UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
 
                            WASHINGTON, D.C. 20549
                                  -------------

                                   FORM 10-QSB

(Mark One)

[X]  Quarterly  report under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934.

     For the quarterly period ended January 31, 1999


[ ]  Transition report under Section 13 or 15(d) of the Exchange Act.

                For the transition period from _______ to ______

     Commission file number: 001-12531


                               ISONICS CORPORATION
        (Exact name of small business issuer as specified 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)

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

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

The number of shares outstanding of the registrant's Common Stock, no par value,
was 6,215,612 at March 12, 1999.

Transitional Small Business Disclosure Format (check one):
Yes __  No _X_


<PAGE>


                               Isonics Corporation

                                TABLE OF CONTENTS

                                   FORM 10-QSB


Part I: Financial Information

         Item 1:  Financial Statements

                  Condensed Consolidated Balance Sheets as of
                    January 31, 1999 and April 30, 1998 .....................  3
                  Condensed Consolidated Statements of Operations
                    for the Three and Nine Month Periods Ended
                    January 31, 1999 and 1998 ...............................  5
                  Condensed Consolidated Statements of Cash Flows
                    for the Nine Month Periods Ended January 31,
                    1999 and 1998 ...........................................  6
                  Notes to Condensed Consolidated Financial
                    Statements ..............................................  7

         Item 2:  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations ..................... 12

Part II: Other Information

         Item 6:  Exhibits and Reports on Form 8-K .......................... 21

Signatures .................................................................. 22

                                       2

<PAGE>


Part I:  Financial Information

Item 1:  Condensed Financial Statements


<TABLE>
                                                ISONICS CORPORATION AND SUBSIDIARIES
                                                CONDENSED CONSOLIDATED BALANCE SHEETS
                                                (in thousands, except share amounts)

<CAPTION>
                                                               ASSETS
                                                                                           (Unaudited)
                                                                                         January 31, 1999           April 30, 1998
                                                                                         ----------------           --------------
CURRENT ASSETS:
<S>                                                                                           <C>                       <C>   
     Cash and cash equivalents                                                                $  228                    $1,044
     Accounts receivable (Net of allowance of $156 and $130,                                                   
          respectively)                                                                        3,389                     1,629
     Inventories                                                                               1,134                       456
     Prepaid expenses and other assets                                                           260                        45
     Deferred income taxes                                                                       128                       112
                                                                                              --------------------------------
          Total current assets                                                                $5,139                    $3,286
                                                                                              --------------------------------
                                                                                                               
LONG-TERM ASSETS                                                                                               
     Property and equipment, net                                                               1,089                     1,626
     Goodwill, net                                                                             3,450                       236
     Notes receivable from shareholders                                                          127                       170
     Other assets                                                                                 81                        22
     Deferred income taxes                                                                        85                       315
                                                                                              --------------------------------
          Total long-term assets                                                              $4,832                    $2,369
                                                                                              --------------------------------
                                                                                                               
TOTAL ASSETS                                                                                  $9,971                    $5,655
                                                                                              ================================
                                                                                                    

<FN>
                                      See notes to condensed consolidated financial statements.
</FN>
</TABLE>

                                                                 3

<PAGE>


<TABLE>
                                                ISONICS CORPORATION AND SUBSIDIARIES
                                                CONDENSED CONSOLIDATED BALANCE SHEETS
                                                (in thousands, except share amounts)


                                                LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
                                                                                                (Unaudited)
                                                                                               January 31, 1999       April 30, 1998
                                                                                               ----------------       --------------
<S>                                                                                            <C>                     <C>         
CURRENT LIABILITIES:
     Current portion of long-term debt                                                         $        261            $         80
     Notes payable from shareholders                                                                    877                    --
     Accounts payable                                                                                 3,908                     657
     Accrued liabilities                                                                              1,155                     738
                                                                                               ------------------------------------
          Total current liabilities                                                            $      6,201            $      1,475
                                                                                               ------------------------------------

LONG-TERM LIABILITIES:
     Long-term debt                                                                                     859                     312
     Deferred income taxes                                                                              197                     427
                                                                                               ------------------------------------
          Total long-term liabilities                                                          $      1,056            $        739
                                                                                               ------------------------------------


SHAREHOLDERS' EQUITY:
     Class A Preferred Stock--no par value 10,000,000
          shares authorized; none outstanding                                                         --                       --
     Common stock--no par value.  20,000,000 shares                                                   6,364                   5,289
          authorized; issued and outstanding:  April 30, 1998,
          5,714,250; January 31, 1999, 6,327,779
     Notes receivable from shareholders                                                                (382)                   (337)
     Accumulated deficit                                                                             (3,268)                 (1,511)
                                                                                               ------------------------------------
          Total shareholders' equity                                                           $      4,832            $      3,411
                                                                                               ------------------------------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                     $      9,971            $      5,655
                                                                                               ====================================

<FN>
                                      See notes to condensed consolidated financial statements.
</FN>
</TABLE>

                                                                 4

<PAGE>


<TABLE>
                                                ISONICS CORPORATION AND SUBSIDIARIES
                                           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                (in thousands, except per share data)
                                                             (Unaudited)

<CAPTION>
                                                                       Three Months Ended                   Nine Months Ended
                                                                            January 31,                          January 31,
                                                                     --------------------------          --------------------------
                                                                       1999              1998              1999              1998
                                                                     --------          --------          --------          --------
<S>                                                                  <C>               <C>               <C>               <C>     
Net revenues                                                         $  6,670          $  1,968          $ 14,309          $  5,274
Cost of revenues                                                        5,393             1,296            11,575             3,636
                                                                     --------          --------          --------          --------
          Gross margin                                                  1,277               672             2,734             1,638

