**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-QSB/A**


Amendment
      No.1







x
            Quarterly
                report pursuant to section 13 or 15(d) of the Securities Exchange
                Act of
                1934.**For
                the quarterly period ending March 31, 2005****.**oro
            Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934. For the transition period from _____to_____.Commission
                file number 000-25839







**IMPLANT
      SCIENCES CORPORATION**


(Exact
      name of registrant as specified in its charter)








**Massachusetts**
            
            **04-2837126**(State
                or other jurisdiction
              of
                incorporation or organization)
            
            (IRS
                Employer
              Identification
                number)107
                Audubon Road, #5
            
            Wakefield,
                MA 01880




781-246-0700
 (Issuers
        telephone number)
 
 **Not
        Applicable**
 (Former
        name, former address and former fiscal year, if changed since last
        report.)


Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 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
o





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      equity, as of the latest practicable date:





Class
            Outstanding
                at April 30, 2005Common
                Stock, $.10 par value
            10,711,645





Transitional
      small business disclosure format (check one):


YES
o NO
x










EXPLANATORY
            NOTE
 
 This
                Amendment No. 1 is being filed to amend the Balance Sheet to account
                for an
                offsetting adjustment between a deferred tax asset and deferred tax
                liability,
                to amend the disclosure in Footnote 15 to include the assumptions
                used in
                calculating the fair market value of the warrants identified, to
                correct
                disclosure in Footnote 16 to relating to the lock-up period for the
                Accurel
                shareholders, to amend certain disclosures in Item 2 - Management’s Discussion
                and Analysis of Financial Condition and Results of Operations, relating
                to the
                costs of goods sold, and to update certain financial disclosures
                in Item 3 -
                Controls and Procedures. In accordance with the rules of the Commission,
                the
                10-QSB is being filed in its entirety.
  The
            filing of this Amendment No. 1 shall not be deemed an admission that
            the
            Original Form 10-QSB, when made, included any untrue statement of a material
            fact or omitted to state a material fact necessary to make a statement
            not
            misleading.


**IMPLANT
      SCIENCES CORPORATION**





**INDEX**




Page
                    No.PART
                    I. FINANCIAL INFORMATIONItem
                    1.
                Financial
                    Statements:Condensed
                    Consolidated Balance Sheets as of March 31, 2005
                    (unaudited) and June 30, 2004
                2Condensed
                    Consolidated Statements of Operations for the
                    Three and Nine Months Ended March 31, 2005 and 2004
                    (unaudited)
                3Condensed
                    Consolidated Statements of Cash Flows for the
                    Nine Months Ended March 31, 2005 and 2004 (unaudited)
                4Notes
                    to Condensed Consolidated Financial Statements
                    (unaudited)
                7Item
                    2.
                Management's
                    Discussion and Analysis of Financial Conditionand
                    Results of Operations
                19Item
                    3.
                Controls
                    and Procedures
                27PART
                    II. OTHER INFORMATIONItem
                    1.
                Legal
                    Proceedings
                28Item
                    2.
                Changes
                    in Securities and Use of
                    Proceeds
                28Item
                    3.
                Defaults
                    Upon Senior Securities
                28Item
                    4.
                Submission
                    of Matters to a Vote of
                    Security-Holders
                28Item
                    5.
                Other
                    Information
                28Item
                    6.
                Exhibits
                    and Reports on Form 8-K
                28Signatures
                29


1







**IMPLANT
      SCIENCES CORPORATION**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





**March
                31,**
            
            **June
                30,****2005**
            
            **2004**Assets:
            
            (Unaudited)Current
                assets:Cash
                and cash equivalents
            
            $
            2,047,000
            
            $
            6,906,000Accounts
                receivable, less allowance of $215,000 and$142,000
                respectively
            
