to deliver 200 kilograms of silicon-28 to us,
          resulting in our need to use our capital to purchase the silicon-28
          from other suppliers and a delay in our ability to complete our
          research and development program for silicon-28, resulting in a delay
          in our ability to achieve revenues from silicon-28; and

     o    Continuing operating losses and negative cash flow.

     It is possible that the following circumstances may develop and may further
adversely impact our available working capital:

     o    unanticipated expenses in developing our new products or in producing
          or marketing our existing products;

     o    the necessity of having to protect and enforce our intellectual
          property rights;

     o    technological and market developments; and

     o    a corporate decision to expand our production capacity through capital
          investment or acquisition.

We may not be able to obtain equity or debt financing on reasonable terms when
we need such financing. The unavailability of additional financing, when needed,
could have a material adverse effect on our business. SEE "MANAGEMENT'S
DISCUSSION AND ANALYSIS," AND "BUSINESS."

Our current working capital shortage resulted in our auditors issuing an opinion
on our financial statements indicating a substantial doubt regarding our ability
to continue as a going concern.

WE HAVE INCURRED DILUTION TO OUR EXISTING SHAREHOLDERS IN ORDER TO PROVIDE THE
NECESSARY WORKING CAPITAL AND WE MAY BE REQUIRED TO INCUR ADDITIONAL DILUTION,
WHICH MAY BE SUBSTANTIAL

     To alleviate cash shortages resulting from the foregoing, on December 13,
2000, we sold 337,500 units consisting of one share of our common stock and two
Class B warrants for $675,000 to a group of accredited investors. As a result of
subsequent adjustments, we issued an additional 112,500 shares of common stock
and an additional 675,000 Class B warrants.

                                       39
<Page>

     The exercise of the Class A warrants, the Class B warrants, and/or the
Class C warrants may provide us with some additional financing, but it is likely
that no warrants will be exercised unless the market price is in excess of the
exercise price ($1.50 per share for the Class B warrants, and $2.50 per share
for the Class C warrants). Any such exercise will result in additional dilution
to our shareholders.

     Furthermore, our efforts to raise working capital have resulted in dilution
adjustments to our outstanding common stock warrants associated with the
preferred stock private placement completed on July 29, 1999. These dilution
adjustments did not result in any additional investment in Isonics, but resulted
in the issuance of approximately 401,301 additional common stock warrants for no
additional consideration and reduced the exercise price to $3.17 for all related
common stock warrants.

     If we are successful in raising additional working capital, we may incur
additional dilution adjustments which will further dilute the investment of our
existing shareholders. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS," AND
"BUSINESS."

OPERATIONS IN RUSSIA, THE REPUBLIC OF UZBEKISTAN, AND THE REPUBLIC OF GEORGIA
MAY BE DISRUPTED BECAUSE OF A VOLATILE POLITICAL AND ECONOMIC CLIMATE BEYOND OUR
CONTROL, WHICH COULD ADVERSELY AFFECT OUR SUPPLY OF RAW MATERIALS.

     Operations in Russia, the Republic of Uzbekistan, and the Republic of
Georgia entail risks. The former republics of the Soviet Union including
Uzbekistan and Georgia are experiencing political, social and economic change as
they obtain independence from the former central government in Moscow. Some of
the republics, including Russia, Uzbekistan and Georgia, are attempting to
transition from a central-controlled economy toward a market-based economy.
These changes have involved, in some cases, armed conflict. The political or
economic instability in these republics may continue or worsen. The supply of
stable and radioactive isotopes could be directly affected by political,
economic and military conditions in Russia, Uzbekistan and Georgia.

     We are dependent on suppliers from Russia, Uzbekistan, and Georgia for
approximately 90% of our stable isotopes and 90% of our radioisotopes.
Accordingly, our operations could be materially adversely affected if
hostilities in Russia, Uzbekistan, or Georgia should occur, if trade between
Russia, Uzbekistan and/or Georgia and the United States were interrupted, if
political conditions in Russia, Uzbekistan or Georgia disrupt transportation or
processing of our goods, if laws or government policies concerning foreign
business operations in Russia, Uzbekistan or Georgia change substantially, or if
tariffs are introduced. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS" and
"BUSINESS."

BECAUSE WE DEPEND UPON FEW CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES,
OUR BUSINESS MAY BE MATERIALLY AND ADVERSELY AFFECTED IF WE LOSE ANY ONE OF
THESE CUSTOMERS

     Five customers accounted for approximately 41% of our net revenues for the
year ended April 30, 2001. Two customers accounted for approximately 34.9% of
the German segment's revenue for the year ended April 30, 2001. While our goal
is to diversify our customer base, we expect to continue to depend upon a
relatively small number of customers for a significant percentage of our
revenues for the foreseeable future. Significant reductions in sales to any of
our

                                       40
<Page>

large customers have had, and may in the future have, a material adverse effect
on us. Present or future customers could terminate their purchasing patterns
with us or significantly change, reduce or delay the amount of isotope products
ordered from us. A termination of a customer relationship, or change, reduction
and/or delay in orders could materially harm us. SEE "MANAGEMENT'S DISCUSSION
AND ANALYSIS" AND "BUSINESS."

IF DEMAND FOR OUR PRODUCT GROWS SUDDENLY, WE MAY LACK THE RESOURCES TO MEET
DEMAND OR WE MAY BE REQUIRED TO INCREASE OUR CAPITAL SPENDING SIGNIFICANTLY

     We have experienced, and may again experience, periods of rapid growth that
place a significant strain on our financial and managerial resources. We have
increased the number and type of products we offer to our customers in our
effort to replace the cash flow reduction that occurred as a result of the sale
of our depleted zinc operations, and we are continuing to look for new products
to offer; through our research and development efforts we are also attempting to
develop additional products and lines of business. Our ability to manage growth
effectively, particularly given our increasing scope of operations, will require
us to continue to implement and improve our management, operational and
financial information systems, and will require us to develop the management
skills of our personnel and to train, motivate and manage our employees. Our
failure to effectively manage growth could have a material adverse effect on our
business, financial condition and results of operations. SEE "BUSINESS."

BECAUSE WE ARE DEPENDENT UPON OUR KEY PERSONNEL FOR OUR FUTURE SUCCESS, IF WE
FAIL TO RETAIN OR ATTRACT KEY PERSONNEL, OUR BUSINESS WILL BE ADVERSELY AFFECTED

     Our future success will depend in significant part upon the continued
service of our key technical, sales and senior management personnel, including
James E. Alexander, our President and Chief Executive Officer; Boris
Rubizhevsky, our Senior Vice President, Isotope Production and Supply; Herbert
Hegener, Managing Director of Chemotrade, and Steve Burden, Vice President of
Semiconductor materials . We have applied for $1,000,000 of key man life
insurance on the lives of Messrs. Alexander and Rubizhevsky to replace a policy
that has lapsed, and both are covered by employment agreements extending through
September 2001 (although either individual may terminate his agreement earlier
at his discretion). Mr. Hegener is covered by an employment agreement extending
through December 2001. Mr. Burden is covered by an employment agreement with an
indefinite term that provides at-will employment, terminable at any time by
either party.

     We believe that our future success will also depend upon our ability to
attract and retain other qualified personnel for our operations. The failure to
attract or retain such persons could materially adversely affect our business,
financial condition and results of operations. SEE "MANAGEMENT."

                                       41
<Page>

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WHICH WOULD REDUCE OUR
COMPETITIVE ADVANTAGE

     We rely primarily on a combination of trade secrets, confidentiality
procedures, and contractual provisions to protect our technology. Despite our
efforts to protect our technology, unauthorized parties may attempt to copy
aspects of our products or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our technology and products is
difficult. In addition, the laws of many countries do not protect our rights to
information, materials and intellectual property that we regard as proprietary,
and that are protected under the laws of the United States. We may not be able
to protect our proprietary interests, or our competitors may independently
develop similar technology or intellectual property. If either one of these
situations occurs, we may lose existing customers and our business may suffer.
SEE "BUSINESS."

     The validity of any of the patents licensed to us, or that may in the
future be owned by us, may not be upheld if challenged by others in litigation.
Further, our products or technologies, even if covered by our patents, may
infringe upon patents owned by others. We could incur substantial costs in
defending suits brought against us, or any of our licensors, for infringement,
in suits by us against others for infringement, or in suits contesting the
validity of a patent. Any such proceeding may be protracted. In any suit
contesting the validity of a patent, the patent being contested would be
entitled to a presumption of validity and the contesting party would be required
to demonstrate invalidity of such patent by clear and convincing evidence. If
the outcome of any such litigation were adverse to our interests, our business
would be materially adversely affected.

     We may choose not to seek patent protection and may rely on trade secrets
and other confidential information to protect our technology. We require all
employees, directors, and consultants to sign confidentiality agreements,
intellectual property assignment and non-disclosure agreements. We may enter
into agreements with some employees pursuant to which the employee is entitled
to a small royalty relative to products developed by Isonics based upon the
employee's inventions. We cannot be certain that these persons will honor the
terms of those agreements. If an employee, director or consultant breaches the
confidentiality provisions, we may lose customers to our competitors.

WE FACE TECHNOLOGICAL CHANGE AND INTENSE COMPETITION BOTH DOMESTICALLY AND
INTERNATIONALLY WHICH MAY ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS
PROFITABLY

     Although we do not believe that any entity produces a complete range of
stable enriched isotopes for commercial sale, many of our competitors have
significantly greater funding than do we and may be able to develop products
which are competitive with our products. SEE "BUSINESS."

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<Page>

     Further, it is possible that future technological developments may occur.
The market for our isotope products is characterized by rapidly evolving
technology and continuing process development. Our future success will depend
upon our ability to develop and market isotope products that meet changing
customer and technological needs on a cost effective and timely basis.
Specifically, the failure by Eagle-Picher to provide us with silicon-28 has
hindered, and may continue to hinder, our research and development activities,
which then negatively affects our ability to remain competitive. If we fail to
remain competitive by anticipating the needs of our customers and our customers
contract with other suppliers, our operation could be materially and adversely
affected.

WE COULD BE SUBJECT TO ENVIRONMENTAL REGULATION BY FEDERAL, STATE AND LOCAL
AGENCIES, INCLUDING LAWS THAT IMPOSE LIABILITY WITHOUT FAULT, WHICH COULD
ADVERSELY AFFECT OUR WORKING CAPITAL, SHAREHOLDERS' EQUITY AND PROFITABILITY

     We could become subject to a variety of federal, state, and local
environmental regulations relating to the use, storage, discharge and disposal
of hazardous chemicals used during the isotope product delivery and
manufacturing process, although we do not believe that there is any such
regulation directly applicable to our current operations. Regulations that
become applicable to our operations in the future could restrict our ability to
expand our facilities or could require us to acquire costly equipment or to
incur other significant expenses to comply with governmental regulations.
Historically, our costs of compliance with environmental regulations have not
been material. In the quarter ended October 31, 2000, we recognized a $270,000
expense to remediate the Golden, Colorado facility. The lease and this liability
were assumed by the buyers of IPRC effective February 1, 2001. SEE "BUSINESS."

WE ARE CONTROLLED BY ONLY A FEW OFFICERS AND DIRECTORS AND, CONSEQUENTLY,
PURCHASERS OF OUR SHARES WILL HAVE VERY LITTLE ABILITY TO ELECT OR CONTROL OUR
MANAGEMENT

     Even if all outstanding warrants and stock options are exercised and
convertible securities are exchanged for common stock, our directors and
officers will beneficially own 28.67% of the outstanding shares of common stock
as of July 27, 2001, and, accordingly, may have the ability to elect a majority
of the directors of Isonics and otherwise control the company. As a result, such
persons, acting together, will have the ability to substantially influence all
matters submitted to stockholders for approval, including the election and
removal of directors and any merger, consolidation or sale of substantially all
of our assets, and to control our management and affairs. Such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control, impeding a merger, consolidation or takeover or other business
combination involving us or discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control of our business, even if
such a transaction would be beneficial to other stockholders. SEE "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."

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<Page>

WE RISK EXPOSING OURSELVES TO AN ABOVE-POLICY LIMIT PRODUCT LIABILITY CLAIM,
WHICH COULD ADVERSELY AFFECT OUR WORKING CAPITAL, SHAREHOLDERS' EQUITY AND
PROFITABILITY

     The use of our radioisotopes in radiopharmaceuticals and in clinical trials
may expose us to potential product liability risks that are inherent in the
testing, manufacture, marketing, and sale of human diagnostic and therapeutic
products. We currently have product liability insurance; however, there is a
risk that our insurance would not cover completely or would fail to cover a
claim, in which case we may not have the financial resources to satisfy such
claims, and the payment of claims would require us to use funds that are
otherwise needed to conduct our business and make our products. SEE "BUSINESS."

OUR COMMON STOCK IS VULNERABLE TO PRICING AND PURCHASING ACTIONS THAT ARE BEYOND
OUR CONTROL AND, THEREFORE, PERSONS ACQUIRING OUR SHARES OR WARRANTS MAY BE
UNABLE TO RESELL THEIR SHARES OR WARRANTS AT A PROFIT AS A RESULT OF THIS
VOLATILITY

     The trading price of our securities has been subject to wide fluctuations
in response to quarter-to-quarter variations in our operating results, our
announcements of technological innovations or new products by us or our
competitors, and other events and factors. The securities markets themselves
have from time to time experienced significant price and volume fluctuations
that may be unrelated to the operating performance of particular companies.
Announcements of delays in our testing and development schedules, technological
innovations or new products by us or our competitors and developments or
disputes concerning patents or proprietary rights could have a significant and
adverse impact on such market prices. Regulatory developments in the United
States and foreign countries, public concern as to the safety of products
containing radioactive compounds, economic and other external factors, all
affect the market price of our securities. IN ADDITION, THE REALIZATION OF ANY
OF THE RISKS DESCRIBED IN THESE "RISK FACTORS" COULD HAVE A SIGNIFICANT AND
ADVERSE IMPACT ON SUCH MARKET PRICES. SEE "MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS."

SEC PENNY STOCK REGULATIONS MAY LIMIT THE ABILITY TO TRADE OUR SECURITIES ON THE
NASDAQ SMALL CAP MARKET

     Although our common stock and Class A warrants are currently quoted on the
Nasdaq SmallCap Market, our common stock has in the past been subject to
additional disclosure requirements for penny stocks mandated by the Securities
Enforcement Remedies and Penny Stock Reform Act of 1990. The SEC Regulations
generally define a penny stock to be an equity security that has a market price
of less than $5.00 per share. We have, at times in the past, been included
within the SEC Rule 3a-51 definition of a penny stock. When our common stock is
considered to be a "penny stock", trading is covered by Rule 15g-9 promulgated
under the Securities Exchange Act of 1934, for non-Nasdaq and non-national
securities exchange listed securities.

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<Page>

     Under this rule, broker-dealers who recommend such securities to persons
other than established customers and accredited investors must make a special
written disclosure to, and suitability determination for, the purchaser and
receive the purchaser's written agreement to a transaction prior to sale. The
regulations on penny stocks limit the ability of broker-dealers to sell our
common stock and thus the ability of purchasers of our common stock to sell
their securities in the secondary market. To the extent we are able to maintain
our listing on the Nasdaq SmallCap Market, we will not be subject to these penny
stock rules. Reasons for being unable to maintain our listing on the Nasdaq
Small Cap Market include:

     o    the inability to maintain a bid price for our common stock of $1.00
          for the requisite period of time and

     o    the inability to maintain the minimum net tangible assets, market
          capitalization or net income necessary for listing.