Operating expenses:
     Selling, general and administrative                                  826               369             2,444             1,005
     Research and development                                             250               227               962               579
     Restructuring and office closure                                    --                --                 708              --
                                                                     --------          --------          --------          --------
          Total operating expenses                                      1,076               596             4,114             1,584
                                                                     --------          --------          --------          --------

Operating income (loss)                                                   201                76            (1,380)               54
                                                                     --------          --------          --------          --------

Other income (expense):
     Foreign exchange                                                     131              --                  35              --
     Interest income                                                        9                27                21                53
     Interest expense                                                     (87)               (4)             (236)             (217)
                                                                     --------          --------          --------          --------
          Total other income (expense), net                                53                23              (180)             (164)
                                                                     --------          --------          --------          --------
Income (loss) before extraordinary item
     and income taxes                                                     254                99            (1,560)             (110)
Income tax expense                                                        177              --                 197                 1
                                                                     --------          --------          --------          --------
Income (loss) before extraordinary item                                    77                99            (1,757)             (111)
                                                                     --------          --------          --------          --------
Extraordinary item - loss on
     extinguishment of debt                                              --                --                --                (252)
                                                                     --------          --------          --------          --------
NET INCOME (LOSS)                                                    $     77          $     99          $ (1,757)         $   (363)
                                                                     ========          ========          ========          ========


Net income (loss) per share--basic
Net income (loss) per share before
     extraordinary item                                              $   0.01          $   0.02          $  (0.29)         $  (0.02)
Extraordinary item                                                   $   --            $   --            $   --            $  (0.04)
Net income (loss) per share                                          $   0.01          $   0.02          $  (0.29)         $  (0.06)
Shares used in computing per share
     information                                                        6,216             5,360             6,120             5,836

Net income (loss) per share--diluted
Net income (loss) per share before
     extraordinary item                                              $   0.01          $   0.01          $  (0.29)         $  (0.02)
Extraordinary item                                                   $   --            $   --            $   --            $  (0.04)
Net income (loss) per share                                          $   0.01          $   0.01          $  (0.29)         $  (0.06)
Shares used in computing per share
     information                                                        6,918             6,625             6,120             5,836

<FN>
                                      See notes to condensed consolidated financial statements.
</FN>
</TABLE>

                                                                 5

<PAGE>


<TABLE>
                                                ISONICS CORPORATION AND SUBSIDIARIES
                                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (in thousands)
                                                             (Unaudited)

<CAPTION>
                                                                                                       Nine Months Ended January 31,
                                                                                                      -----------------------------
                                                                                                       1999                   1998
                                                                                                      -------               -------
<S>                                                                                                   <C>                   <C>     
Net cash provided by (used in) operating activities                                                   $   146               $  (285)

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of Property and Equipment                                                                 (120)                  (72)
     Purchase of Chemotrade, net of cash acquired                                                        (546)                 --
                                                                                                      -----------------------------
          Cash used in investing activities                                                           $  (666)              $   (72)
                                                                                                      -----------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Line of credit, net                                                                                  931                  --
     Proceeds from issuance of long-term debt                                                             500                  --
     Repayments of debt                                                                                (1,714)               (1,844)
     Proceeds from issuance of common stock, net                                                           17                 3,452
     Payment of debt issuance costs                                                                       (30)                   (7)
                                                                                                      -----------------------------
          Cash provided by (used in) financing activities                                             $  (296)              $ 1,601
                                                                                                      -----------------------------

NET INCREASE (DECREASE) IN CASH AND CASH
     EQUIVALENTS:                                                                                        (816)                1,244
     Cash and cash equivalents at beginning of period                                                   1,044                    28
                                                                                                      -----------------------------
     Cash and cash equivalents at end of period                                                       $   228               $ 1,272
                                                                                                      =============================


Supplemental disclosure of cash flow information:
     Cash paid during the period for:
          Interest                                                                                    $   149               $   171
                                                                                                      =============================
          Income taxes                                                                                $   242               $     1
                                                                                                      =============================

Supplemental disclosure of noncash investing and financing
     activities:
          Equipment acquired under capital lease                                                      $    14               $  --
                                                                                                      =============================


          Purchase of Chemotrade:
               Cash paid, net of cash acquired                                                        $   546
               Stock issued to sellers                                                                    894
               Debt issued to sellers                                                                   1,750
               Liabilities assumed                                                                      1,598
                                                                                                      -------
                    Assets acquired (including goodwill of $3,385)                                    $ 4,788
                                                                                                      =======

<FN>
                                      See notes to condensed consolidated financial statements.
</FN>
</TABLE>

                                                                 6

<PAGE>


                      ISONICS CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

The  accompanying   condensed   consolidated  financial  statements  of  Isonics
Corporation  and  Subsidiaries  (the  "Company" or  "Isonics") as of January 31,
1999, and for the three and nine months ended January 31, 1999,  and 1998,  have
been  prepared on the same basis as the  audited  financial  statements.  In the
opinion of  management,  such  unaudited  information  includes all  adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of this  interim  information.  Operating  results  and cash  flows for  interim
periods  are not  necessarily  indicative  of results for the entire  year.  The
information  included  in this  report  should be read in  conjunction  with the
Company's  audited  financial  statements  and  notes  thereto  included  in the
Company's Annual Report on Form 10-KSB.

Net Income (Loss) Per Share

Net income  (loss) per share is based on the weighted  average  number of common
and common equivalent shares  outstanding  during the period.  Common equivalent
shares  include  common stock options and warrants.  Basic net income (loss) per
share is  computed  by  dividing  net income  (loss) by the  number of  weighted
average common shares outstanding.  Diluted net income (loss) per share reflects
potential  dilution  from  outstanding  stock  options  and  warrants  using the
treasury stock method.  Outstanding stock options and warrants are excluded from
the  diluted  earnings  per  share  calculation  when  the  inclusion  would  be
antidilutive.