            
            2,656,000
            
            
            709,000Accounts
                receivable, unbilled
            
            
            472,000
            
            
            1,434,000Inventories
            
            
            920,000
            
            
            481,000Investments
                - available for sale securities
            
            
            215,000
            
            
            419,000Prepaid
                expenses and other current assets
            
            
            305,000
            
            
            140,000Total
                current assets
            
            
            6,615,000
            
            
            10,089,000Property
                and equipment, net
            
            
            11,345,000
            
            
            4,308,000Goodwill
            
            
            13,297,000
            
            
            -Amortizable
                intangible assets, net
            
            
            1,382,000
            
            
            625,000Investment
                in unconsolidated subsidiary
            
            
            529,000
            
            
            63,000Other
                non-current assets
            
            
            229,000
            
            
            139,000Total
                assets
            
            $
            33,397,000
            
            $
            15,224,000**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            1,529,000
            
            $
            578,000Accrued
                expenses
            
            
            2,482,000
            
            
            740,000Payable
                to Med-Tec
            
            
            348,000
            
            
            394,000Current
                maturities of long-term debt and obligations undercapital
                lease
            
            
            2,067,000
            
            
            101,000Deferred
                revenue
            
            
            112,000
            
            
            23,000Total
                current liabilities
            
            
            6,538,000
            
            
            1,836,000Long-term
                liabilities:Long
                term lease liability
            
            
            795,000Payable
                to Med-Tec, net of current maturities
            
            
            -
            
            
            212,000Long-term
                debt and obligations under capital lease, net of current
                maturities
            
            
            993,000
            
            
            6,000Total
                liabilities
            
            
            8,326,000
            
            
            2,054,000Convertible
                preferred stock: 5,000,000 shares authorized5%
                Series C Cumulative Redeemable Convertible Preferred Stock; $10 stated
                value; 250,000 shares designated; 131,875 issued and outstanding
                in 2004
            
            
            -
            
            
            670,000Stockholders'
                equity:Common
                stock, $0.10 par value; 20,000,000 shares authorized;10,785,445
                and 8,370,338 shares outstanding, respectively
            
            
            1,070,000
            
            
            837,000Treasury
                Stock, 22,449 and 3,103 common shares, repectively, at
                cost
            
            
            (217,000
            )
            
            (34,000
            )Additional
                paid-in capital
            
            
            50,934,000
            
            
            31,360,000Accumulated
                deficit
            
            
            (26,196,000
            )
            
            (19,527,000
            )Deferred
                compensation
            
            
            (517,000
            )
            
            (449,000
            )Accumulated
                other comprehensive income
            
            
            (3,000
            )
            
            313,000Total
                stockholders' equity
            
            
            25,071,000
            
            
            12,500,000Total
                liabilities and stockholders' equity
            
            $
            33,397,000
            
            $
            15,224,000


The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.


2





**IMPLANT
      SCIENCES CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)**





**Three
                Months Ended**
            
            **Nine
                Months Ended****March
                31,**
            
            **March
                31,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Revenues:Medical
            
            $
            1,083,000
            
            $
            1,494,000
            
            $
            2,976,000
            
            $
            3,860,000Semiconductor
            
            
            1,604,000
            
            
            310,000
            
            
            3,226,000
            
            
            838,000Explosives
                detection
            
            
            175,000
            
            
            831,000
            
            
            1,475,000
            
            
            1,462,000Total
                revenues
            
            
            2,862,000
            
            
            2,635,000
            
            
            7,677,000
            
            
            6,160,000Costs
                and expenses:Cost
                of medical revenue
            
            
            787,000
            
            
            1,050,000
            
            
            2,586,000
            
            
            2,863,000Cost
                of semiconductor revenue
            
            
            1,613,000
            
            
            422,000
            
            
            3,520,000
            
            
            970,000Cost
                of explosives detection revenue
            
            
            481,000
            
            
            396,000
            
            
            1,561,000
            
            
            714,000Total
                costs and expenses
            
            
            2,881,000
            
            
            1,868,000
            
            
            7,667,000
            
            
            4,547,000Gross
                margin
            
            
            (19,000
            )
            