     We may not be able to maintain our listing unless we are able to increase
our net tangible assets to $2.0 million (as of April 30, 2001 our net tangible
assets were only $1.850 million) or market capitalization to $35.0 million (as
of July 27, 2001 our market capitalization was approximately $11.266 million).
The time required for meeting these thresholds is contingent on any action (or
inaction) by Nasdaq with respect to our listing. We have not received any
notification from Nasdaq regarding our failure to meet these thresholds. SEE
"MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS."

FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE

     Our stock price may decline by future sales of our shares or the perception
that such sales may occur. As of July 27, 2001, approximately 4,779,925 shares
of common stock held by existing stockholders constitute "restricted shares" as
defined in Rule 144 under the Securities Act. The restricted shares may only be
sold if they are registered under the Securities Act, or sold under Rule 144, or
another exemption from registration under the Securities Act.

     Approximately 98% of the restricted shares of our common stock are either
eligible for sale pursuant to Rule 144 or have been registered under the
Securities Act for resale by the holders. We are unable to estimate the amount,
timing, or nature of future sales of outstanding common stock. Sales of
substantial amounts of our common stock in the public market may cause the
stock's market price to decline. SEE "SHARES AVAILABLE FOR FUTURE SALE."

OUTSTANDING SERIES A PREFERRED STOCK, OPTIONS AND WARRANTS MAY MAKE IT DIFFICULT
FOR US TO OBTAIN ADDITIONAL CAPITAL ON REASONABLE TERMS

     As of July 27, 2001, we had outstanding preferred stock convertible into,
and options and warrants to purchase, an aggregate of 7,451,530 shares of common
stock. As long as these shares of convertible preferred stock ("Series A
convertible preferred stock") remain outstanding and the options and warrants
remain unexercised, the terms under which we could obtain additional capital may
be adversely affected because any new investors will perceive that these lower
priced securities offer a risk of substantial potential dilution. Depending on
the market price for our

                                       45
<Page>

common stock as reported by Nasdaq and other sources, new investors frequently
prefer to negotiate prices that are at or below the conversion price or exercise
price of existing securities. SEE "ISONICS' CAPITAL STOCK."

PROVISIONS IN OUR CHARTER DOCUMENTS COULD PREVENT OR DELAY A CHANGE IN CONTROL,
WHICH COULD DELAY OR PREVENT A TAKEOVER

     Our Articles of Incorporation authorize the issuance of "blank check"
preferred stock with such designations, rights, and preferences, as may be
determined by our Board of Directors. Accordingly, the Board of Directors may,
without shareholder approval, issue shares of preferred stock with dividend,
liquidation, conversion, voting, or other rights that could adversely affect the
voting power or other rights of the holders of our common stock. Preferred stock
could also be issued to discourage, delay, or prevent a change in our control,
although we do not currently intend to issue any additional series of our
preferred stock. See "ISONICS' CAPITAL STOCK."

PROVISIONS IN OUR BYLAWS PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS
TO THE FULL EXTENT PERMITTED BY CALIFORNIA LAW, WHICH COULD REQUIRE US TO DIRECT
FUNDS AWAY FROM OUR BUSINESS AND PRODUCTS

     Our Bylaws provide for indemnification of officers and directors to the
full extent permitted by California law, our state of incorporation. We may be
required to pay judgments, fines, and expenses incurred by an officer or
director, including reasonable attorneys' fees, as a result of actions or
proceedings in which such officers and directors are involved by reason of being
or having been an officer or director. Funds paid in satisfaction of judgments,
fines and expenses may be funds we need for the operation of our business and
the development of our products, thereby affecting our ability to attain
profitability. This could cause our stock price to drop. See "SECURITIES AND
EXCHANGE COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES."

OUR SHAREHOLDERS SHOULD NOT RELY UPON DIVIDENDS TO GENERATE INCOME BECAUSE IT IS
UNLIKELY WE WILL EVER PAY DIVIDENDS

     We have never paid any cash dividends on our common stock and we do not
anticipate paying cash dividends on our common stock in the future. The future
payment of dividends is directly dependent upon our future earnings, capital
requirements, financial requirements, and other factors to be determined by our
Board of Directors. It is anticipated that future earnings, if any, which may be
generated from our operations, will be used to finance our growth, and that cash
dividends will not be paid to our stockholders. Because our common stock does
not generate a steady stream of income for our stockholders, the only profit or
gain our shareholders can hope to realize by virtue of their investment is that
our stock will appreciate in value, which it may not do. See "MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS."

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THE TOTAL OF OUR AUTHORIZED, UNISSUED AND UNRESERVED COMMON STOCK IS INADEQUATE
TO IMPLEMENT OUR LONG-TERM BUSINESS STRATEGIES

     As of July 27, 2001, the number of shares of common stock outstanding was
9,310,975. Including shares reserved for issuance under option plans and
outstanding options, warrants (including the Class C warrants underlying the
Class B warrants) and convertible securities, we have 19,760,095 shares of
common stock issued or reserved for issuance. This leaves only 239,905 shares of
our common stock remaining authorized, unissued, and unreserved. Our board of
directors does not believe that this total of authorized, unissued, and
unreserved shares is adequate to implement our long-term business strategies.
Therefore, the board of directors intends to propose a substantial increase in
our authorized capital for consideration by our shareholders at our next
shareholders' meeting tentatively scheduled for October 2001.

     However, we may not be able to obtain approval of an increase in our
authorized capitalization at the upcoming shareholders' meeting and (if we are
unable to increase our authorized capitalization at the next shareholders'
meeting) we may be unable to raise necessary working capital due to the
inability to issue equity.

FORWARD-LOOKING STATEMENTS MADE IN THIS REGISTRATION STATEMENT MAY PROVE TO BE
INACCURATE

     In our effort to make the information in this report more meaningful, this
report contains both historical and forward-looking statements. All statements
other than statements of historical fact are forward-looking statements within
the meanings of Section 27A of the Securities Act of 1933, and Section 21E of
the Securities Exchange Act of 1934. Forward-looking statements in this report
are not based on historical facts, but rather reflect the current expectations
of our management concerning future results and events.

     Forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of Isonics to be different from any future results, performance and
achievements expressed or implied by these statements.

ITEM 7. FINANCIAL STATEMENTS

     The information required by this item begins on page F-1 of Part III of
this Report on Form 10-KSB and is incorporated into this part by reference.

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

None.

                                       47
<Page>

PART III

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

(a) AND (b) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

     The following table sets forth the names and ages of Isonics' directors and
executive officers, and the positions held by each such person as of June 30,
2001. Each of the directors holds office for a term of one year or until the
next annual shareholders' meeting which is currently scheduled for October 2001,
and until the earlier of his or her successor's election and qualification, or
until his or her death, resignation or removal. Each officer serves at the
discretion of the Board.

<Table>
<Caption>
NAME                               AGE       POSITION
----                               ---       --------
<S>                                <C>       <C>
James E. Alexander                  52       President, Chief Executive Officer, Treasurer,
                                             Chief Financial Officer and Chairman of the Board
Boris Rubizhevsky                   50       Senior Vice President, Vice Chairman and Director
Daniel J. Grady                     46       Vice President, Life Sciences
Stephen J. Burden                   52       Vice President, Semiconductor Materials and Secretary
Herbert Hegener                     53       Managing Director of Chemotrade
Lindsay A. Gardner (1)(2)           49       Director
Richard Parker (1)(2)               57       Director
Larry J. Wells (1)(2)               58       Director
</Table>

--------------
(1)  Member of the Compensation Committee.
(2)  Member of the Audit Committee.

     JAMES E. ALEXANDER is our co-founder. He has served as our President, Chief
Executive Officer and as a director since our inception. Mr. Alexander has
worked full-time for Isonics since January 1994. From June 1972 to December
1993, he worked in a variety of technology positions at General Electric
Corporation in the aircraft engine and nuclear power divisions, most recently as
Manager of Technology Programs. Mr. Alexander received his Bachelors degree in
Metallurgical Engineering from the University of Cincinnati and performed
graduate work in materials science there. He earned a Masters degree in Business
Administration from Santa Clara University.

     BORIS RUBIZHEVSKY is a co-founder of Isonics and has been Senior Vice
President and a director since our inception. Mr. Rubizhevsky became Vice
Chairman in March 1997 and has worked exclusively for Isonics during this time.
From November 1986 through December 1994, he owned and operated SAR Marketing, a
consulting firm providing business advice and services to large multinational
corporations. From June 1977 to May 1986, Mr. Rubizhevsky worked at General
Electric Corporation as Business Development Manager in various international
locations. He received his Bachelors degree in Engineering from Stevens
Institute of Technology.

                                       48
<Page>

     DR. DANIEL J. GRADY joined us as Vice President, Medical, Research and
Diagnostics in 1995. From March 1994 through September 1995, Dr. Grady was Vice
President of Research and Development at Sopha Medical Systems, a medical
diagnostic imaging equipment manufacturer. From April 1991 until March 1994, he
served as Marketing Manager, Nuclear Energy for General Electric Corporation.
From May 1988 through March 1991, Dr. Grady served as Software Engineer Manager,
Nuclear Medicine for General Electric in England. From October 1984 through May
1988, he served as Clinical Applications Manager for General Electric Nuclear
Medicine. Between June 1981 and October 1984, he served as Engineering Analysis
Section Head for TRW. Dr. Grady received his Bachelors and Masters degrees and
Ph.D. in Nuclear Engineering from the University of Michigan.

     DR. STEPHEN J. BURDEN joined us in January 1997 as Director of Research &
Development. He was promoted to Vice President, Semiconductor Materials
effective January 1, 1999. From 1993 to 1997, Dr. Burden was Director of Product
Development at sp3, Inc., a manufacturer of diamond-coated tools. From 1984 to
1993, he was Manager of Advanced Materials R&D at GTE Valenite, a subsidiary of
GTE Corporation, a manufacturer of cutting tools. From 1974 to 1984, Dr. Burden
was employed by General Electric Corporation in various capacities. Dr. Burden
received his Ph.D. and Masters of Science degrees in Materials Science and
Engineering from Drexel University, and his Bachelors degree in Science
Engineering from Northwestern University. Dr. Burden also has an MBA from the
University of Michigan.

     HERBERT HEGENER is a co-founder of Chemotrade and has served as its
President since its formation in 1991. From 1988 to 1991, Mr. Hegener was with
Medgenix Deutschland GmbH-Dusseldorf, Germany. He was Medgenix Deutschland's
Managing Director when he left Medgenix Deutschland to found Chemotrade. From
1973 to 1988, Mr. Hegener worked at the Hempel Group, Dusseldorf, Germany, in
various management positions. Mr. Hegener is a specialist in stable and
radioactive isotopes. He has degrees in chemistry and economics.

     LINDSAY A. GARDNER was elected a director in September 1993. Ms. Gardner is
currently Director, Corporate Development and Strategic Planning for Menasha
Corporation. From 1991 to 2001, Ms. Gardner was President of LG Associates, a
U.S.-based management consulting firm providing strategic planning and materials
management expertise to foreign company affiliates of U.S. companies in
developing countries. During her tenure at LG Associates, Ms. Gardner resided in
Moscow, Russia from September 1991 to January 1994, and Beijing, China from
January 1994 to April 2000. She currently resides in Appleton, Wisconsin. From
1977 to 1991, Ms. Gardner worked for General Electric Corporation in a variety
of management and functional positions including international marketing,
quality assurance and supply chain management. Ms. Gardner received a Bachelors
degree in International Economics from The George Washington University Elliott
School of International Affairs and earned a Masters of Business Administration
from the University of Louisville.

     RICHARD PARKER has served as a director since August 1998. Mr. Parker is
presently Vice-President of Distribution Sales for Cypress Semiconductor and has
held that position since December 1997. Previously, Mr. Parker was Director of
Sales for Cypress from April 1984 to December 1997. Prior to joining Cypress, he
held various sales and marketing management positions at Fairchild Semiconductor
from 1973 to 1984. He received a Bachelors degree in Education from the
University of North Dakota.

                                       49
<Page>

     LARRY J. WELLS was elected a director of Isonics in January 2000. Since
1989, Mr. Wells has been a general partner of SVP Management Company, the
management company for Sundance Venture Partners, L.P., a venture capital fund.
From 1983 to 1989, Mr. Wells served as Vice President of Citicorp Venture
Capital. He left Citicorp to become Senior Vice President of Inco Venture
Capital. Mr. Wells is also a director of Cellegy Pharmaceuticals, Identix, Inc.,
as well as several privately held companies. Mr. Wells received his Bachelors
degree in Economics and earned a masters degree in Business Administration from
Stanford University. Mr. Wells was previously a director of Isonics from
September 1996 through December 1998.

(c), (d), AND (e) There are no significant employees who are not also directors
or executive officers. There were and are no family relationships among the
officers, directors or any person chosen by Isonics to become a director or
officer. No arrangement exists between any of the above officers and directors
pursuant to which any one of those persons was elected to such office or
position. None of our directors is also a director of another company which has
a class of securities registered under Section 12 of the Securities Exchange Act
of 1934, or which is subject to the reporting requirements of Section 15(d) of
that act.

(f)  INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

     Based on information submitted by the directors and executive officers,
none of the directors or executive officers are involved in, or have been
involved in, legal proceedings during the past five years that are material to
an evaluation of the ability or integrity of any director or executive officer.

(g)  PROMOTERS AND CONTROL PERSONS.

     Not applicable.


(h)  SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

SECTION 16(a) DISCLOSURE

     Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires Isonics' directors, executive officers and persons who own more than
ten percent of a registered class of Isonics' equity securities, to file with
the SEC initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of Isonics. Officers, directors and
greater than ten percent shareholders are required by SEC regulation to furnish
Isonics with copies of all Section 16(a) forms they file.

     To our knowledge, based upon a review of the copies of such reports
furnished to us and based upon written representations that no other reports
were required, all Section 16(a) filing requirements applicable to Isonics'
officers, directors and greater than ten percent beneficial owners were complied
with exception (or in addition) to the following during the fiscal year ended
April 30, 2001 and subsequently:

                                       50
<Page>

1.   Dr. Cuttriss and his affiliate, Metallurgy International, Inc., jointly
     filed a Form 3 in February 2000. Dr. Cuttriss became subject to the Section
     16(a) reporting requirements when he became an executive officer of Isonics
     in May 1998. A joint filing of two Form 4s was also made in February 2000
     reporting transactions that occurred in July 1999 and September 1999, which
     Dr. Cuttriss amended in May 2000. Dr. Cuttriss and Metallurgy International
     are no longer affiliates of Isonics effective February 1, 2001.

2.   Mr. Herbert Hegener filed Forms 4 in August 2000 reporting sales that took
     place in May, June and July of 2000.

3.   Eagle-Picher Technologies, LLC became subject to the Section 16(a)
     reporting requirements when it became a greater than 10% beneficial owner
     in December 1999. Eagle-Picher filed a Form 3 in March 2000. Eagle-Picher
     attempted to exercise warrants in March 2000 but, to our knowledge has not
     yet filed a Form 4 reporting the attempted exercise. Eagle-Picher has also
     not yet filed an amendment to its Schedule 13D reporting this attempted
     exercise. In February 2001 we cancelled the shares (subsequent to canceling
     the warrant) and we have notified Eagle-Picher of the cancellation. To the
     knowledge of Isonics, Eagle-Picher has not filed any report with the
     Securities and Exchange Commission regarding the cancellation of the
     shares.