Inventories

         Inventories consist of (in thousands):

                                            January 31, 1999      April 30, 1998
                                            ----------------      --------------
Finished goods                                   $1,125               $  250
Work in progress                                   --                   --
Raw materials                                         9                  206
                                                 ---------------------------
     Total inventories                           $1,134               $  456
                                                 ===========================
                                                       

Goodwill

Goodwill  resulted from the Isoserve,  Inc., and Chemotrade  GmbH and subsidiary
acquisitions,  and is being  amortized  on a  straight  line  basis over six and
twenty years, respectively.

                                       7

<PAGE>


                      ISONICS CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Notes payable - shareholders

Two notes were issued to each of the sellers of Chemotrade  GmbH and  subsidiary
as consideration for a portion of the purchase price. One note with an aggregate
value of 1,663,000 DM ($924,000),  bearing interest at 2% per month, and secured
by certain  accounts  receivable  was issued in June 1998,  and repaid in August
1998.  A second note for  1,500,000  DM valued at $826,000  upon  issuance,  and
reflected  at its dollar  equivalent  of $877,000 at January 31,  1999,  bearing
interest at 10%,  secured by the common  stock  purchased  by Isonics,  due June
1999, was also issued in connection with the purchase.

Long term debt

     Long term debt consists of the following (in thousands):

                                            January 31, 1999     April 30, 1998
                                            ----------------     --------------
Bank term loan -  guaranteed by the SBA         $    0              $   40
Bank term loan                                     220                 147
Bank term loan                                     437                   0
Revolving line of credit                           460                 159
Capital leases                                       3                  46
                                                --------------------------
    Sub-total                                   $1,120              $  392
                                                              
Less current maturities                            261                  80
                                                --------------------------
    Total                                       $  859              $  312
                                                ==========================
                                                          

The bank term loan is  collateralized  by all of Isonics' U.S.  assets and bears
interest at the lender's prime (8.00% at January 31, 1999) plus 2.25%. Principal
and  interest  payments  are due monthly  based upon  forty-eight  (48)  monthly
payments. The balance of the note is due July 2000.

The bank term loan is  collateralized  by all of Isonics' U.S.  assets and bears
interest at the lender's  prime (8.00% at January 31, 1999) plus 5.0%.  Interest
only payments were due through  October 31, 1998.  Commencing  November 1, 1998,
principal  and interest  payments are due monthly  based upon  twenty-five  (25)
monthly payments. The balance of the note is due July 2000.

The revolving line of credit is  collateralized  by all of Isonics' U.S.  assets
and bears interest at the lender's prime (8.00% at January 31, 1999) plus 2.25%.
Borrowings  are limited to 35% of eligible  inventory  up to $500,000 and 80% of
eligible accounts receivable up to $1,250,000. Interest payments are due monthly
and the outstanding balance is due July 2000.

                                       8

<PAGE>


                      ISONICS CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restructuring and office closure costs

On October 31, 1998,  the Company  announced a corporate  restructuring  and the
relocation of its headquarters to Golden, Colorado, the site of its wholly-owned
subsidiary,  International Process Research Corporation  (Interpro).  On October
31, 1998, the Company recorded a $708,000 charge of which $468,000 is related to
the  write-off of certain  fixed  assets,  $132,000 to terminate  certain  lease
agreements,  and $108,000 for  severance  and other costs.  At January 31, 1999,
accrued   restructuring   costs  totaling   $133,000  are  included  in  accrued
liabilities. The Company anticipates additional charges in subsequent periods of
approximately $170,000 to $260,000, related to the relocation of personnel.

Significant Customers

At January 31, 1999,  and January 31, 1998,  no one customer  accounted for more
than 10% of total  accounts  receivable.  However,  one customer  accounted  for
approximately 17% of net revenues during the nine months ended January 31, 1999,
and  approximately 13% of net revenues during the three months ended January 31,
1999.

Related party transactions

The Company has a 6% ownership  interest in IUT Institute GmbH ("IUT"),  located
in Berlin,  Germany.  IUT  purchases  certain  raw  materials  from  Chemotrade,
processes  the  materials  and sells the  finished  material to  Chemotrade.  At
January 31, 1999,  accounts  payable totaling  approximately  $35,000 was due to
IUT.  The Company has also  advanced IUT $54,000 for services to be performed in
the future.  During the nine months  ended  January 31,  1999,  Chemotrade  sold
$308,000 of material to IUT and purchased $124,000 of material from IUT.

                                       9

<PAGE>


                      ISONICS CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Acquisition of Chemotrade GmbH and Subsidiary

On July  21,  1998,  the  Company  acquired  all of the  outstanding  shares  of
Chemotrade GmbH and subsidiary (collectively  "Chemotrade"),  which was owned by
two common shareholders. Chemotrade is engaged in the distribution, development,
and  manufacture  of stable  and radio  isotopes.  The  purchase  price has been
accounted  for effective  June 1, 1998,  the date control was  transferred.  The
purchase  price  was  denominated  in German  Deutsche  Marks,  and all  amounts
reported below are translated at the historical conversion rate unless otherwise
stated.  The purchase price  consideration on June 1, 1998,  consisted of $2.576
million  paid at  closing,  and $1.07  million  to be paid  through  June  2001.
Transaction  costs as of January 31, 1999, were $125,000.  Imputed interest from
the  effective  date  of  the  acquisition,  June  1,  1998,  to the  date  that
consideration  was paid or interest  began accruing on  consideration,  June 30,
1998, totaled $28,000.