4.   Mr. Alexander filed a Form 4 after July 10, 2000, reporting a transfer of
     536,000 shares in June 2000. Mr. Alexander transferred 500,000 of these
     shares to his wife who continues to own these shares.

SHORT-SWING LIABILITY

     On behalf of Metallurgy International, Inc., an affiliate of Dr. Cuttriss,
but without authorization from Dr. Cuttriss or Isonics, a broker-dealer sold and
purchased shares of Isonics common stock in July and September 1999,
respectively. With authorization from Dr. Cuttriss and Isonics, Metallurgy
International, Inc. sold additional shares in February and March 2000. As a
result, Isonics raised the concern that Dr. Cuttriss may have obtained a
short-swing profit. Subsequently, Isonics received an opinion of counsel in
which counsel opined that "a court would likely not impose liability on [Dr.]
Cuttriss for the unauthorized July 1999 and September 1999 transactions under
Section 16(b) of the Securities Exchange Act of 1934." Dr. Cuttriss and his
affiliate, Metallurgy International, Inc., jointly filed two Form 4s in February
2000 reporting these transactions. Dr. Cuttriss amended these forms in May 2000.
Effective February 1, 2001, Dr. Cuttriss and Metallurgy are no longer affiliates
of Isonics and, therefore, are no longer subject to the reporting requirements
of Section 16(a).

                                       51
<Page>

ITEM 10. EXECUTIVE COMPENSATION

(a) AND (b) SUMMARY COMPENSATION TABLE

     The following table sets forth information regarding compensation awarded,
paid to, or earned by the chief executive officer and the other principal
officers of Isonics for the three years ended April 30, 1999, 2000, and 2001. No
other executive officer earned salary and bonus compensation exceeding $100,000
during any of those years. This includes all compensation paid to each by
Isonics and any subsidiary.

<Table>
<Caption>
                                       ANNUAL COMPENSATION           LONG-TERM COMPENSATION AWARDS
                                 -------------------------------    -------------------------------
                                                                           AWARDS             PAYOUT
                                                                    -----------------------   ------
                                                                                 SECURITIES
                                                                    ($)          UNDERLYING
NAME AND                FISCAL   ($)       ($)          ($)         RESTRICTED   OPTIONS &    LTIP         ALL OTHER
PRINCIPAL POSITION      YEAR     SALARY    BONUS        OTHER(a)    AWARDS       SARS (#)     PAYOUT       COMPENSATION
------------------      ----     ------    -----        --------    ------       --------     ------       ------------
<S>                     <C>      <C>       <C>          <C>         <C>          <C>          <C>          <C>
James E. Alexander      1999     200,000   50,000       35,016(f)   0            25,000(o)    0            0
President & CEO         2000     212,000   172,549(d)   39,280(g)   0            0            0            0
                        2001     240,000   0            6,704 (h)   0            0            0            0

Boris Rubizhevsky       1999     184,100   45,000       25,404(f)   0            22,500(p)    0            0
Senior Vice President   2000     191,000   147,670(e)   28,185(i)   0            0            0            0
                        2001     216,000   0            14,280(j)   0            0            0            0

Stephen J. Burden,      1999     0         0            0           0            121,458(r)   0            0
Vice President (b)      2000     125,000   0            23,452      0            0            0            0
                        2001     125,000   0            9,750(m)    0            0            0            0

Daniel J. Grady         1999     127,188   16,000       0           0            15,625(q)    0            0
Vice President          2000     125,000   10,271       23,833(k)   0            0            0            0
                        2001     143,208   0            13,320(l)   0            0            0            0

Brantley J. Halstead,   1999     22,182    0            0           0            116,000(s)   0            0
Vice President (c)      2000     102,000   16,000       3,870       0            25,000(t)    0            0
                        2001     122,000   24,000       12,330(n)   0            0            0            0
</Table>

(a)  Excludes other compensation, the aggregate amount of which does not exceed
     the lesser of $50,000 or 10% of such named Executive Officers' annual
     compensation.

(b)  Dr. Burden became an officer of Isonics effective January 1999.

(c)  Mr. Halstead became an officer of Isonics in February 1999, upon his
     joining Isonics as Chief Financial Officer. Mr. Halstead was promoted to
     Vice President, Finance in January 2000. Mr. Halstead resigned effective
     May 1, 2001.

(d)  Mr. Alexander's amount includes $133,451 for forgiveness of a loan owed to
     Isonics, and $39,098 to pay applicable payroll taxes on a stock bonus
     granted in January 1999. Please see "CORPORATE LOANS TO OFFICERS."

(e)  Mr. Rubizhevsky's amount includes $113,598 for forgiveness of a loan owed
     to Isonics, and $29,072 to pay applicable taxes on stock bonus granted in
     January 1999, and a $5,000 additional cash bonus. Please see "CORPORATE
     LOANS TO OFFICERS."

                                       52
<Page>

(f)  Mr. Alexander's amounts represent $35,016 for interest and taxes payable as
     a result of a loan in fiscal year 1999. Mr. Rubizhevsky's amounts represent
     $25,404 for interest and taxes payable as a result of a loan in fiscal year
     1999.

(g)  Mr. Alexander's amount includes $26,543 for accrued vacation that was paid
     in December 1999, $9,487 car allowance, and $3,250 employer matching
     contribution to Isonics' 401k plan.

(h)  Mr. Alexander's amount includes $1,704 car allowance and $5,000 employer
     matching contribution to Isonic's 401k plan.

(i)  Mr. Rubizhevsky's amount includes $15,005 for accrued vacation that was
     paid in December 1999, $9,000 car allowance, and $4,180 employer matching
     contribution to Isonics' 401k plan.

(j)  Mr. Rubizhevsky's amount includes $9,000 car allowance and $5,280 employer
     matching contribution to Isonic's 401k plan.

(k)  Dr. Grady's amount includes $12,020 for accrued vacation that was paid in
     December 1999, $9,000 car allowance, and $2,813 employer matching
     contribution to the Isonics' 401k plan.

(l)  Dr. Grady's amount includes $9,000 car allowance and $4,320 employer
     matching contribution to Isonics 401k plan.

(m)  Dr. Burden's amount includes $6,000 car allowance and $3,750 employer
     matching contribution to Isonics 401k plan.

(n)  Mr. Halstead's amount includes $9,000 car allowance and $3,330 employer
     matching contribution to Isonics 401k plan.

(o)  Options to purchase 25,000 shares of common stock were granted in April
     1999, as consideration for delaying salary in March and April 1999, and are
     currently exercisable at $1.4375 per share and expire April 26, 2004.

(p)  Options to purchase 22,500 shares of common stock were granted in April
     1999, as consideration for delaying salary in March and April 1999, and are
     currently exercisable at $1.4375 per share and expire April 26, 2004.

(q)  Options to purchase 15,625 shares of common stock were granted in April
     1999, as consideration for delaying salary in March and April 1999, and are
     currently exercisable at $1.4375 per share and expire April 26, 2004.

(r)  Options to purchase 100,000 shares of common stock were granted in January
     1999 as consideration for Dr. Burden's promotion to vice president in
     January 1999, with an exercise price of $1.10 per share (of which 70,000
     have vested as of July 31, 2001, and continue to vest at a rate of 5%, or
     5,000, per quarter). Options to purchase 21,458 shares of common stock were
     granted in April 1999 as consideration for delaying salary in March and
     April 1999, and are currently exercisable at $1.4375 per share and expire
     April 26, 2004.

(s)  Options to purchase 100,000 shares of common stock were granted in February
     1999, as consideration for Mr. Halstead joining the Company as Chief
     Financial Officer, with an exercise price of $2.5625 per share. As a result
     of Mr. Halstead's resignation, his unexercised options expired July 31,
     2001.

(t)  Options to purchase 25,000 shares of common stock were granted in January
     2000, as consideration for Mr. Halstead's promotion to Vice President in
     January 2000. As a result of Mr. Halstead's resignation, his unexercised
     options expired July 31, 2001.

                                       53
<Page>

     In October 1996, we adopted an employee benefit plan under Internal Revenue
Code Section 401(k). The 401(k) plan is a profit sharing plan under which both
employees and Isonics are entitled to contribute a portion of compensation and
earnings, respectively, to investment funds to supplement employee retirement
benefits. On November 1, 1999, the Isonics Corporation 401(k) plan was merged
with the Interpro 401(k) plan and Isonics has continued that plan.

     We do not have written plans to pay bonuses or deferred compensation to our
employees except those expressly stated in the following sections.

     We have adopted medical, dental, and life insurance plans for our employees
and their dependents at our cost. In some cases, we also provide discretionary
disability and other insurance plans for the benefit of our employees.

(c)  OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

     (i)  STOCK OPTIONS AND OPTION PLANS

     We grant options to executive officers, employees, and consultants under
the following plans (collectively the "Plans"):

     (A)  1996 STOCK OPTION PLAN. Although this plan has been terminated, there
          are options outstanding.

     (B)  1996 EXECUTIVES' EQUITY INCENTIVE PLAN. The Executives' Plan
          authorized the grant of options to purchase 1,000,000 stock options.
          The options granted may be either incentive stock options, if they
          meet the requirements of Section 422 of the Internal Revenue Code, or
          non-qualified stock options. The directors approved this plan in
          September 1996 and the shareholders in October 1996. The directors
          approved an amendment to this plan in August 2000; the shareholders
          approved the amendment in October 2000.

     (C)  1996 EQUITY INCENTIVE PLAN. The Employees' Plan authorized the grant
          of options to purchase 500,000 stock options. The options granted may
          be either incentive stock options, if they meet the requirements of
          Section 422 of the Internal Revenue Code, or non-qualified stock
          options. The directors approved this plan in September 1996 and the
          shareholders in October 1996. The directors approved an amendment to
          this plan in August 2000; the shareholders approved the amendment in
          October 2000.

     (D)  1998 EMPLOYEE STOCK PURCHASE PLAN. The Stock Purchase Plan authorized
          employee purchase of up to 200,000 shares of Isonics common stock. The
          directors approved this plan in August 1998. Shareholders approved it
          in October 1998.

     As of July 27, 2001, options to purchase a total of 454,583 shares and
358,769 shares respectively, were outstanding under the Executives and Incentive
Plans, and the 1996 Stock Option Plan, and options to purchase 869,279 and 0
shares, respectively, remained available for grant.

                                       54
<Page>

     Except for the Director's Plan, we have not adopted any other stock option
or stock appreciation rights plan. SEE "COMPENSATION OF DIRECTORS."

     (ii) Option Grants

     The following options were granted to executive officers named in the
compensation table during the fiscal year ended April 30, 2001. We did not grant
any stock appreciation rights to any person during fiscal year 2001 or
subsequently. We have not granted any stock options to executives named in the
compensation table in fiscal 2002.

<Table>
<Caption>
                               NUMBER OF         PERCENT OF
                               SECURITIES          TOTAL
                               UNDERLYING       OPTIONS/STOCK
                              OPTIONS/STOCK     APPRECIATION
                              APPRECIATION     RIGHTS GRANTED
NAME AND PRINCIPAL                RIGHTS        TO EMPLOYEES       EXERCISE PRICE       EXPIRATION
POSITION                      GRANTED (#)      IN FISCAL YEAR         ($/SH)               DATE
------------------            -------------    --------------      --------------       ----------
<S>                           <C>              <C>                 <C>                  <C>
James E. Alexander                       0           0.0%              N/A                  N/A
President & CEO
Boris Rubizhevsky                        0           0.0%              N/A                  N/A
Senior Vice President(a)
Daniel J. Grady                          0           0.0%              N/A                  N/A
Vice President
Stephen J. Burden                        0           0.0%              N/A                  N/A
Vice President
Brantley J. Halstead                     0           0%                N/A                  N/A
Vice President (b)
</Table>

--------------

(a)  Does not include 33,333 warrants obtained in a private transaction
     completed in July 1999 or the additional 2,123 warrants obtained under
     anti-dilution provisions in January 2001.

(b)  Mr. Halstead resigned effective May 1, 2001.

(d)  AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
     VALUES

     Mr. Halstead exercised 16,000 stock options for cash in October 2000. These
stock options were granted in April 1999, and approved by the board of directors
in October 1999. No other officer exercised employee stock options during the
fiscal year ended April 30, 2001, or subsequently.

     The following table sets forth information regarding the year-end value of
options being held by the Chief Executive Officer and the other such named
officers and persons on April 30, 2001.

                                       55
<Page>

<Table>
<Caption>
                                                                 NUMBER OF SECURITIES            VALUE OF UNEXERCISED
                                                                 UNDERLYING UNEXERCISED               IN-THE-MONEY
                                     SHARES                      OPTIONS/STOCK APPRECIATION    OPTIONS/STOCK APPRECIATION
NAME AND                           ACQUIRED ON     VALUE          RIGHTS AT APRIL 30, 2001      RIGHTS AT APRIL 30, 2001
PRINCIPAL POSITION                 EXERCISE (#)   REALIZED       EXERCISABLE/UNEXERCISABLE     EXERCISABLE/UNEXERCISABLE
------------------                 ------------   --------       --------------------------    -------------------------
<S>                                <C>            <C>            <C>                           <C>
James E. Alexander                           0          0                 25,000/0                       $0/$0
President & CEO
Boris Rubizhevsky                            0          0                 22,500/0                       $0/$0
Senior Vice President (a)
Daniel J. Grady                              0          0                222,965/0                  174,423/$0
Vice President
Stephen J. Burden                            0          0                167,167/25,720             $27,200/$4,800
Vice President
Brantley J. Halstead                    16,000    $16,000                 90,000/35,000                  $0/$0
Vice President (b)

</Table>

--------------

(a)  Does not include 33,333 warrants obtained in a private transaction
     completed in July 1999 or the additional 2,123 warrants obtained under
     anti-dilution provisions in January 2001.

(b)  Mr. Halstead resigned effective May 1, 2001. As a result, the 90,000
     outstanding stock options held by Mr. Halstead expired July 31, 2001.

(e)  LONG TERM INCENTIVE COMPENSATION PLANS, AND DEFINED BENEFIT AND ACTUARIAL
     PLANS

     Isonics has no long term incentive compensation plans, defined benefit
plans, or actuarial plans.

(f)  COMPENSATION OF DIRECTORS

     In January 2000, we agreed to compensate non-employee directors $2,000 for
attending Board of Directors' meetings in person, and $500 for attending Board
of Directors' meetings telephonically beginning January 1, 2000. Previously we
had not compensated our directors for their service as such.

     The 1998 Directors' Plan authorized each person serving as a member of the
Board who is not an employee of Isonics to receive options to purchase 20,000
shares of Isonics common stock when such person accepts his position as a
Director and to receive an additional option to purchase 10,000 shares when such
person is re-elected as a Director provided such person is not an Isonics
employee. The exercise price for the options is the Fair Market Value (as
defined in the Executives' Plan) on the date such person becomes a director and
the options are exercisable for five years from such date. The options granted
under the Directors' plan vest immediately upon the date of the grant. In the
event a Director resigns or is not re-elected to the Board, failure to exercise
the options in three months results in the options' termination prior to the
expiration of their term. Although the Directors adopted the plan in 1998, the
Board formalized the plan by resolution in January 2000.

                                       56
<Page>

     Under the Directors' Plan the following individuals have been granted
options through July 27, 2001:

<Table>
<Caption>
     NAME                SHARES UNDER OPTION           EXERCISE PRICE             EXPIRATION
     ----                -------------------           --------------             ----------
<S>                      <C>                           <C>                      <C>
Lindsay Gardner                 20,000                       $2.375               May 21, 2003
                                10,000                      $1.1875             October 5, 2003
                                10,000                       $6.250              April 26, 2005
                                10,000                      $2.1875             October 10, 2005

Richard Parker                  20,000                       $1.656             August 17, 2003
                                10,000                      $1.1875             October 5, 2003
                                10,000                       $6.250              April 26, 2005
                                10,000                      $2.1875             October 10, 2005

Larry Wells                     20,000                      $7.3125             January 29, 2005
                                10,000                       $6.250              April 26, 2005
                                10,000                      $2.1875             October 10, 2005
</Table>

     We do not have any other arrangements pursuant to which we compensate the
Directors for acting in their capacities as such.

(g)  EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
     AGREEMENTS

     In September 1997, we entered into employment agreements with James E.
Alexander and Boris Rubizhevsky. The agreements have a term of four years and
provide for annual salaries of $200,000 and $180,000, respectively, although
either Isonics or the individuals may terminate these agreements prematurely in
their discretion. By resolution of the Board of the Directors made on January
30, 2000, both Mr. Alexander and Mr. Rubizhevsky received salary increases
commencing February 1, 2000, equal to 20% of their current salary, $240,000, and
$216,000, respectively. The salary increases were granted in recognition of
their performance for Isonics and the fact that neither Mr. Alexander nor Mr.
Rubizhevsky had received salary increases in approximately two and one-half
years. Under the agreements, each officer is entitled to receive incentive
compensation up to 50% of the officer's annual salary, as we approve, pursuant
to such executive compensation plan as we may approve. The agreements provide
that upon a termination of employment other than for cause (as defined in the
agreements), the officer is entitled to severance compensation of eighteen (18)
months of his salary, paid at the same time as salary payments, 25% of the
officer's annual prevailing salary, paid upon termination, and in addition all
outstanding stock options held by the officer will be accelerated and will
become exercisable in full and our right of repurchase will terminate with
respect to such shares. The agreements provide for similar accelerated vesting
of outstanding stock options upon a change in control of Isonics. Although these
contracts expire in September 2001, the compensation committee has not yet
determined whether to offer new contracts to these officers.

                                       57
<Page>

     We have also entered into employment agreements with Dr. Daniel J. Grady
and Dr. Stephen J. Burden. The agreements have an indefinite term and provide
for at-will employment, terminable at any time by either party. The agreements
provide for a rate of annual compensation, which we will review annually. Under
each agreement, Dr. Grady and Dr. Burden are entitled to participate in our
standard plans and policies. The agreements also include confidentiality and
invention assignment provisions. Additionally, Mr. Herbert Hegener is covered by
an employment agreement extending through December 2001. Dr. Cuttriss and
Isonics agreed to a cancellation of his previous employment agreement (which
extended through September 2003) in connection with our sale of IPRC to a
management group that included him.

(h)  REPORT ON REPRICING OF OPTIONS/SARS

     We did not reprice any options or stock appreciation rights during the
fiscal year ended April 30, 2001, or subsequently.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth information regarding the ownership of the
our common stock as of July 27, 2001 by: (i) each nominee for director; (ii)
each of the executive officers named in the Summary Compensation Table; (iii)
all executive officers and directors of the Company as a group; and (iv) all
those known by us to be beneficial owners of more than five percent of our
common stock.

<Table>
<Caption>
                                                             BENEFICIAL OWNERSHIP
BENEFICIAL OWNER                                               NUMBER OF SHARES      PERCENT OF TOTAL
----------------                                             --------------------    ----------------
<S>                                                          <C>                     <C>
James E. Alexander (1)                                            1,954,167              20.9%
Boris Rubizhevsky (2)                                             1,695,865              18.1%
Stephen J. Burden (3)                                               290,370               3.1%
Daniel J. Grady (4)                                                 244,438               2.6%
Brantley J. Halstead (5)                                            106,000               1.1%
Herbert Hegener (6)                                                  48,600               0.5%
Lindsay Gardner (7)                                                 299,761               3.2%
Richard Parker (8)                                                   50,000               0.5%
Larry Wells (9)                                                     117,241               1.3%
All executive officers and directors as a group (9 persons)       4,806,442              47.7%
The address for all of the above directors and executives
officers is:
5906 McIntyre Street, Golden, CO 80403
Richard Grossman (10)                                             2,080,809              18.3%
Anfel Trading (11)                                                  724,947               7.2%
</Table>

                                       58
<Page>

(1)  Includes: (i) 25,000 shares of common stock underlying options that are
     currently exercisable; (ii) 45,455 shares of common stock held in the name
     of The James & Carol Alexander Family Foundation; (iii) 500,000 shares held
     by wife Carol; (iv) 4,000 shares held by son Benjamin Alexander; and (v)
     4,000 shares held by son Jonathan Alexander.

(2)  Includes: (i) 1,568,872 shares of common stock held jointly with wife Nancy
     Eiden Rubizhevsky; (ii) 22,500 shares of common stock underlying options
     that are currently exercisable; (iii) 39,160 shares of common stock
     underlying 39,160 warrants to purchase common stock of Isonics; (iv) 33,333
     shares of common stock held by wife Nancy Eiden Rubizhevsky; (v) 16,000
     shares of common stock held by son Zachary Rubizhevsky; and (vi) 16,000
     shares of common stock held by son Ryan Rubizhevsky.

(3)  Includes 192,887 shares of common stock underlying options of which 143,596
     vested as of June 30, 2001 and which are currently exercisable.

(4)  Includes 222,965 shares of common stock underlying stock options that are
     currently exercisable.

(5)  Includes 90,000 shares of common stock underlying options, which expired on
     July 31, 2001.

(6)  Includes 35,000 shares of common stock underlying warrants that are
     currently exercisable.

(7)  Includes 50,000 shares of common stock underlying stock options that are
     currently exercisable.

(8)  Includes 50,000 shares of common stock underlying stock options that are
     currently exercisable.

(9)  Includes 40,000 shares of common stock underlying stock options that are
     currently exercisable. Also includes 77,241 shares owned by Daystar
     Partners, L.P. of which an affiliate owned by Mr. Wells, and in which Mr.
     Wells owns a 9.9% equity interest.

(10) Includes beneficial ownership of the following shares: (i) 43,496 shares of
     common stock underlying 20,000 shares of Series A preferred stock and
     23,496 warrants owned of record and beneficially by Richard Grossman; (ii)
     43,496 shares of common stock underlying 20,000 shares of Series A
     preferred stock and 23,496 warrants owned of record and beneficially by
     Orin Hirschman (of which shares Mr. Grossman disclaims beneficial
     ownership); (iii) 1,203,411 shares of common stock underlying 553,334
     shares of Series A preferred stock and 650,077 warrants owned of record and
     beneficially by Adam Smith Investment Partners, L.P.; (iv) 246,482 shares
     of common stock underlying 113,334 shares of Series A preferred stock and
     133,148 warrants owned of record and beneficially by Adam Smith
     Investments, Ltd.; and (v) 587,420 shares of common stock underlying
     587,420 warrants owned of record and beneficially by Adam Smith & Company,
     Inc., all as set forth on the Schedule 13D filed by such persons on August
     12, 1999. The business addresses of Richard Grossman and Orin Hirschman,
     and the principal executive offices of Adam Smith Investment Partners, L.P.
     and Adam Smith & Company, Inc., are located at 101 East 52nd Street, New
     York, New York 10022. The principal executive offices of Adam Smith
     Investments, Ltd. are c/o Insinger Fund Administration (BVI) Limited,
     Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin
     Islands.

(11) Includes (i) 333,334 shares of common stock; and (ii) 391,613 shares of
     common stock underlying 391,613 warrants. The principal executive offices
     of Anfel Trading Ltd. are c/o M. Andre Zolty, 24 Route De Malagnou, 1208
     Geneva, Switzerland. Andre Zolty is the principal and controlling
     shareholder of Anfel Trading Ltd. and may be deemed to beneficially own
     these shares.

                                       59
<Page>

     The Series A convertible preferred stock consists of 1,830,000 shares
issued with a liquidation preference and conversion right of $1.50 per share.
Through June 30, 2001, 866,334 shares of Series A preferred stock have elected
to convert into common stock. The conversion right of the preferred stock is on
a one-for-one basis. The Series A preferred stock is entitled to dividends or
distributions equal to the amount of the dividend or distribution per share of
common stock payable at such time multiplied by the number of shares of common
stock then obtainable upon conversion of such Series A preferred stock. The
Redemption Trigger Date for the Series A preferred stock shall be the business
day immediately following the thirtieth consecutive trading day that the average
closing price during such trading days (or, if no closing price is reported, the
average of the bid and ask prices) of the shares of common stock was above $8.00
per share (which minimum price shall be proportionally adjusted for stock
splits, stock dividends, reverse stock splits and any other subdivision or
combination of the common stock). After the Redemption Date, Isonics may redeem
all or any part of the Series A preferred stock at its election at any time and
from time to time. The Series A preferred stock is convertible into common stock
at the option of the holder until and unless Isonics chooses to redeem such
shares on the basis of one share of common stock per share of Series A preferred
stock and, until converted, each share of Series A preferred stock is entitled
to one vote at any meeting of Isonics' shareholders.

     We know of no plans or arrangement that will result in a change of control
at Isonics.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     We provide the following information regarding transactions among officers,
directors and significant shareholders of Isonics during the most recent two
fiscal years and during the subsequent fiscal year.

SALE OF IPRC

     Effective February 1, 2001, we sold IPRC to a limited liability company,
Interpro Zinc LLC, in a management buy-out. Robert H. Cuttriss, Ph.D. (formerly
an executive officer of Isonics) is the manager of Interpro Zinc LLC and a 25%
owner. James E. Alexander (president, chief executive officer, and a director of
Isonics) and Boris I. Rubizhevsky (senior vice president and a director of
Isonics) are also 25% owners of Interpro Zinc and participated in the purchase
of IPRC. Mr. Alexander and Mr. Rubizhevsky advised our board that they do not
intend to participate actively in Interpro Zinc's activities. This is further
described in "ITEM 1 - BUSINESS", above.

                                       60
<Page>

CORPORATE LOANS TO OFFICERS

     In the past, Isonics has from time-to-time made loans to Messrs. Alexander
and Rubizhevsky. In each case, the loans have been interest-bearing and have
been repaid. The following table sets forth some information regarding these
loans through April 30, 2001. Isonics has not made any loans to any officers
subsequently..

<Table>
<Caption>
                                             JAMES E. ALEXANDER                BORIS RUBIZHEVSKY
                                               PRESIDENT & CEO               SENIOR VICE PRESIDENT
                                             ------------------              ---------------------
<S>                                          <C>                             <C>
Balance as of April 30, 1999                     $236,360.38                      $223,325.22
FY 2000 Borrowings (a)                              7,690.49                         7,221.34
FY 2000 Repayments (a)                            244,050.87(b)                    230,546.56(c)
                                                 -----------                       ----------
Balance as of April 30, 2000                     $      0.00                            $0.00
FY 2001 Borrowings (a)                            100,000.00                       100,000.00
FY 2001 Repayments (a)                               100,000(d)                       100,000 (d)
Balance as of April 30, 2001                     $      0.00                            $0.00
</Table>

(a)  Includes interest accrued and paid. Amounts are aggregated.

(b)  In October 1999 Mr. Alexander applied $74,038.54 of a bonus awarded to him
     to the repayment of this indebtedness. In February 2000, Mr. Alexander
     surrendered 30,437 shares of Isonics common stock in satisfaction of the
     remaining $165,000 principal and $10,012.33 interest.

(c)  In October 1999 Mr. Rubizhevsky applied $60,534.23 of a bonus awarded to
     him to the repayment of this indebtedness. In February 2000, Mr.
     Rubizhevsky surrendered 30,437 shares of Isonics common stock in
     satisfaction of the remaining $165,000 principal and $10,012.33 interest.

(d)  The loans were made to the officers in March ($50,000 each) and April
     ($50,000 each), 2001, and were repaid, with interest at 6.6% per annum, on
     April 30, 2001.

CORPORATE LOANS FROM OFFICERS AND EMPLOYEES

     During the fiscal years ended April 30, 2000 and 2001, Isonics' officers,
directors and employees loaned Isonics funds. The following schedule summarizes
these borrowing and repayments.

                                       61
<Page>

<Table>
<Caption>
NAME AND                            BALANCE AS OF       FY 2000             FY 2000       BALANCE AS OF
PRINCIPAL POSITION                   MAY 1, 1999     BORROWINGS (a)      REPAYMENTS (a)   APRIL 30 2000
------------------                  -------------    --------------      --------------   -------------
<S>                               <C>                <C>                <C>               <C>
James E. Alexander                $        0.00      $        0.00      $        0.00      $   0.00
President & CEO
Boris Rubizhevsky                 $   44,290.20      $    8,858.04      $   53,148.24      $   0.00
Senior Vice President (b)
Daniel J. Grady                   $        0.00      $        0.00      $        0.00      $   0.00
Vice President
Stephen J. Burden                 $        0.00      $   57,500.00      $   57,500.00      $   0.00
Vice President (c)
Lindsay Gardner                   $        0.00      $        0.00      $        0.00      $   0.00
Director
</Table>

(a)  Includes interest accrued and paid through April 30, 2000. Amounts are
     aggregated.

(b)  Mr. Rubizhevsky's note to Isonics was converted into 66,666 shares of
     common stock underlying 33,333 shares of Series A convertible preferred
     stock and 33,333 warrants issued in connection with a second private
     placement of Series A convertible preferred stock and warrants to purchase
     Isonics common stock on July 30, 1999.

(c)  Dr. Burden's note to Isonics was converted into 66,666 shares of common
     stock underlying 33,333 shares of Series A convertible preferred stock and
     33,333 warrants issued in connection with the second private placement on
     July 30, 1999.

<Table>
<Caption>
NAME AND                            BALANCE AS OF       FY 2001             FY 2001       BALANCE AS OF
PRINCIPAL POSITION                   MAY 1, 2000     BORROWINGS            REPAYMENTS     APRIL 30 2001
------------------                  -------------    --------------      --------------   -------------
<S>                               <C>                <C>                <C>               <C>
James E. Alexander                    $   0.00         $   0.00            $   0.00         $   0.00
President & CEO
Boris Rubizhevsky                     $   0.00         $   0.00            $   0.00         $   0.00
Senior Vice President
Daniel J. Grady                       $   0.00         $   0.00            $   0.00         $   0.00
Vice President
Stephen J. Burden                     $   0.00         $   0.00            $   0.00         $   0.00
Vice President
Lindsay Gardner                       $   0.00         $   0.00            $   0.00         $   0.00
Director
</Table>

                                       62
<Page>

     Mr. Hegener had a loan payable to him from Isonics in the amount of
$438,314 resulting from the 1998 purchase of Chemotrade by Isonics. Isonics paid
all monies owed to Mr. Hegener in December 1999 and issued to Mr. Hegener 35,000
warrants to purchase common stock at $3.00 per share through June 30, 2004, to
compensate him for a late loan payment.