Imputed interest is reflected as interest expense in the consolidated statements
of operations for the nine-month  period ended January 31, 1999, and a reduction
in the purchase price. The consideration  paid upon closing consisted of cash of
$758,000,  357,730 restricted shares of common stock with a fair market value of
$894,000,  and two notes.  The first note of  $924,000  (1,663,000  DM)  bearing
interest at 2% per month, was paid in August 1998, and a second note of $826,000
(1,500,000 DM) bearing interest at 10%, is due June 1, 1999.

The sellers have  guaranteed  Chemotrade's  defined  pretax  earnings will be at
least 1,000,000 DM (the dollar  equivalent of $584,000 at January 31, 1999), for
the sixteen  months ended April 30, 1999, and twelve months ended April 30, 2000
and 2001. If the pretax  earnings of Chemotrade  are less than  1,000,000 DM for
the sixteen month period ended April 30,1999,  or year ended April 30, 2000, the
note  payable  valued at $826,000  upon  issuance  and  reflected  at its dollar
equivalent of $877,000 at January 31, 1999 (1,500,000 DM) due June 1, 1999, will
be reduced by 0.75 DM for each 1.00 DM shortfall of earnings.  If Chemotrade has
pretax  earnings  of at least  1,000,000  DM for the fiscal year ended April 30,
2001,  the sellers  will  receive  additional  consideration  of 500,000 DM (the
dollar  equivalent of $292,000 at January 31, 1999).  If the pretax earnings are
less than  1,000,000  DM during the twelve  months  ended  April 30,  2001,  the
consideration will be reduced 0.50 DM for each 1.00 DM shortfall in earnings.

The contingent consideration for the year ended April 30, 2001, will be recorded
as additional goodwill upon Chemotrade meeting the pretax earnings  requirement.
The  excess of the  $3.499  million  purchase  price  over the fair value of the
tangible assets acquired,  $1.712 million,  less  liabilities  assumed of $1.598
million,  $3.385  million has been  allocated  to goodwill and will be amortized
over twenty years. The difference between the note valued at $877,000 at January
31, 1999, and $826,000 at June 30, 1998, as well as other foreign currency gains
and losses  have been  included  in foreign  exchange  expense in the  condensed
consolidated statements of operations.  The Functional Currency of Chemotrade is
the U.S. Dollar.

                                       10

<PAGE>


                      ISONICS CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Acquisition of International Process Research Corporation ("Interpro")

Effective  April 30, 1998, the Company  acquired all of the  outstanding  common
stock of Interpro (doing business as Colorado Minerals Research Institute).  The
purchase price was paid in 353,982  shares of the Company's  common stock with a
fair market value of $708,000.  Transaction costs were $70,000.  No goodwill was
recognized upon completing the transaction.

The  reported  results of  operations  of the Company for the nine months  ended
January 31, 1999, include the operating results of Chemotrade commencing June 1,
1998,  and the operating  results of Interpro  commencing May 1, 1998. Pro forma
results of operations are as follows (in thousands, except per share data):

                                                       Nine Months Ended
                                                         January 31,
                                              ---------------------------------
                                                  1999                1998
                                              -------------       -------------
Net revenues                                  $      12,683       $      14,949
Gross Margin                                          3,065               2,834
                                              -------------       -------------
Net income (loss)                                     (257)             (1,762)
                                              -------------       -------------
Net income (loss) per share--basic             $      (0.04)       $      (0.29)
                                              =============       =============
Shares used in computing per share
     information                                      6,072               6,161
Net income (loss) per share--diluted           $      (0.04)       $      (0.29)
                                              =============       =============
Shares used in computing per share
     information                                      6,072               6,161

                                       11

<PAGE>


Item 2: Management's  Discussion and Analysis of Financial Condition and Results
of Operations

The  statements  contained  in this  Report on Form  10-QSB  that are not purely
historical are forward looking  statements  within the meaning of Section 27A of
the  Securities  Act of 1933 and Section 21E of the  Securities  Exchange Act of
1934,  including  statements  regarding  the  Company's   expectations,   hopes,
intentions  or  strategies  regarding  the future.  Forward  looking  statements
include: statements regarding future products or product development; statements
regarding  future  selling,  general and  administrative  costs and research and
development  spending  and  the  Company's  product  development  strategy;  and
statements regarding future capital expenditures and financing requirements. All
forward  looking  statements  included in this document are based on information
available  to the  Company on the date  hereof,  and the Company  undertakes  no
obligation  to update any such forward  looking  statements.  It is important to
note that the Company's  actual  results could differ  materially  from those in
such forward-looking statements.

Overview

Founded in 1992, Isonics Corporation ("Isonics" or the "Company") is a specialty
chemical and  advanced  materials  company,  which  develops and  commercializes
products  based on stable  isotopes.  Stable  isotopes are ultra pure  materials
engineered at the molecular level to provide enhanced performance  properties in
semiconductors,  lasers and high  performance  lighting  and energy  production.
Stable  isotopes  are  also  widely  used  in  basic  research,   pharmaceutical
development and drug design, as well as in medical  diagnostics and imaging.  By
replacing  materials  traditionally  used in these industries with  isotopically
engineered  versions of the same materials,  product  performance,  safety,  and
economics  can be enhanced  significantly.  Using  state-of-the-art  technology,
Isonics  produces  a wide  range of  enriched  stable  isotopes,  which are then
converted into products, which meet the specialized needs of Isonics' customers.

Isonics'  core  business  is  production  and supply of  depleted  zinc (DZ),  a
non-radio active stable isotope, to the energy industry. In fiscal 1996, Isonics
expanded its business scope to include  development of  isotopically  engineered
materials  for  the  medical  research,  medical  diagnostic  and  semiconductor
industries.  In June 1997,  Isonics produced the world's first isotopically pure
silicon  epitaxial wafer suitable for semiconductor  fabrication.  In July 1997,
Isonics  exercised an option for an exclusive license for two U.S. patents owned
by Yale  University  concerning  isotopically  pure  silicon and a wide range of
other  semiconductor  materials.  In February  1998,  the Company  announced the
availability  of  isotopically  pure  silicon-28  epitaxial  wafers in prototype
quantities.

The Company is currently evaluating potential applications for isotopically pure
silicon in collaboration with certain industrial and university  partners and is
developing strategies for  commercialization.  Isonics currently supplies stable
isotope labeled compounds ("SILCs"),  mainly enriched carbon, for pharmaceutical
research and medical diagnostic test development.  In February 1998, the Company
announced its intention to enter a joint venture agreement with the Institute of
Stable  Isotopes in Tblisi,  Georgia,  for enriched  carbon-13  production.  The
partners anticipate first increasing capacity of the existing facilities located
in Tblisi,  followed by establishing  additional production facilities in Europe
and the United States.  The Company is also independently  developing  advanced,
lower cost,  production  technology  for  enriched  carbon for use in  minimally
invasive  diagnostic  tests,  which are being  developed by others.  The Company
believes that a substantial portion of its revenues in the future will depend on
its success in developing  and selling  products in the  semiconductor  and SILC
markets.

                                       12

<PAGE>


Item 2: Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Effective April 30, 1998, Isonics acquired all of the outstanding  capital stock
of Interpro (doing business as Colorado Minerals Research  Institute.)  Interpro
is a contract  research and development and materials  processing  company which
has been performing key steps in Isonics' DZ  manufacturing  process and jointly
developing  new,  lower cost  technologies  to better meet customer  needs.  The
acquisition   was  made  to  assure   future   availability   of  this  critical
manufacturing   technology  and  to  provide  an  infrastructure   platform  for
performing value added processing of other isotopes.

Effective  June 1,  1998,  Isonics  acquired  Chemotrade  GmbH  and  subsidiary,
headquartered in Dusseldorf,  Germany,  to expand Isonics' product offerings and
to enter the  European  market for stable and radio  isotopes.  Chemotrade  is a
value-added  re-seller of stable and radio isotopes.  It supplies radio isotopes
for pharmaceutical and industrial research as well as for industrial and medical
imaging, calibration sources and for brachytherapy applications. Chemotrade also
distributes calibration sources, manufactured by duPont with Chemotrade supplied
radio isotopes, in Germany and other European countries.

Chemotrade  supplies various stable isotope labeled compounds for pharmaceutical
research  and drug  design,  as well as  oxygen-18  for use in producing a radio
isotope used in positron emission  tomography.  Chemotrade's market is primarily
Europe  but  frequently  sales are made to North  America  and  Asia;  customers
include duPont, Amersham, and New England Nuclear Life Sciences.

Historically,  substantially all of the Company's net revenues in any particular
period have been  attributable  to a limited number of customers and sales of DZ
and SILCs. The Company operates with little backlog and a significant portion of
the Company's  total revenues to date have been,  and the Company  believes will
continue to be in the near term,  derived  from a limited  number of DZ and SILC
orders in any  particular  quarter.  Consistent  with the  Company's  historical
experience,  the  Company's  quarterly  results are  expected  to be  materially
affected by the size, timing and quantity of DZ, SILC, or radio isotopes orders,
and product  shipments  made to DZ, SILC,  and radio  isotope  users during such
quarter as was the case in certain  previous  quarters.  As a result,  a lost or
delayed sale could have a significant impact on the Company's  operating results
for a particular  period,  and such fluctuations  could materially and adversely
affect the Company's business, financial condition and results of operations.

                                       13

<PAGE>


Item 2: Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Results of Operations

<TABLE>
The following table sets forth, for the periods indicated,  certain statement of
operations  data  expressed  as a  percentage  of net  sales.  The table and the
discussion below should be read in conjunction  with the condensed  consolidated
financial statements and the notes thereto appearing elsewhere in this report.

<CAPTION>
                                                Three Months Ended                 Nine Months Ended
                                                    January 31,                       January 31,
                                             -----------------------            ---------------------- 
                                              1999             1998             1999             1998
                                             -----             -----            -----            ----- 
<S>                                          <C>               <C>              <C>              <C>   
Net revenues                                 100.0 %           100.0%           100.0%           100.0%
Cost of revenues                              80.9              65.9             80.9             68.9
                                             -----             -----            -----            ----- 
     Gross margin                             19.1              34.1             19.1             31.1
                                             -----             -----            -----            ----- 

Operating expenses:
     Selling, general &
          administrative                      12.4              18.8             17.1             19.1
     Research & development                    3.7              11.5              6.7             11.0
     Restructuring & office closure             --                --              4.9               --
                                             -----             -----            -----            ----- 
          Total operating expenses            16.1              30.3             28.7             30.1
                                             -----             -----            -----            ----- 
Operating income (loss)                        3.0               3.8            (9.6)              1.0
                                             -----             -----            -----            ----- 

Other income (expense) net                     0.8               1.2            (1.3)            (3.1)
                                             -----             -----            -----            ----- 
Income (loss) before extraordinary
     item and income taxes                     3.8               5.0           (10.9)            (2.1)
                                             -----             -----            -----            ----- 
Income tax expense                             2.7                --              1.4               --
                                             -----             -----            -----            ----- 
Income (loss) before extraordinary
     Item                                      1.1               5.0           (12.3)            (2.1)
                                             -----             -----            -----            ----- 
Extraordinary item--loss on
     extinguishment of debt                     --                --               --            (4.8)
                                             -----             -----            -----            ----- 
NET INCOME (LOSS)                              1.1 %             5.0%          (12.3)%           (6.9)%
                                             =====             =====            =====            ===== 
</TABLE>