     There are no monies currently owed to Mr. Hegener under the premise of
corporate loans. All monies owed were repaid in December 1999.

Effective April 30, 2001 we owe $114,000 to the former owners of Chemotrade
resulting from contingent consideration payable to the sellers based on the 2001
earnings of Chemotrade. Included in the $114,000 is approximately $57,000
payable to Mr. Hegener.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  Exhibits Pursuant to Item 601 of Regulation S-B:

<Table>
<Caption>
EXHIBIT
NUMBER    TITLE
-------   -----
<S>       <C>
  1.01    Form of Underwriting Agreement. (1)

  3.01    Registrant's Amended and Restated Articles of Incorporation. (1)

  3.02    Registrant's Bylaws. (1)

  3.03    Certificate of Determination of Preferences and Rights of the Series A
          preferred stock (see exhibit 10.18).

  4.01    Specimen Common Stock Certificate. (1)

  4.02    Form of Representatives' warrant Agreement. (1)

  4.03    Form of warrant Agreement between the Registrant and Continental Stock
          Transfer & Trust Company, Monroe Parker Securities. (1)

  4.04    Specimen Class A warrant Certificate. (1)

  4.05    Form of warrant Agreement between the Registrant and Continental Stock
          Transfer & Trust Company. (8)

  4.06    Specimen Class B warrant Certificate (see exhibit 10.27).

  4.07    Specimen Class C warrant Certificate (see exhibit 10.27).

  4.08    Amendment No. 1 to warrant Agreement between the Registrant and
          Continental Stock Transfer & Trust Company. (7)

 10.01    Registrant's 1996 Stock Option Plan. (1)(2)

 10.02    Form of Employment Agreement between the Registrant and certain
          officers of the Registrant. (1)(2)

 10.03    Registrant's 1996 Executives Equity Incentive Plan. (1)(2)

 10.04    Registrant's 1996 Equity Incentive Plan. (1)(2)

 10.05    Memorandum of Agreement between Electrochemical Plant, AO
          Techsnabexport, Co., Ltd. and Registrant. (1)

 10.06    Option Agreement between the Registrant and Yale University. (1)

 10.07    Office Lease Agreement between Paulsen Properties and the Registrant
          dated as of January 1, 1996, as amended. (1)

 10.08    Letter from Yale University to Registrant dated February 10, 1996. (1)
</Table>

                                       63
<Page>

<Table>
<Caption>
EXHIBIT
NUMBER    TITLE
-------   -----
<S>       <C>
 10.09    Form of Indemnity Agreement entered into by Registrant with each of
          its directors and investors. (2)

 10.10    Stock Purchase Agreement, dated as of April 30, 1998, among Isonics
          Corporation, a California corporation, Metallurgy International, Inc.,
          a Nevada corporation, and International Process Research Corporation,
          a Colorado corporation. (3)

 10.10.1  Escrow Agreement, dated as of May 15, 1998, among Isonics Corporation,
          a California corporation, Metallurgy International, Inc., a Nevada
          corporation, Robert H. Cuttriss (as Agent), and Colorado Business
          Bank, as Escrow Agent. (3)

 10.11    Registration Rights Agreement dated as of September 27, 1996 by and
          between Registrant and certain investors. (1)

 10.12    Employment Agreement between the Registrant and James E. Alexander.
          (1)(2)

 10.13    Employment Agreement between the Registrant and Boris Rubizhevsky.
          (1)(2)

 10.14    Security Agreement dated March 31, 1995 between Isonics and Isoserve,
          Inc. (1)

 10.15

 10.16    February 1997 Agreement between the Registrant, Electrochemical Plant
          and AO Techsnabexport, Co., Ltd. (1)

 10.17    Letter from Yale University to Registrant dated January 28, 1997. (1)

 10.18    Certificate of Determination of Preferences and Rights of the Series A
          preferred stock. (4)

 10.19    Form of Subscription Agreement. (4)

 10.20    Form of warrant. (4)

 10.21    Investment Banking Agreement. (4)

 10.22    Form of Registration Rights Agreement. (4)

 10.23    Asset Purchase Agreement dated December 1, 1999 between the Registrant
          and Eagle-Picher Technologies, LLC. (5)

 10.24    Registration Rights Agreement dated December 1, 1999 between the
          Registrant and Eagle-Picher Technologies, LLC. (5)

 10.25    Warrant Agreement dated December 1, 1999 between the Registrant and
          Eagle-Picher Technologies, LLC. (5)

 10.26    Supply Agreement between the Registrant and Eagle-Picher Technologies,
          LLC. (6)

 10.27    Amended and Restated warrant Agreement effective as of January 15,
          2001, between the Registrant and Continental Stock Transfer and Trust
          Company, Inc. (8)

 10.28    Stock Purchase Agreement dated February 1, 2001, by and between
          Isonics Corporation and Interpro Zinc, LLC. (9)

 10.29    Joint R&D Project Agreement, dated April 21, 1999, by and between
          Silex Systems Limited and Isonics Corporation. Filed herewith.

 10.30    Contribution to "Corporate Research - ECE/Baliga" fund dated December
          30, 1999, from Isonics Corporation to North Carolina State University.
          Filed herewith.

 10.31    Sponsored Research Agreement, dated December 15, 1999, by and between
          Isonics Corporation and Southern Methodist University. Filed herewith.

 10.32    Stevenson-Wydler Cooperative Research and Development Agreement, dated
          November 9, 1999, by and between Ernest Orlando Lawrence Berkeley
          National Laboratory and Isonics Corporation (with attached Project
          Letter Agreement). Filed herewith.

 10.33    Memorandum of Agreement, dated July 1996, by and among Electrochemical
          Plant, AO Techsnabexport Co., Ltd. and A & R Materials, Inc. Filed
          herewith.

 21.1*    List of subsidiaries.

 23.10*   Consent of independent accountants.

</Table>

*    FILED WITH THIS ANNUAL REPORT ON FORM 10-KSB. ALL OTHER DOCUMENTS HAVE BEEN
     PREVIOUSLY FILED.


                                       64
<Page>


(1)  Incorporated herein by reference to exhibit filed with Isonics'
     Registration Statement on Form SB-2 ("Registration Statement") (Commission
     file No. 333-13289) in which this exhibit bears the same number except
     exhibit 3.01, which was numbered 3.03 in that registration statement.

(2)  Items that are management contracts or compensatory plans or arrangements
     required to be filed as exhibits pursuant to Item 13(a) of Form 10-KSB.

(3)  Filed with Isonics' Current Report on Form 8-K (File No. 001-12531), dated
     May 15 and filed May 27, 1998, and incorporated herein by reference.

(4)  Filed with Isonics' Current Report on Form 8-K (File No. 001-12531), dated
     July 29 and filed August 12, 1999, and incorporated herein by reference.

(5)  Filed with Isonics' Current Report on Form 8-K (File No. 001-12531) dated
     December 1, 1999, and filed December 10, 1999, and amendment thereto filed
     February 10, 2000, and incorporated herein by reference.

(6)  Confidential treatment obtained.

(7)  Filed with Isonics' Current Report on Form 8-K (File No. 001-12531) dated
     August 17, 2000, and filed August 18, 2000, and incorporated herein by
     reference.

(8)  Filed with Isonics' registration statement on Form S-4 (File No. 333-37696)
     or the amendments thereto, and incorporated herein by reference.

(9)  Filed with Isonics' Current Report on Form 8-K (File No. 001-12531) dated
     February 1, 2001, and incorporated herein by reference.


     (b)  Reports on Form 8-K.

     During the fourth quarter of the fiscal year ended April 30, 2001, and
subsequently, Isonics Corporation has filed current reports on Form 8-K, as
follows:

<Table>
<Caption>
DATE OF REPORT      ITEMS          BRIEF DESCRIPTION
--------------      -----          -----------------
<S>                 <C>            <C>
4/30/2001             5            Repayment of certain indebtedness
4/17/2001             5            Completion of exchange offer; Eagle-Picher update; loan to officers
2/1/2001              5            Sale of International Process Research Corporation to Interpro Zinc, LLC
7/27/2001             5            Change in terms of Class B warrants
</Table>

                                       65
<Page>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

     August 13, 2001

                                        ISONICS CORPORATION,
                                        a California Corporation

                                        By: /s/ James E. Alexander
                                            ----------------------------------
                                            James E. Alexander
                                            President, Chief Executive Officer
                                            and Chairman of the Board

     Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

     DATE             NAME AND TITLE                             SIGNATURE
     ----             --------------                             ---------

August 13, 2001    James E. Alexander                   /s/  James E. Alexander
                   Principal Executive Officer          ------------------------
                   Chairman of the Board
                   Director, and Principal Financial
                   Officer


August 13, 2001    Boris Rubizhevsky                    /s/  Boris Rubizhevsky
                   Vice Chairman                        ------------------------
                   Director

August 13, 2001    Lindsay A. Gardner                   /s/  Lindsay A. Gardner
                   Director                             ------------------------


August 13, 2001    Richard Parker                       /s/  Richard Parker
                   Director                             ------------------------


August 13, 2001    Larry J. Wells                       /s/  Larry J. Wells
                   Director                             ------------------------


                                       66
<Page>

August 13, 2001    John Sakys, Principal                /s/ John Sakys
                   Accounting Officer                   ------------------------




                                       67
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES
                          INDEX TO FINANCIAL STATEMENTS


                                                                            PAGE

Report of Independent Certified Public Accountants...........................F-2

Consolidated Financial Statements

     Consolidated Balance Sheets.............................................F-3

     Consolidated Statements of Operations...................................F-4

     Consolidated Statement of Stockholders' Equity .........................F-5

     Consolidated Statements of Cash Flows...................................F-6

     Notes to Consolidated Financial Statements..............................F-7


                                      F-1
<Page>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Isonics Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Isonics
Corporation and Subsidiaries as of April 30, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Isonics
Corporation and Subsidiaries as of April 30, 2001 and 2000, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company incurred a net
loss of $4,498,000 during the year ended April 30, 2001, and has an accumulated
deficit of $7,256,000 as of April 30, 2001. In addition, net cash used in
operating activities was $3,147,000 for the year ended April 30, 2001. These
factors, among others, as discussed in Note 2 to the consolidated financial
statements, raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

As discussed in Note 8, the net income (loss) attributable to common
shareholders for the year ended April 30, 2000, in the accompanying financial
statements has been restated to reflect the value of a deemed dividend on
preferred stock.


/s/ Grant Thornton LLP

San Jose, California
July 26, 2001


                                      F-2
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<Table>
<Caption>
                                                                                       APRIL 30,
                                                                                ----------------------
                                                                                  2001         2000
                                                                                --------     ---------
                                            ASSETS
<S>                                                                             <C>          <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                    $  1,090     $   3,385
   Accounts receivable (net of allowances of $39 and $119, respectively)             778         1,055
   Income taxes receivable                                                           419            --
   Note receivable                                                                    --           208
   Inventories                                                                       492           266
   Prepaid expenses and other current assets                                         190           209
   Deferred income taxes, current                                                     --           148
                                                                                --------     ---------
           Total current assets                                                    2,969         5,271

PROPERTY AND EQUIPMENT, net                                                           95           660
GOODWILL (net of accumulated amortization of $493 and $323, respectively)          3,006         3,062
NOTES RECEIVABLE FROM SHAREHOLDERS                                                    --            17
DEFERRED INCOME TAXES                                                                 --           492
OTHER ASSETS                                                                          32            31
                                                                                --------     ---------
                                                                                $  6,102     $   9,533
                                                                                ========     =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Current portion of long-term debt and line of credit                         $     16     $      20
   Accounts payable                                                                  754           533
   Accrued liabilities                                                               590           591
   Income taxes payable                                                                -           373
                                                                                --------     ---------
           Total current liabilities                                               1,360         1,517

STOCKHOLDERS' EQUITY (Information for 2000 is restated. See Note 8)
   Class A Preferred Stock - no par value; 10,000,000 shares authorized;
       shares issued and outstanding:  2001 - 963,666; 2000 - 1,830,000              745         1,415
   Common stock - no par value; 20,000,000 shares authorized; shares issued
     and outstanding: 2001 - 8,961,288; 2000 - 10,492,931                          8,508         6,764
   Additional paid in capital                                                      2,745         2,016
   Deferred compensation                                                               -          (150)
   Accumulated deficit                                                            (7,256)       (2,029)
                                                                                ---------    ----------
           Total stockholders' equity                                              4,742         8,016
                                                                                --------     ---------
                                                                                $  6,102     $   9,533
                                                                                ========     =========
</Table>
                 See Notes to Consolidated Financial Statements


                                      F-3
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
                                                                          Year Ended
                                                                           April 30,
                                                                     -------------------
                                                                     2001         2000
                                                                     -------    --------

<S>                                                                  <C>        <C>
Net revenues                                                         $ 7,789    $ 12,733
Cost of revenues                                                       6,019      10,156
                                                                     -------    --------

         Gross margin                                                  1,770       2,577

Operating expenses:
   Selling, general and administrative                                 4,645       3,754
   Research and development                                            1,134       1,224
                                                                     -------    --------
         Total operating expenses                                      5,779       4,978
                                                                     -------    --------
Operating loss                                                        (4,009)     (2,401)

Other income (expense)
   Interest income                                                        82         105
   Loss on disposal of property and equipment                           (354)         --
   Gain (loss) on sale of depleted zinc business                        (208)      5,296
   Gain on sale of International Process Research Corporation             59          --
   Interest expense                                                       (2)       (321)
   Foreign exchange                                                      (66)         29
   Other                                                                  --         110
                                                                     -------    --------
           Total other income (expense), net                            (489)      5,219
                                                                     -------    --------

Income (loss) before income tax expense                               (4,498)      2,818

Income tax expense                                                        --         129
                                                                     -------    --------

NET INCOME (LOSS)                                                    $(4,498)   $  2,689
                                                                     =======    ========

DEEMED DIVIDEND ON PREFERRED STOCK
     (Information for 2000 is restated - See Note 8)                 $  (729)   $   (686)
                                                                     -------    --------

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
     (Information for 2000 is restated - See Note 8)                 $(5,227)   $  2,003
                                                                     =======    ========

NET INCOME (LOSS) PER SHARE - BASIC
   Net income (loss) per share attributable to common shareholders
     (Information for 2000 is restated - See Note 8)                 $  (.63)   $   0.30
   Shares used in computing per share information                      8,329       6,781

NET INCOME (LOSS) PER SHARE - DILUTED
   Net income (loss) per share attributable to common shareholders
     (Information for 2000 is restated - See Note 8)                 $  (.63)   $   0.19
   Shares used in computing per share information                      8,329      10,409
</Table>