                                                  14

<PAGE>


Item 2: Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Net Revenues

Net revenues for the three and nine months ended  January 31, 1999,  were $6.670
million and  $14.309  million,  respectively,  an increase of 239% and 171% over
$1.968 million and $5.274 million for the comparable periods in the prior fiscal
period.  The  growth on a  quarterly  and  year-to-date  basis is because of the
additional  net  revenues  from the Interpro and  Chemotrade  acquisitions.  Net
revenues from DZ decreased by  approximately  $67,000 for the three months ended
January 31, 1999,  on increased  unit sales of  approximately  24%. Net revenues
from DZ decreased  approximately  $885,000 for the nine months ended January 31,
1999, on increased unit sales of approximately  4%. Average unit sales prices of
DZ decreased for the three and nine months ended January 31, 1999, in comparison
to the  previous  year's  fiscal  quarter  and year to date period due to a less
refined product being sold during the periods.

Gross Margin

Gross margin for the three and nine months ended January 31, 1999,  decreased to
approximately 19.1% and 19.1% of net revenues from approximately 34.1% and 31.1%
for the same  periods  in the prior  fiscal  year.  The  decrease  is because of
reduced  unit  sales  prices of DZ, the  increased  proportion  of net  revenues
generated  from  contract  manufacturing  performed by Interpro,  and stable and
radio  isotope  revenues  generated by  Chemotrade  which  typically  have lower
margins.

Selling, General and Administrative Expenses

Selling,  general and  administrative  expenses  increased  on a dollar basis to
approximately  $826,000,  or 12.4% of net  revenues  for the three  months ended
January 31, 1999,  from  $369,000,  or 18.8% of net  revenues in the  comparable
period of the prior year. The dollar  increase for the quarter ended January 31,
1999, was primarily  attributable to the acquisition of Interpro and Chemotrade,
while the  percentage  decrease  was due  primarily  to  increased  net revenues
attributable  acquisition of Interpro and Chemotrade.  For the nine months ended
January 31, 1999,  these expenses  increased on a dollar basis to  approximately
$2,444,000,  or 17.1% of net revenues from $1,005,000,  or 19.1% of net revenues
of the  comparable  period of the prior  year.  The  dollar  increase  was again
primarily attributable to the acquisition of Interpro and Chemotrade, as was the
percentage  decrease.   The  Company  anticipates  that  selling,   general  and
administrative  expenses  will  generally  remain stable or decrease in absolute
dollars because of the restructuring  and San Jose office closure,  and may vary
as a percentage of net revenues (See Restructuring and office closure).

                                       15

<PAGE>


Item 2: Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Research and Development

Research and development expenses increased by approximately  $23,000, or 10.1%,
to $250,000  for the quarter  ended  January 31,  1999,  from  $227,000  for the
comparable  period in fiscal 1998, while declining on a percentage basis to 3.7%
of net revenues from approximately  11.5%. For the nine months ended January 31,
1999, research and development expenses increased by approximately  $383,000, or
66.1%,  to $962,000  from  $579,000  for the  comparable  period in the previous
fiscal year, while decreasing on a percentage basis to 6.7% of net revenues from
11.0%.

The dollar  increase  during the quarter and nine months ended January 31, 1999,
was primarily  because of increased  staffing and material costs associated with
the  development  of  isotopically  pure silicon  wafers and  development  costs
incurred at Interpro.  The decrease in research  and  development  expenses as a
percentage  of net revenues  for the quarter and nine months  ended  January 31,
1999,  compared  to the same period of the  previous  fiscal year was because of
revenue growth associated with the Company's acquisitions.  The Company believes
that the development and introduction of new product applications is critical to
its future  success and expects that  research  and  development  expenses  will
remain  stable (as measured in dollars),  in the near term because of the timing
of  material  usage  and  outside  services,  but may  vary as a  percentage  of
revenues.

Restructuring and office closure

On October 31, 1998, the Company announced a restructuring of its operations and
relocation  of  its  headquarters  to  Golden,  Colorado,  the  location  of its
subsidiary,  Interpro.  The Company recorded a $708,000 charge of which $468,000
is related to the  write-off  of certain  fixed  assets,  $132,000 to  terminate
certain lease agreements and $108,000 for severance and other costs. The Company
anticipates  additional charges in subsequent periods of approximately  $170,000
to $260,000  related to the  relocation of personnel.  Restructuring  and office
closure costs incurred through January 31, 1999, are approximately $575,000.

Other income (expense), net

Other income (expense), net reflects interest expense,  amortization of issuance
costs,  and foreign  currency gains and losses.  Other income,  net increased by
$30,000 to $53,000 for the quarter  ended  January 31, 1999,  from other income,
net of $23,000  for the  comparable  period of the  previous  fiscal  year.  The
increase was the result of foreign currency gains from notes payable denominated
in German Deutsche Marks due to the sellers of Chemotrade which was offset by an
increase  in  interest  expense.  Other  expense,  net  increased  by $16,000 to
$180,000 for the nine months ended January 31, 1999,  from  $164,000  during the
comparable  period of the previous  fiscal year.  The increase was due mainly to
increased interest expense.

Income taxes

There was a provision  for income taxes for the quarter  ended January 31, 1999,
because  of  income   generated  by  the  Company's   German-based   subsidiary,
Chemotrade,  during the quarter. The provision for the nine months ended January
31,  1999,  of $197,000  was also the result of foreign  taxes  attributable  to
Chemotrade.  The  provision  of $1,000 for the three  months and $0 for the nine
months ended  January 31,  1998,  was the result of domestic  (primarily)  state
taxes.