                 See Notes to Consolidated Financial Statements


                                      F-4
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<Table>
<Caption>
                                                                         Additional Shareholder
                                 Preferred Stock        Common Stock      Paid in     Notes       Deferred    (Accumulated
                                Shares     Amount     Shares     Amount   Capital   Receivable   Compensation    Deficit)  Total
                               ----------  -------  ----------  -------- ---------- ----------   ------------ ------------ -----
<S>                            <C>        <C>       <C>         <C>      <C>          <C>        <C>          <C>          <C>
BALANCES, April 30, 1999               --  $    --   6,607,760   $ 6,795       --     $(469)        $  --       $(4,032)   $ 2,294
  Issuance of preferred stock
   (Restated-See Note 8)        1,830,000    1,415          --        --    1,330        --            --            --      2,745
  Deemed dividend of preferred
   stock (Restated-See Note 8)         --       --          --        --      686        --            --          (686)        --
  Exercise of stock options
    and warrants                       --       --   3,918,986        81       --        --            --            --         81
  Fair value of warrants issued
    for debt restructuring             --       --          --       157       --        --            --            --        157
  Fair value of stock issued
    for services as deferred
    compensation                       --       --      25,000       153       --        --          (153)           --         --
  Amortization of deferred
    compensation                       --       --          --        --       --        --             3            --          3
  Shares issued under Employee
    Stock Purchase Program             --       --      13,723        13       --        --            --            --         13
  Repayment of notes receivable
    from stockholders, net of
    interest                           --       --          --        --       --        34            --            --         34
  Repayment of notes receivable
    and accrued interest with
    common stock                       --       --     (72,538)     (435)      --       435            --            --         --
  Net income                           --       --          --        --       --        --            --         2,689      2,689
                                ---------  -------  ----------   -------   ------      ----         -----       -------    -------
BALANCES, April 30, 2000
 (Restated-See Note 8)          1,830,000    1,415  10,492,931     6,764    2,016        --          (150)       (2,029)     8,016
  Conversion of preferred
    stock to common stock        (866,334)    (670)    866,334       670       --        --            --            --         --
  Deemed dividend on preferred
    stock                              --       --          --        --      729        --            --          (729)        --
  Exercise of stock options
    and warrants                       --       --     301,244       208       --        --            --            --        208
  Fair value of common stock
    and warrants issued for
    services                           --       --       4,500        44       --        --            --            --         44
  Amortization of deferred
    compensation                       --       --          --        --       --        --           150            --        150
  Issuance of common stock             --       --     337,500       675       --        --            --            --        675
  Shares issued under Employee
    Stock Purchase Program             --       --      14,214        16       --        --            --            --         16
  Fair value of common stock
    issued for patent rights           --       --      75,000       131       --        --            --            --        131
  Cancellation of common stock
    issued to Eagle Picher
    related to exercise of
    common stock warrants              --       --  (3,130,435)       --       --        --            --            --         --
  Net loss                             --       --          --        --       --        --            --        (4,498)    (4,498)
                                ---------  -------  ----------   -------   ------      ----         -----       -------    -------
BALANCES, April 30, 2001          963,666  $   745   8,961,288   $ 8,508   $2,745      $ --         $  --       $(7,256)   $ 4,742
                                =========  =======  ==========   =======   ======      ====         =====       =======    =======
</Table>

                 See Notes to Consolidated Financial Statements


                                      F-5
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                           Year Ended
                                                                            April 30,
                                                                       ------------------
                                                                         2001       2000
                                                                       -------    -------
CASH FLOWS FROM OPERATING ACTIVITIES:
   <S>                                                                 <C>        <C>
   Net income (loss)                                                   $(4,498)   $ 2,689
   Adjustments to reconcile net income (loss) to net cash
   used in operating activities:
     (Gain) loss on sale of depleted zinc business                         208     (5,296)
     Gain on sale of International Process Research Corporation            (59)        --
     Depreciation and amortization                                         311        567
     Interest on notes receivable from shareholders                         --        (23)
     Fair value of common stock and warrants issued for services
       and amortization of deferred compensation                           194        160
     Deferred income taxes                                                 419       (640)
     Loss on disposal of property and equipment                            354         75
     Forgiveness of notes receivable due from stockholders                  --         27
     Changes in operating assets and liabilities:
       Accounts and notes receivable                                       294       (146)
       Income taxes receivable                                            (419)        --
       Inventories                                                        (226)    (1,066)
       Prepaid expenses and other assets                                    18       (139)
       Accounts payable                                                    221       (522)
       Accrued liabilities                                                 188       (336)
       Income taxes payable                                               (152)       323
                                                                       -------    -------
           Net cash used in operating activities                        (3,147)    (4,327)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                     (43)       (15)
   Proceeds from sale of depleted zinc business                             --      6,730
                                                                       -------    -------
           Net cash provided by (used in) investing activities             (43)     6,715

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments on line of credit and other borrowings                          (4)    (1,931)
   Proceeds from borrowings                                                 --         75
   Repayment of notes receivable from shareholders                          --         57
   Proceeds from issuance of preferred stock                                --      2,250
   Proceeds from issuance of common stock                                  899         94
                                                                       -------    -------
           Net cash provided by financing activities                       895        545
                                                                       -------    -------

           NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS         (2,295)     2,933

Cash and cash equivalents at beginning of period                         3,385        452
                                                                       -------    -------

Cash and cash equivalents at end of period                             $ 1,090    $ 3,385
                                                                       =======    =======
</Table>

                 See Notes to Consolidated Financial Statements


                                      F-6
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

Isonics Corporation develops and markets products worldwide based on isotopes
for applications in the energy, medical research, diagnostic, pharmaceutical and
semiconductor industries. The consolidated financial statements include our
accounts and those of our wholly-owned subsidiary, Chemotrade GmbH. The
consolidated financial statements also include the accounts of International
Process Research Corporation ("IPRC") through January 31, 2001. On February 1,
2001, we sold IPRC to a management group (see Note 5). All significant
intercompany accounts have been eliminated in consolidation.

CASH EQUIVALENTS

Cash equivalents include investments purchased with a maturity of less than
ninety days. Cash balances held in foreign bank accounts were $616,000 and
$557,000 at April 30, 2001 and 2000, respectively.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject us to concentrations of credit
risk consist primarily of cash equivalents and trade accounts receivable. Cash
equivalents are maintained with high quality institutions and are regularly
monitored by management. We extend credit to our customers, most of whom are
large, established companies. Performing ongoing credit evaluations of our
customers' financial condition mitigates credit risk and we generally do not
require collateral.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market. We
perform periodic assessments to determine the existence of obsolete, slow moving
and non-salable inventories, and record provisions to reduce such inventories to
net realizable value when necessary.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over three to seven years. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the lease term.

GOODWILL

Goodwill resulted from the acquisitions of Isoserve, Inc. and Chemotrade. We
evaluate goodwill for impairment by comparing the unamortized balance of
goodwill to the undiscounted future cash flows of the related assets. We modify
or adjust goodwill if impairment is indicated. Based upon our most recent
evaluation, we believe that no impairment of goodwill exists as of April 30,
2001. Due to the sale of the depleted zinc business to Eagle-Picher on December
1, 1999, unamortized goodwill of $112,000 related to the Isoserve, Inc.
acquisition was charged against the gain on the sale of the product line for the
year ended April 30, 2000. The goodwill resulting from the Chemotrade
acquisition is being amortized on a straight-line basis over twenty years. In
2001, we increased the amount of recorded goodwill by $114,000 resulting from
contingent consideration payable to the sellers based on the 2001 earnings of
Chemotrade.


                                      F-7
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES

We account for income taxes using an asset and liability approach for financial
accounting and reporting purposes. A valuation allowance is provided when
deferred tax assets are not expected to be realized.

REVENUE RECOGNITION

Revenue from product sales is recognized upon shipment. Product returns and
warranty costs have not been material in any period. Prior to the sale of IPRC,
revenue from contract research and development services was recognized ratably
as services were performed and costs were incurred. Following the sale of IPRC,
we no longer conduct contract research and development activities.

USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, we are required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as revenues and expenses during the
reporting period. These estimates are based upon mangagement's best findings,
after considering past and current events and assumptions about future events.
Actual results could differ from those estimates.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair value of cash and cash equivalents, trade receivables, trade payables
and debt approximates carrying value due to the short maturity of such
instruments.

TRANSLATION OF FOREIGN CURRENCIES

We conduct substantially all of our transactions in U.S. dollars, except for
certain transactions of Chemotrade that are conducted in Duetsche Marks. The
financial statements of Chemotrade are prepared in Duetsche Marks and remeasured
into U.S. dollars for purposes of consolidation, with the U.S. dollar as the
functional currency. Gains and losses from remeasurement and transaction gains
and losses are included in the statement of operations.

ACCOUNTING FOR STOCK-BASED COMPENSATION

We account for stock-based awards to employees and directors using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related interpretations. We provide
additional pro forma disclosures as required under Statement of Financial
Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.

NET INCOME (LOSS) PER SHARE

Basic earnings per share is computed using the weighted average number of common
shares outstanding during the period. Contingently issuable shares are included
in the computation of basic earnings per share when the related conditions are
satisfied. Diluted earnings per share is computed using the weighted average
number of common shares and potentially dilutive securities outstanding during
the period. Potentially dilutive securities consist of contingently issuable
shares, the incremental common shares issuable upon conversion of preferred
stock (using the "if converted" method) and shares issuable upon the exercise of
stock options and warrants (using the "treasury stock" method). Potentially
dilutive securities are excluded from the computation if their effect is
anti-dilutive.


                                      F-8
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 2001, a total of 5,742,947 outstanding stock options and warrants, and
963,666 outstanding Class A Convertible Preferred Stock shares have been
excluded from the diluted computation, as the inclusion would be anti-dilutive.
During 2000 and 2001, 3,130,435 shares of common stock were excluded from the
basic computation, as the issuance of this common stock was contingent upon the
delivery of silicon-28 per the terms of the Eagle-Picher transaction (see Note
4).

The following table reconciles the shares used in the per share computation (in
thousands):

<Table>
<Caption>
                                                                                  Year Ended April 30,
                                                                                   2001         2000
                                                                                ---------    ---------
         <S>                                                                       <C>           <C>
         Weighted average shares of common stock outstanding                       10,807        7,174
         Less: Weighted average shares contingently issued                         (2,478)        (393)
                                                                                ---------    ---------
           Shares used for net income (loss) per share - basic                      8,329        6,781
         Dilutive effect of stock options and warrants                                 --        1,850
         Dilutive effect of convertible preferred stock                                --        1,385
         Add back: weighted average shares contingently issued                         --          393
                                                                                ---------    ---------
           Shares used for net income (loss) per share - diluted                    8,329       10,409
                                                                                =========    =========
</Table>

RECLASSIFICATIONS

Certain reclassifications have been made to the 2000 financial statements in
order to conform to the 2001 presentation.

NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board (the "FASB") adopted SFAS
No. 141 BUSINESS COMBINATIONS and SFAS No. 142 GOODWILL AND INTANGIBLE ASSETS.
SFAS No. 141 addresses the methods used to account for business combinations and
requires the use of the purchase method of accounting for all combinations after
June 30, 2001. SFAS No. 142 addresses the methods used to amortize intangible
assets and to assess impairment of those assets, including goodwill resulting
from business combinations accounted for under the purchase method. SFAS No. 142
is effective for fiscal years beginning after December 15, 2001; however, we may
elect to early adopt the statement beginning May 1, 2001. Included in our assets
at April 30, 2001, is goodwill related to the acquisition of Chemotrade in 1998
with a net carrying value of $3,006,000. Upon adoption of SFAS No. 142, we will
no longer amortize this goodwill, decreasing our amortization expense by
approximately $175,000 per year. We are required to assess this goodwill for
impairment in the year of adoption. We will not be able to determine the full
effect of these new pronouncements on our financial position or our results of
operations, or decide if we will early adopt the new standard until we are able
to complete our analysis of the impairment provisions of the new standards.
Under existing accounting standards, our assessment of the Chemotrade goodwill
indicated that no impairment existed as of April 30, 2001. In the event our
analysis under the new guidance indicates this goodwill is impaired, we will be
required to record a charge to our earnings in the year of adoption.


                                      F-9
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - REALIZATION OF ASSETS

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern.
However, we have sustained substantial losses from operations in recent years,
and such losses have continued through the unaudited quarter ended July 31,
2001. In addition, we have used, rather than provided, cash in our operations,
and have been unable to secure adequate financing to meet our future cash needs.

In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon our ability to meet our financing requirements on a continuing
basis, to maintain present financing, and to succeed in our future operations.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should we be unable to
continue in existence.

We continue to pursue several items that will help us meet our future cash
needs. We expect to receive an income tax refund of approximately $419,000
resulting from a carry-back claim associated with the current year taxable loss.
In addition, we continue to aggressively pursue our claim of $75,500,000 against
Eagle-Picher. We are currently in the arbitration process and hope to come to
resolution in fiscal 2002 (see Note 4). We are also currently working with
several different sources, including both strategic and financial investors, in
order to raise sufficient capital to finance both our continuing operations and
our proposed acquisition of Silicon Evolution, Inc. (see Note 13). Although
there is no assurance that funding will be available or that the outcome in the
Eagle-Picher case will be positive, we believe that our current business plan,
if successfully funded, will significantly improve our operating results and
cash flow in the future.

NOTE 3 - FINANCIAL STATEMENT COMPONENTS

Inventories consist of the following (in thousands):

<Table>
<Caption>
                                                                                       April 30,
                                                                                ----------------------
                                                                                  2001         2000
                                                                                ---------    ---------
         <S>                                                                    <C>          <C>
         Finished goods                                                         $     186    $     139
         Work in process                                                              306          127
                                                                                ---------    ---------
                                                                                $     492    $     266
                                                                                =========    =========
</Table>

Property and equipment consists of the following (in thousands):

<Table>
<Caption>
                                                                                       April 30,
                                                                                ----------------------
                                                                                  2001         2000
                                                                                ---------    ---------
         <S>                                                                    <C>          <C>
         Office furniture and equipment                                         $     272    $     174
         Production equipment                                                          34          898
         Leasehold improvements                                                         7           19
                                                                                ---------    ---------
                                                                                      313        1,091
         Accumulated depreciation and amortization                                   (218)        (431)
                                                                                ---------    ---------
                                                                                $      95    $     660
                                                                                =========    =========
</Table>


                                      F-10
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accrued liabilities consist of the following (in thousands):

<Table>
<Caption>
                                                                                      April 30,
                                                                                ----------------------
                                                                                  2001         2000
                                                                                ---------    ---------
         <S>                                                                    <C>          <C>
         Compensation                                                           $      52    $      68
         Customer advances and deposits                                               152          194
         Restructuring costs                                                           33           47
         Contingent consideration payable on Chemotrade acquisition                   114            -
         Other                                                                        239          282
                                                                                ---------    ---------

                                                                                $     590    $     591
                                                                                =========    =========
</Table>

Supplemental disclosure of non-cash investing and financing activities (in
thousands):

<Table>
<Caption>
                                                                                       April 30,
                                                                                ----------------------
                                                                                  2001         2000
                                                                                ---------    ---------
         <S>                                                                    <C>          <C>
         Conversion of trade payables into debt                                 $      --    $     243
         Conversion of liabilities and debt into preferred stock                $      --    $     495
         Retirement of common stock to pay shareholder notes receivable         $      --    $     435
         Class A Preferred Stock converted into Common Stock                    $     670    $       -
         Common Stock issued for patent rights                                  $     131    $       -
         Contingent consideration accrued on Chemotrade acquisition             $     114    $       -
</Table>

Supplemental disclosures of cash flow information (in thousands):

<Table>
<Caption>
                                                                                       April 30,
                                                                                ----------------------
                                                                                  2001         2000
                                                                                ---------    ---------
         <S>                                                                    <C>          <C>
         Cash paid during the period for:
           Interest                                                             $       3    $     388
           Income taxes                                                               195          433
</Table>

NOTE 4 - SALE OF DEPLETED ZINC BUSINESS

On December 1, 1999, we sold our depleted zinc business to Eagle-Picher
Technologies, LLC for $8,230,000, including $1,500,000 due in equal installments
on November 30, 2000, 2001 and 2002. We received cash of approximately
$6,730,000 from Eagle-Picher at the closing, of which approximately $1,150,000
was used to pay certain accrued liabilities and debt. Upon completion of the
sale, we recognized a net gain on the sale amounting to $5,088,000.
Eagle-Picher's obligation to pay the final $1,500,000 is subject to the
performance of our former depleted zinc supplier under the terms of a supply
agreement that was transferred to Eagle-Picher in the sale.