                                       16

<PAGE>


Item 2: Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Liquidity and Capital Resources

The  Company's  principal  sources  of funding  have been cash from  operations,
borrowed  funds,  and sales of common  stock.  The Company  generated  cash from
operations of  approximately  $146,000 and used cash in operating  activities of
$285,000 during the nine months ended January 31, 1999, and 1998,  respectively.
Cash generated from  operating  activities  during the nine months ended January
31,  1999,  was  principally  the  result  of a net loss of $1.757  million  and
increases in accounts  receivable,  and  inventory,  offset by  adjustments  for
non-cash  items,  primarily the write-off of fixed assets in the  restructuring,
depreciation  and  amortization,  and increases in accounts  payable and accrued
liabilities.  Cash used by  operating  activities  during the nine months  ended
January 31, 1998,  was  principally  the result of a net loss  $363,000,  net of
adjustments  for  non-cash  items,  primarily  depreciation,   amortization  and
extraordinary  loss  on  extinguishment  of  debt,  and  increases  in  accounts
receivable, inventory, and other current assets.

The  Company's  investing  activities  used cash of $666,000 and $72,000 for the
nine months ended January 31, 1999, and 1998, respectively. Cash used during the
nine months ended  January 31,  1999,  resulted  primarily  from the purchase of
Chemotrade and purchase of property and equipment.  Investing activities for the
nine  months  ended  January  31,  1998,  were for  purchases  of  property  and
equipment.

Financing  activities used cash of $296,000 during the nine months ended January
31, 1999, and provided cash of $1.601  million  during the comparable  period of
the  previous  fiscal year.  Cash used during the nine months ended  January 31,
1999, resulted primarily from the payment of bank debt and notes associated with
the Chemotrade  acquisition,  which was offset in part by proceeds from the line
of credit and term loans. Cash provided by financing  activities during the nine
months ended January 31, 1998,  resulted  primarily  from the  completion of the
Company's initial public offering,  which was offset in part by the repayment of
outstanding debt.

At January 31, 1999,  the Company had $228,000 of cash and cash  equivalents,  a
decrease of $816,000 compared to $1,044,000 as of April 30, 1998. At January 31,
1999,  the Company had negative  working  capital of  $1,062,000,  a decrease of
$2,873,000  compared to working  capital of $1,811,000 as of April 30, 1998. The
decrease  is  primarily  the  result  of the  Company's  cash  payments  for the
acquisition  of  Chemotrade  and the losses  incurred  for the nine months ended
January 31,  1999.  During the nine months ended  January 31, 1999,  the Company
paid the sellers of Chemotrade $1,601,000 of cash, and has one note for $877,000
outstanding due to the sellers on June 1, 1999.

On July 24,  1998,  the  Company  obtained a $3.0  million  asset  based  credit
facility for its U.S. operations, secured by its U.S. assets, with a lender. The
loan  consists  of a $500,000  equipment  term loan,  payable  over forty  eight
months;  a $250,000 term loan with  interest  only payments due monthly  through
October  31,  1998;  and  commencing  August 1, 1998,  payable  over twenty five
months, a $500,000  revolving line of credit,  with borrowings limited to 35% of
eligible  inventory,  a $1,250,000  revolving  line of credit,  with  borrowings
limited  to  80%  of  eligible  accounts  receivable  and a  $500,000  equipment
acquisition  term loan. The  availability of the equipment  acquisition  loan is
conditioned  upon the Company  achieving  and  maintaining  minimum debt service
coverage  ratios.   The  proceeds  of  the  new  facility  were  used  to  repay
approximately  $537,000 of debt  outstanding  and $742,000 of accounts  payable.
Chemotrade  has one unsecured  revolving line of credit for 400,000 DM ($234,000
at January 31, 1999). The Company is in the process of evaluating secured credit
facilities for Chemotrade.

                                       17

<PAGE>


Item 2: Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Factors That May Affect Future Results

In evaluating the Company's  business,  prospective  investors  should carefully
consider the following factors in addition to the other information presented in
this report and in the  Company's  other reports filed with the SEC that attempt
to advise  interested  parties  of the risks and  factors  that may  affect  the
Company's business.

Relationship with Certain Suppliers and Availability of Raw Materials

The Company depends upon an isotope enrichment plant,  located in Russia,  which
is owned by the  Ministry  of  Atomic  Energy  of the  Russian  Federation  (the
"Ministry"),  which is part of the  cabinet  of the  government  of the  Russian
Federation,  for one process  involved in the  manufacturing  of DZ. The Company
also relies upon a single supplier of raw material for DZ. The Company signed an
agreement  with the  commercial  department of the Ministry to purchase  certain
isotope separation services through 2001.  Disruption or termination of services
provided by the Ministry or the Company's  single supplier of raw material could
have a material and adverse  affect upon the Company's  financial  condition and
results of operations.

Operations in Russia and the Republic of Georgia

Operations  in Russia and the  republic of Georgia  ("Georgia")  entail  certain
risks. Recently, the former republics of the Soviet Union including Georgia have
experienced  political,  social and economic change as they sought  independence
from the former  central  government  in Moscow,  and certain of the  republics,
including  Russia and  Georgia,  have  attempted  to  transition  from a central
controlled economy toward a market-based  economy.  These changes have involved,
in certain cases,  armed  conflict.  There can be no assurance that political or
economic  instability in these republics will not continue or worsen. The supply
of stable  isotopes  could be  directly  affected  by  political,  economic  and
military  conditions in Russia and Georgia.  Accordingly,  the operations of the
Company could be materially  adversely  affected if hostilities in Russia should
occur,   if  trade  between  Russia  or  Georgia  and  the  United  States  were
interrupted, if political conditions in Russia or Georgia disrupt transportation
or processing  concerning the Company's  goods,  if laws or government  policies
concerning   foreign   business   operations   in  Russia  or   Georgia   change
substantially, or if tariffs are introduced.

Customer Concentration

Historically,  substantially all of the Company's net revenues in any particular
period have been attributable to a limited number of customers.  Consistent with
the Company's  historical  experience,  the Company's  quarterly  results during
fiscal  1999 and 2000 are  expected to be  affected  materially  by the level of
orders  received  from  significant  DZ users  during such  quarters and product
shipments by the Company to DZ customers  during such  periods.  There can be no
assurance  that the  Company's  principal  customers  will  continue to purchase
products. A decrease in or loss of orders from one or more major customers would
have a material and adverse  effect on the  Company's  financial  condition  and
results of operations.

                                       18

<PAGE>


Item 2: Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Factors Affecting Operating Results; Variability of Orders

The Company  operates  with  little  backlog  and a  significant  portion of the
Company's net revenues have been, and the Company  believes will continue to be,
derived from a limited  number of orders that are  processed  and shipped in the
same  quarter in which the orders are  received.  The timing of such  orders and
their  fulfillment  has caused,  and is likely to  continue  to cause,  material
fluctuations in the Company's  operating  results.  The Company's expense levels
are relatively fixed, and as has been the case in prior quarters,  these factors
will affect the Company's operating results for future periods.

Management of Growth

The  Company  has  experienced  periods  of  rapid  growth  that  have  placed a
significant  strain on the Company's  financial and  managerial  resources.  The
Company's  ability  to  manage  growth   effectively,   particularly  given  its
increasing  scope of  operations,  will require it to continue to implement  and
improve its management,  operational, and financial information systems, as well
as to develop the management skills of its personnel and to train,  motivate and
manage its employees.  The Company's failure to effectively  manage growth could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

Dependence on Key Personnel

The Company's  future success will depend in significant part upon the continued
service of its key technical,  sales and senior management personnel,  including
James E. Alexander,  the Company's President and Chief Executive Officer,  Boris
Rubizhevsky, the Company's Senior Vice President, Isotope Production and Supply,
Robert Cuttriss,  President of Interpro, and Herbert Hegener,  Managing Director
of Chemotrade. The Company maintains $1 million of key man life insurance on the
lives of Messrs.  Alexander,  Rubizhevsky  and  Cuttriss  and all are covered by
employment  agreements with the Company  extending through September 2001, 2001,
and 2003,  respectively.  Mr. Hegener is covered by an employment agreement with
the Company  extending  through the year 2001.  The  Company  believes  that its
future  success will depend in large part upon its ability to attract and retain
qualified  personnel for its  operations.  The failure to attract or retain such
persons could  materially  adversely  affect the Company's  business,  financial
condition and results of operations.

                                       19

<PAGE>


Item 2: Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Dates following December 31, 1999 and beyond (the "Year 2000 Problem")

Many existing computer systems and applications, and other devices, use only two
digits to identify a year in the date field,  without  considering the impact of
the upcoming change in the century.  Such systems and applications could fail or
create erroneous  results unless  corrected.  The Company relies on its internal
financial  systems  and  external  systems  of  business   enterprises  such  as
customers,  suppliers,  creditors, and financial organizations both domestically
and globally, directly and indirectly for accurate exchange of data. The Company
has evaluated such systems and has implement  appropriate changes to its systems
to ensure Y2K  compatibility.  The Company  believes the cost of addressing  any
unidentified  issues with the Year 2000 Problem will not have a material adverse
affect  on the  result of  operations  or  financial  position  of the  Company.
Additionally, the company has evaluated the potential impact on it of a Year 200
problem on the part of its  important  third  party  vendors and has found none.
However,  even though the  internal  systems of the  Company are not  materially
affected  by the  Year  2000  issue,  the  Company  could  be  affected  through
disruption in the operation of the enterprises with which the Company interacts.
Based on published  reports,  the Company does not anticipate that the Year 2000
problem will have a material impact on its business or operations.

Volatility of Stock Price

The  trading  price  of the  Company's  securities  has  been  subject  to  wide
fluctuations in response to quarter-to-quarter  variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors,  and other  events or factors.  In  addition,  the stock market has
experienced  wide  price  and  volume  fluctuations,  which  have at times  been
unrelated to the operating  performance  of the companies  whose  securities are
traded. These broad market fluctuations may adversely effect the market price of
the Company's common stock and common stock warrants.

Shares Eligible for Future Sale

The  officers  and  directors  of the  Company and all other  stockholders  have
agreed, pursuant to lock-up agreements expiring September 2000, that without the
prior written consent of Monroe Parker Securities,  Inc. (the  "Representative")
and the Company,  that they will not sell or  otherwise  dispose of common stock
beneficially  owned by  them.  The  Company  was  advised  by  officials  of the
Representative,   that  on  December  22,  1997,   the   Representative   ceased
market-making activities;  therefore, the Company may, in the future at its sole
discretion, release a portion of securities subject to these lock-up agreements.

                                       20

<PAGE>


                           Part II: Other Information

Item 6: Exhibits and Reports on Form 8-K

     No reports on Form 8-K were filed  during the  quarter  ended  January  31,
1999.

                                       21

<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned,  thereunto  duly  authorized,  in the  City of  Golden,  County  of
Jefferson, State of Colorado, on the 16h day of March, 1999.


          Isonics Corporation
             (Registrant)


          By                         /s/James E. Alexander
             ----------------------------------------------------
            James E. Alexander
            President, Chief Executive Officer and Director




          By                        /s/Brantley J. Halstead
             ----------------------------------------------------
             Brantley J. Halstead
             Chief Accounting Officer and Chief Financial Officer

                                       22