                                      F-11
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the year ended April 30, 2000, we were recognizing the $1,500,000 on a
straight-line basis as our former supplier performed. As of April 30, 2000, we
had recognized additional gain of $208,000. Eagle-Picher failed to make the
first additional payment due November 30, 2000. We believe that the unaffiliated
supplier performed as required, and that Eagle-Picher has no cause for its
non-payment. We have demanded payment from Eagle-Picher, but Eagle-Picher made
an unacceptable counteroffer. A total of $458,000 of the contingent gain had
been recognized at the time of Eagle-Picher's default, of which $250,000 had
been recognized in the year ended April 30, 2001. We ceased recognizing any
additional contingent gain as a result of Eagle Picher's failure to make the
first payment when due. We established a reserve for the notes receivable and
gain recognized to date resulting in a net loss of $208,000 in 2001.

Additionally, as of December 1, 1999, Eagle-Picher was to supply us with 200
kilograms of silicon-28 by December 31, 2000, to be used in research and
development activities. We gave Eagle-Picher a warrant to obtain 4,000,000
shares of our common stock, however, these warrants and the underlying shares,
were contingent upon the delivery of silicon-28 by Eagle-Picher by December 31,
2000. Eagle-Picher exercised its warrant, under a net exercise provision in the
warrant agreement, and received 3,130,435 shares of our Common Stock, in March
2000. Because Eagle-Picher exercised its warrant pursuant to the terms of the
net exercise provision, Eagle-Picher did not pay cash to exercise the warrant.
Eagle-Picher disputed our calculation and believed we should have issued to it
an additional 155,279 shares of common stock.

In addition to its refusal to pay the aforementioned $500,000 due November 30,
2000, Eagle-Picher did not deliver 200 kilograms of silicon-28, meeting the
specifications as set forth in our agreement, by December 31, 2000. We know that
Eagle-Picher's silicon-28 production facility in Oklahoma has encountered
certain technical difficulties, which Eagle-Picher refers to as a FORCE MAJEURE.
We believe that Eagle-Picher's technical difficulties do not meet the definition
of FORCE MAJEURE per our agreements, which would entitle Eagle-Picher to a delay
in the delivery requirement.

As Eagle-Picher is claiming FORCE MAJEURE, it believes it is entitled to retain
its ownership to the 3,130,435 shares obtained through the net exercise of the
warrant and believes it also should receive the disputed 155,279 shares of our
common stock. We continue to dispute Eagle-Picher's claims and on January 26,
2001, our Board of Directors authorized us to cancel Eagle-Picher's common stock
shares and return those shares to the "authorized, unissued" category. We
cancelled the shares on February 20, 2001.

We notified Eagle-Picher of our intention to pursue the dispute resolution
process, as set forth in the agreement with Eagle-Picher, in December 2000. The
dispute resolution process consists of three phases. The first phase was
negotiations between designated members of senior management of the two
companies. Several meetings were held in December 2000 and January 2001. No
resolution was reached.

The second phase was mediation. Eagle-Picher notified us of its desire to
mediate this dispute on January 18, 2001. A mediation session was held on
January 26, 2001. Again, no resolution was reached. The third phase is binding
arbitration. On March 26, 2001, we filed for binding arbitration. We are
claiming damages against Eagle-Picher of $75,500,000. An arbitration hearing
will be scheduled for late 2001. We have been informed by our legal counsel that
it will likely take a minimum of six-to-nine months or longer to complete the
arbitration phase.

On February 8, 2001, Eagle-Picher informed us that they would be seeking
damages, in excess of $10,000,000, for alleged misrepresentations regarding the
status of the depleted zinc business at the time of the sale. We believe these
allegations to be groundless, and we believe we made full and complete
disclosure to Eagle-Picher at the time of the sale.

Discovery has not yet commenced in the arbitration proceeding. Consequently, it
is premature for us to predict any likely outcome. We intend to vigorously
defend against Eagle-Picher's claim and to prosecute our own claims against
Eagle-Picher until successfully resolved or a settlement is reached.


                                      F-12
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - REORGANIZATION AND SUBSEQUENT SALE OF IPRC

On May 1, 2000, we substantially reorganized IPRC to focus on the recovery and
recycling of zinc metal from various sources, including galvanized steel scrap,
electric arc furnace dust and brass scrap. From May 1, 2000, through January 31,
2001 IPRC did not engage in any revenue producing activities.

In January 2001, we acquired the patent rights related to the recovery and
recycling of zinc processes from three unaffiliated parties. A total of 75,000
shares of our Common Stock valued at $131,000 were issued for these rights. On
February 1, 2001 we sold IPRC and the acquired patent rights to Interpro Zinc,
LLC, a limited liability company formed by a management group. As part of the
transaction, Interpro Zinc, LLC assumed approximately $700,000 in liabilities
associated with the operations of IPRC and agreed to indemnify us against any
contingent liabilities related to the IPRC site in Golden, Colorado. The
management group consists of Dr. Robert H. Cuttris, formerly president of IPRC,
James E. Alexander, president, chief executive officer and chairman of the board
of directors of Isonics Corporation, and Boris Rubizhevsky, senior vice
president and director of Isonics Corporation. Each of the three aforementioned
individuals owns 25% of Interpro Zinc, LLC. Each of the three aforementioned
individuals contributed $100,000 to Interpro Zinc, LLC to continue the
development of the zinc recovery technology. Isonics received a 25% interest in
Interpro Zinc LLC as consideration for the sale. We realized a gain from the
sale of IPRC of $59,000, representing the net liabilities at the date of
disposition. In addition, Interpro Zinc, LLC has assumed Dr. Cuttriss'
employment agreement that extended through September 2003. We have signed a
cooperation agreement with Interpro Zinc, LLC to continue leasing office,
laboratory and storage space at our current location. This agreement expires
December 31, 2001.

NOTE 6 - INCOME TAXES

Deferred tax assets (liabilities) are comprised of the following (in thousands):

<Table>
<Caption>
                                                                                       April 30,
                                                                                ----------------------
                                                                                  2001         2000
                                                                                ---------    ---------
       <S>                                                                      <C>          <C>
       Deferred tax assets
         Accruals and expenses deductible in future periods                     $   1,464    $   1,609
         Net operating loss and credit carryforwards                                  683            -
                                                                                ---------    ---------
       Total deferred tax assets                                                    2,147        1,609
         Valuation allowance                                                       (2,083)        (376)
                                                                                ---------    ---------
                                                                                       64        1,233
       Deferred tax liabilities
         Amortization and depreciation                                                (64)        (593)
                                                                                ---------    ---------
                                                                                $      --    $     640
                                                                                =========    =========
</Table>


                                      F-13

<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income tax expense (benefit) consists of the following (in thousands):

<Table>
<Caption>

                                                                                       April 30,
                                                                                ----------------------
                                                                                  2001         2000
                                                                                ---------    ---------
       <S>                                                                      <C>          <C>
       Current
         Federal                                                                $    (419)   $     640
         State                                                                         --           98
         Foreign                                                                       --           31
                                                                                ---------    ---------
                                                                                     (419)         769
       Deferred
         Federal                                                                      419         (640)
         State                                                                         --            -
                                                                                ---------    ---------
                                                                                      419         (640)
                                                                                ---------    ---------
                                                                                $      --    $     129
                                                                                =========    =========
</Table>

A reconciliation of our effective tax rate to the federal statutory tax rate of
34% follows (in thousands):

<Table>
<Caption>
                                                                                       April 30,
                                                                                ----------------------
                                                                                  2001         2000
                                                                                ---------    ---------
       <S>                                                                      <C>          <C>
       Expected tax (benefit) at federal statutory rate                         $  (1,529)      $  958
       State taxes net of federal benefit                                            (178)          98
       Foreign income taxed at different rates                                         --          (77)
       Non-deductible expenses                                                         --           67
       Utilization of previously unrecognized net operating loss and tax
         credit carryforwards                                                          --         (115)
       Change in valuation allowance                                                1,707         (802)
                                                                                ---------    ---------
                                                                                $      --    $     129
                                                                                =========    =========
</Table>

The federal net operating loss carryforward of approximately $1,720,000 as of
April 30, 2001 expires in 2016. In addition, Chemotrade has a net operating loss
carryforward of approximately $281,000 which under current German tax law will
not expire until utilized. There were no operating loss carryforwards as of
April 30, 2000.

We have established a full valuation allowance against the deferred tax assets
because it is uncertain whether we will utilize these benefits due to continuing
operating losses.

NOTE 7 - DEBT AND LINE OF CREDIT

We have term debt outstanding of $16,000 and $20,000 as of April 30, 2001 and
2000, respectively relating to a vehicle loan. We currently have no lending
facilities with any financial institutions, except for an unsecured line of
credit available to Chemotrade in the amount of DM 400,000 ($182,000) and a
letter of credit guarantee relating to imports and exports for $50,000. As of
April 30, 2001 there are no borrowings outstanding under the line of credit.


                                      F-14
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCKHOLDERS' EQUITY

COMMON STOCK

On December 13, 2000, we completed a private placement to accredited investors
whereby we sold 337,500 units for $675,000. Each unit consisted of one share of
common stock and two redeemable Class B common stock purchase warrants. Class B
warrants are exercisable at $1.50 per share until December 31, 2005. Each Class
B warrant entitles the holder to receive one share of common stock and one
redeemable Class C common stock purchase warrant. We are required to issue an
additional 112,500 shares and 225,000 Class B warrants to the purchasers of the
units if the average bid price of our common stock does not equal or exceed
$2.00 per share during the 30 days following the date of an effective
registration statement covering these shares. Each Class C warrant entitles the
holder to purchase one share of common stock at $2.50 until December 31, 2005.
We may redeem the Class B and C warrants at a price of $.10 if the closing price
of our common stock trades at or above $3.75 per share for any 20 of 30
consecutive trading days provided a registration statement permitting the
exercise of those warrants is then current and effective.

On September 22, 1997, we completed an initial public offering of 810,000 units,
each unit consisting of one share of common stock and one redeemable Class A
common stock purchase warrant. Each Class A warrant entitles the holder to
purchase one share of common stock at $5.80 per share, exercisable until
September 21, 2001. We may redeem the Class A warrants at a price of $0.10 per
warrant if the closing price of our common stock is at least $14.50 per share
for at least 20 consecutive trading days. In connection with the offering, we
granted the underwriter warrants to purchase 80,000 units at $9.57 per unit. The
underwriter warrants expire on September 21, 2002; however, the Class A warrant
included in the unit expires on September 21, 2001.

On April 30, 2001, we completed an exchange offer whereby the holders of Class A
warrants could exchange each Class A warrant for a Class B warrant. In order to
participate in the exchange offer, each holder of the Class A warrants was
required to submit their election by April 30, 2001. As of April 30, 2001,
124,400 of the 810,000 Class A warrants had been processed and exchanged for
Class B warrants. As of June 20, 2001, 632,610 of the Class A warrants have been
exchanged for Class B warrants.

PREFERRED STOCK

On July 29, 1999, we completed a private placement financing to accredited
investors and creditors valued in total at approximately $2,745,000. We issued
1,830,000 units, each consisting of one share of Series A Convertible Preferred
Stock and one common stock purchase warrant. We received $2,250,000 in cash
proceeds and converted $425,000 of long-term debt in connection with the private
placement. Each share of the Series A Convertible Preferred Stock is convertible
into one share of our common stock. The liquidation preference for the Series A
Convertible Preferred Stock is $1.50 per share amounting to a total liquidation
preference of $1,445,499 at April 30, 2001. Each warrant allows the investor to
purchase one share of common stock for $3.75 through July 29, 2002.

In addition to converting $425,000 of existing debt as part of the private
placement we:

      -     Issued 500,000 warrants to purchase shares of our common stock to an
            investment banker as a commission on this placement. The warrants
            are exercisable at $3.75 per share through July 29, 2002.

      -     Issued 46,667 units in satisfaction of all current and future
            obligations under a royalty agreement.


      -     Extended the payment due date for the remaining balance on the
            Chemotrade acquisition note to July 2000, which note has been paid
            in full.


                                      F-15
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      -     Extended the payment due date for unsecured promissory notes to
            January 2000, which notes have been paid in full.

During 1998, the Emerging Issues Task Force issued EITF 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios," which was applicable for equity instruments
issued after May 20, 1999. EITF 98-5 requires issuers of convertible preferred
stock containing a nondetachable conversion feature that is in-the-money at the
commitment date to allocate part of the proceeds of the issuance to the
conversion feature based on its intrinsic value. The conversion feature on the
1,830,000 shares of preferred stock had an intrinsic value of $686,000 at the
commitment date. This amount is considered a deemed dividend and was not
previously reported as such in our financial statements for the year ended April
30, 2000. The net income (loss) attributable to common shareholders and net
income (loss) per share for the year ended April 30, 2000 have been restated to
reflect this deemed dividend as follows:

<Table>
<Caption>
                                                                                Previously
                                                                                 Reported          Restated
                                                                                ----------       -----------
         <S>                                                                    <C>               <C>
         Net income (loss) attributable to common shareholders                  $2,689,000        $2,003,000
         Net income (loss) per share attributable to common
              shareholders - basic                                              $      .40       $       .30
         Net income (loss) per share attributable to common
              shareholders - diluted                                            $      .26       $       .19
</Table>

On November 16, 2000, the Emerging Issues Task Force issued EITF 00-27,
"Application of EITF Issue 98-5, `Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios,' to Certain
Convertible Instruments." EITF 00-27 requires the use of an effective conversion
price in determining the value of a conversion feature contained in a
convertible equity instrument. The consensus opinion for this issue is
retroactive for instruments issued after May 20, 1999 and is to be applied in
the quarter that includes November 16, 2000. In applying the requirements of
EITF 00-27, we determined the value of the conversion feature contained in our
preferred stock to be $1,415,000. Of this amount, $686,000 has been reported as
a deemed dividend in 2000 as discussed above. The remaining $729,000 has been
reported as a deemed dividend in 2001.


                                      F-16
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK OPTION AND PURCHASE PLANS

1996 STOCK OPTION PLAN

Our 1996 Stock Option Plan authorized the grant of incentive and nonqualified
stock options to our key employees, directors or consultants. The options
generally expire ten years from the date of grant. In September 1997, the Board
of Directors terminated the 1996 Stock Option Plan. As of April 30, 2001, there
remain 358,769 options outstanding under the 1996 Stock Option Plan.

DIRECTORS' STOCK OPTION PLAN

The 1998 Directors' Plan provides that each person serving as a member of the
Board, who is not an employee of Isonics, receive options to purchase 20,000
shares of common stock when such person accepts his position as a director and
to receive an additional option to purchase 10,000 shares when such person is
re-elected as a director provided such person is not an employee of Isonics at
the time of election. The exercise price for the options is the quoted market
price on the date of grant and the options are exercisable for five years from
such date. The options granted under the directors' plan vest immediately. In
the event a director resigns or is not re-elected to the Board, failure to
exercise the options within three months results in the options' termination. As
of April 30, 2001, options to purchase a total of 140,000 shares were
outstanding under the directors' plan.

EXECUTIVE AND INCENTIVE STOCK OPTION PLANS

In November 1996, the Board of Directors adopted the Executive and Incentive
Stock Option Plans authorizing the granting of up to 570,000 and 150,000
incentive and nonqualified stock options respectively, to our key employees,
directors or consultants. Effective October 11, 2000, shareholders approved an
increase in the authorized shares for the Executive and Incentive Stock Option
Plans to 1,000,000 and 500,000 respectively. Incentive stock options are granted
at a price not less than fair market value, and nonqualified stock options are
granted at a price not less than 85% of the fair market value. Options are
exercisable when vested, typically over five years and expire five to ten years
after the date of grant. As of April 30, 2001, options to purchase a total of
609,083 shares were outstanding under the Executive and Incentive Stock Option
Plans.

EMPLOYEE STOCK PURCHASE PLAN

The employee stock purchase plan has reserved 200,000 shares of our common stock
for sale to all permanent employees who have met minimum employment criteria.
Employees who do not own 5% or more of the outstanding shares are eligible to
participate through payroll deductions. At the end of each offering period,
shares are purchased by the participants at 85% of the lower of the fair market
value of our common stock at the beginning or the end of the offering period. As
of April 30, 2001, 27,937 shares have been issued under the plan.

PRO FORMA DISCLOSURE OF COMPENSATION EXPENSE UNDER SFAS NO. 123

The exercise price of options granted is the quoted market price of our stock on
the date of grant. Accordingly, no compensation expense has been recognized for
grants from the plans made to employees or directors. Had compensation cost for
grants to employees and directors been determined based on the fair value of the
options at the grant dates consistent with SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, our results of operations and per share amounts for
the years ended April 30, 2001 and 2000 would have been changed to the pro forma
amounts indicated below.


                                      F-17
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>

                                                                                     2001             2000
                                                                                -------------      ------------
<S>                                                                             <C>                <C>
         Net income (loss) attributable to common shareholders
           (Information for 2000 is restated)
           As reported                                                          $  (5,227,000)     $  2,003,000
           Pro forma                                                            $  (5,819,000)     $    562,000

         Income (loss) per share attributable to common shareholders - basic
           (Information for 2000 is restated)
           As reported                                                          $       (.63)     $        .30
           Pro forma                                                            $       (.70)     $        .08

         Income (loss) per share attributable to common shareholders - diluted
           (Information for 2000 is restated)
           As reported                                                          $       (.63)     $       0.19
           Pro forma                                                            $       (.70)     $       0.05
</Table>

For purposes of the pro forma disclosures, the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions; no expected dividends,
volatility of 150%; risk-free interest rate of 6.0%; and expected lives of five
(5) years. A summary of the status of our stock option plans as of April 30,
2001 and 2000, and changes during the years ending on these dates is presented
below.

<Table>
<Caption>
                                                                                                   Weighted
                                                                                                    Average
                                                                                   Number of       Exercise
                                                                                     Shares          Price
                                                                                  -----------    -----------

<S>                                                                                 <C>              <C>
       Outstanding, May 1, 1999                                                       996,577        $1.49
         Granted                                                                      169,500        $6.35
         Exercised                                                                    (21,813)       $1.16
         Canceled                                                                     (57,500)       $1.69
                                                                                  -----------

       Outstanding, April 30, 2000                                                  1,086,764        $2.25
         Granted                                                                      235,000        $2.68
         Exercised                                                                   (201,912)       $1.03
         Canceled                                                                     (12,000)       $2.00
                                                                                  -----------
       Outstanding, April 30, 2001                                                  1,107,852        $2.43
                                                                                  ===========
</Table>

The weighted average fair value of options granted during the years ended April
30, 2001 and 2000 was $2.46 and $5.78, respectively.


                                      F-18
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following information applies to options outstanding at April 30, 2001:

<Table>
<Caption>
                                                              Weighted
                                                          Average Remaining
            Range of        Number       Weighted Average    Contractual       Number      Weighted Average
         Exercise Price   Outstanding     Exercise Price    Life (Years)     Exercisable    Exercise Price
         --------------   -----------   ------------------  ------------     -----------  ------------------
<S>       <C>               <C>                <C>                <C>           <C>              <C>
              $0.58           207,340          $0.58              5             207,340          $0.58
          $1.00 - $1.44       204,583          $1.25              3             169,583          $1.28
          $1.62 - $2.38       348,929          $1.86              4             338,209          $2.06
          $2.56 - $3.50       180,000          $2.98              4             145,000          $3.08
          $5.50 - $7.31       167,000          $6.39              4              89,500          $6.82
                          -----------                                        ----------
                            1,107,852          $2.43                            949,632          $2.20
                          ===========                                        ==========
</Table>

NOTES RECEIVABLE FROM SHAREHOLDERS

In fiscal 1997, two of our executive officers exercised stock options to each
acquire 259,175 shares of common stock at an exercise price of $0.64 per share.
In fiscal 1999, two other executive officers exercised stock options to acquire
57,603 and 138,227 shares of common stock at exercise prices of $0.87 and $0.58,
respectively. In each case, we loaned the executive officer the aggregate amount
representing the exercise price of the option, and the officer executed a
promissory note reflecting the loan. Each executive officer pledged the
purchased shares as collateral for the loan pursuant to a pledge agreement. Each
loan accrued interest at an annual rate equal to the minimum applicable federal
rate, and interest was payable annually; principal and accrued but unpaid
interest was due five years from the date of the note. In addition, during
fiscal 1998, we loaned to each of the two executive officers, related to the
fiscal 1997 option exercises, pursuant to a five-year note with interest at the
minimum applicable federal rate, the amount equal to the federal and state tax
liability incurred by him as a result of exercising such option, and agreed to
pay compensation to such officers equal to the amount of interest payable under
these loans and the amount of taxes payable as a result of such compensation.

In January 2000, the Board of Directors agreed to forgive the current interest
and principal due related to the tax notes and to accept Isonics common stock,
owned by the officers, in payment of the balances owed for the share purchase
loans. The amount owed by Mr. James Alexander, our President and CEO, that was
forgiven was $74,000. The amount owed by Mr. Boris Rubizhevsky, our Senior Vice
President, that was forgiven was $61,000. In both cases the amount forgiven was
treated as bonus compensation to Mr. Alexander and Mr. Rubizhevsky. Each officer
surrendered 30,437 shares of Isonics Common Stock to pay off $175,000 of
principal and accrued interest. The other two loans, executed in fiscal 1999,
were paid in full: the first, in cash, in March 2000; and the second, by the
surrender of 11,664 shares of our common stock in January 2000. As of April 30,
2001 and 2000 we had no notes receivable outstanding for the acquisition of
stock.


                                      F-19
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WARRANTS

We have issued warrants in connection with debt offerings, private placements of
both common and convertible preferred stock, our IPO and as consideration for
concessions from lenders and vendors. A summary of the activity in our warrants
follows:

<Table>
<Caption>
                                                                                                  Weighted
                                                                                                    Average
                                                                                   Number of       Exercise
                                                                                    Shares           Price
                                                                                  -----------    -----------
<S>                                                                                 <C>             <C>
     Outstanding, May 1, 1999                                                       2,442,470        $3.90
         Warrants issued in debt restructuring                                         95,000         2.61
         Warrants issued in private placement of convertible preferred stock        2,330,000         3.75
         Warrants issued for isotope supply agreement                               4,000,000         3.75
         Exercised                                                                 (3,897,173)        3.55
         Forfeited, via net exercise                                               (1,043,650)        3.92
         Expired                                                                           --         0.00
                                                                                  -----------

     Outstanding, April 30, 2000                                                    3,926,647        $4.01
         Warrants issued in private placement of common stock                         675,000         1.50
         Warrants issued under anti-dilution agreement                                146,301         3.52
         Warrants issued for services                                                  10,000         5.00
         Exercised                                                                    (99,332)        2.76
         Forfeited, via net exercise                                                  (23,521)        2.76
         Expired                                                                           --         0.00
                                                                                  -----------

     Outstanding, April 30, 2001                                                    4,635,095        $3.44
                                                                                  ===========
</Table>

The outstanding warrants as of April 30, 2001, are summarized as follows:

<Table>
<Caption>
                                                                                  Weighted
                                                                                   Average
                                                                    Number        Exercise        Expiration
                                                                  Outstanding       Price            Date
                                                                  -----------    -----------     -----------

<S>                                                                 <C>          <C>              <C>
         Class A Warrants                                             685,600    $      5.80      09-21-2001
         Class B Warrants                                             799,400    $      1.50      12-31-2005
         Class C Warrants                                                   -    $         -      12-31-2005
         Other Warrants                                             3,150,095    $      3.42             (1)
                                                                 ------------    -----------
                                                                    4,635,095    $      3.44
                                                                 ============    -----------
</Table>

      (1)   The other warrants expire at various dates ranging from September
            27, 2001 through July 31, 2007.

In July 1999, we made a principal payment of $550,000 towards the amounts owing
to the former Chemotrade shareholders from the acquisition of Chemotrade. At
that time, we extended the due date of the balance to July 31, 2000. In
consideration for the extension, we issued 70,000 warrants to the former
Chemotrade shareholders, exercisable at $3.00 per warrant until June 30, 2004.
We recognized a charge amounting to $157,000 representing the fair value of the
warrants issued determined using the Black-Scholes option pricing model.


                                      F-20
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under the terms of the preferred stock private placement on July 29, 1999, the
related shareholders have anti-dilution rights if we issue or sell common stock
after July 29, 1999 for a per share consideration less than the current exercise
price of the related warrants. As a result of potential dilution triggered by
the December 13, 2000 private placement, we issued an additional 146,301 common
stock warrants to the preferred shareholders and reduced the exercise price to
$3.52 on all related warrants in order to satisfy the anti-dilution provisions.

As a result of the exchange offer completed on April 30, 2001 whereby the
holders of Class A warrants could exchange each Class A warrant for a Class B
warrant, we are required to issue approximately 120,000 additional common stock
warrants and reduce the exercise price of all the warrants issued in the
preferred stock placement to approximately $3.36 in order to satisfy the
anti-dilution provisions discussed above. The additional warrants and the
reduction in the exercise price occurred on July 26, 2001.

The private placement agreement associated with the private placement completed
on December 13, 2000 required that we register the common stock and the common
stock underlying the Class B common stock warrants by June 14, 2001 or penalty
provisions would apply. As we were unable to complete the effective registration
of such shares by June 14, 2001, on July 26, 2001, we rectified the situation by
issuing an additional 112,500 shares of common stock and an additional 675,000
Class B warrants to the accredited investors of the private placement. As a
result of this settlement, the anti-dilution provisions related to the preferred
stock private placement were triggered. In order to satisfy the anti-dilution
provisions, on July 26, 2001 we issued approximately 135,000 common stock
warrants and reduced the exercise price to $3.17 for all related warrants.

NOTE 9 - BUSINESS SEGMENTS AND FOREIGN OPERATIONS

During the year ended April 30, 2000 we had two operating segments consisting of
Isotope Products conducted through Isonics and Chemotrade and Contract Research
and Development Services conducted in IPRC. As discussed in Note 5, our contract
research and development activities ceased on May 1, 2000, and accordingly, we
currently have one operating segment.

      Information by segment is set forth below (in thousands):

<Table>
<Caption>
                                                                                  2001            2000
                                                                             -------------     -----------
         <S>                                                                 <C>               <C>
         Segment revenues:
           Isotope products                                                  $       7,789     $    11,577
           Contract research and development services                                    -           1,156
                                                                             -------------     -----------
              Total                                                          $       7,789     $    12,733

         Segment operating (loss) income
           Isotope products                                                  $      (4,009)    $    (2,070)
           Contract research and development services                                    -            (331)
                                                                             -------------     ------------
              Total                                                          $      (4,009)    $    (2,401)

         Total assets:
           Isotope products                                                  $       6,102     $     8,711
           Contract research and development services                                    -             822
                                                                             -------------     -----------
              Total                                                          $       6,102     $     9,533
</Table>


                                      F-21
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     A summary of our operations by geographic area is presented below (in
thousands):

<Table>
<Caption>
                                                                                  2001             2000
                                                                             -------------     -----------
         <S>                                                                 <C>               <C>
         Net revenues
           United States                                                     $       2,602     $     4,501
           Germany                                                                   5,187           8,232
                                                                             -------------     -----------
              Total                                                          $       7,789     $    12,733

         Operating (loss) income
           United States                                                     $      (3,978)    $    (2,486)
           Germany                                                                     (31)             85
                                                                             --------------    -----------
              Total                                                          $      (4,009)    $    (2,401)

         Total assets
           United States                                                     $       1,814     $     4,731
           Germany                                                                   4,288           4,802
                                                                             -------------     -----------
              Total                                                          $       6,102     $     9,533
</Table>

NOTE 10 - EMPLOYEE BENEFIT PLAN

We have a profit sharing plan qualified under section 401(k) of the Internal
Revenue Code. The plan is a defined contribution plan, covering substantially
all of our employees. Company contributions to the plan aggregated approximately
$39,000 and $40,000 for 2001 and 2000, respectively.

NOTE 11 - CONCENTRATIONS

As of April 30, 2001, five customers accounted for approximately 50.2% of total
net accounts receivable. One of these customers, and four other customers,
accounted for approximately 41.0% of net revenues during the year ended April
30, 2001. Two different customers accounted for approximately 25% of net
revenues during the year ended April 30, 2000. One of these customers accounted
for approximately 18% of accounts receivable at April 30, 2000. Two customers
accounted for approximately 34.9% of the German segment's revenue for the year
ended April 30, 2001. One of these customers accounted for approximately 23.3%
of the German segment's accounts receivable at April 30, 2001.

NOTE 12 - COMMITMENTS

We rent office and production facilities and equipment under operating leases
expiring through March 2004. Rent expense for operating leases was approximately
$224,000 for the years ended April 30, 2001 and 2000. Future minimum annual
operating lease commitments are as follows (in thousands):

<Table>
<Caption>
                          Year Ending April 30,
                          ---------------------
                                 <S>                      <C>
                                 2002                     $      188
                                 2003                            176
                                 2004                             50
                                                            --------
                                                                $414
                                                            ========
</Table>


                                      F-22
<Page>

                      ISONICS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - SUBSEQUENT EVENTS

On July 18, 2001 we signed a letter of intent to acquire certain net assets of
Silicon Evolution, Inc. in exchange for 2,000,000 restricted shares of common
stock. In addition, we may be required to issue up to 1,600,000 additional
shares of restricted common stock if the acquired net assets achieve certain
operating objectives, as defined, in the sixth fiscal quarter after the closing
of the transaction.


                                      F-23