            767,000
            
            
            10,000
            
            
            1,613,000Operating
                expenses:Research
                and development
            
            
            715,000
            
            
            418,000
            
            
            1,566,000
            
            
            1,299,000Selling,
                general and administrative
            
            
            1,464,000
            
            
            1,156,000
            
            
            3,811,000
            
            
            2,905,000Total
                operating expenses
            
            
            2,179,000
            
            
            1,574,000
            
            
            5,377,000
            
            
            4,204,000Loss
                from operations
            
            
            (2,198,000
            )
            
            (807,000
            )
            
            (5,367,000
            )
            
            (2,591,000
            )Other
                income (expense):Interest
                income
            
            
            6,000
            
            
            6,000
            
            
            37,000
            
            
            14,000Interest
                expense
            
            
            (35,000
            )
            
            (33,000
            )
            
            (82,000
            )
            
            (111,000
            )Loss
                on sale of capital asset
            
            
            -
            
            
            -
            
            
            (6,000
            )
            
            -Equity
                losses in unconsolidated subsidiaries
            
            
            (40,000
            )
            
            (5,000
            )
            
            (68,000
            )
            
            (12,000
            )Total
                other expense, net
            
            
            (69,000
            )
            
            (32,000
            )
            
            (119,000
            )
            
            (109,000
            )Net
                loss
            
            
            (2,267,000
            )
            
            (839,000
            )
            
            (5,486,000
            )
            
            (2,700,000
            )Preferred
                distribution, dividends and accretion
            
            
            (615,000
            )
            
            (1,227,000
            )
            
            (1,182,000
            )
            
            (2,201,000
            )Net
                loss applicable to common shareholders
            
            $
            (2,882,000
            )
            $
            (2,066,000
            )
            $
            (6,668,000
            )
            $
            (4,901,000
            )Net
                loss per share applicable to common shareholders
            
            $
            (0.30
            )
            $
            (0.27
            )
            $
            (0.74
            )
            $
            (0.69
            )Weighted
                average common shares outstanding, basic and diluted
            
            
            9,618,367
            
            
            7,447,253
            
            
            8,989,237
            
            
            7,090,465






The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.


3




**IMPLANT
      SCIENCES CORPORATION**


**CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 
 **Nine
                  Months Ended****March
                  31,****Cash
                  flows from operating activities**
              
              **2005**
              
              **2004**Net
                  loss
              
              $
              (5,486,000
              )
              $
              (2,700,000
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              1,289,000
              
              
              914,000Stock-based
                  compensation expense
              
              
              318,000
              
              
              898,000Equity
                  in loss in unconsolidated subsidiary
              
              
              68,000
              
              
              12,000Loss
                  on sale of equipment
              
              
              6,000
              
              
              -Changes
                  in operating assets and liabilities, net of acquisitions:Accounts
                  receivable
              
              
              537,000
              
              
              (711,000
              )Inventories
              
              
              (265,000
              )
              
              19,000Prepaid
                  and other current assets
              
              
              (22,000
              )
              
              (109,000
              )Accounts
                  payable
              
              
              (268,000
              )
              
              (147,000
              )Accrued
                  expenses
              
              
              1,176,000
              
              
              38,000Net
                  cash used in operating activities
              
              
              (2,647,000
              )
              
              (1,786,000
              )**Cash
                  flows from investing activities**Purchase
                  of property and equipment
              
              
              (635,000
              )
              
              (194,000
              )Proceeds
                  from sale of equipment
              
              
              1,400,000Investment
                  in for sale securities
              
              
              (25,000
              )
              
              (40,000
              )Cash
                  used for the acquisition of Core Systems, net of cash
                  received
              
              
              (2,603,000
              )
              
              -Cash
                  used for the acquisition of Accurel, net of cash received
              
              
              (6,978,000
              )Other
                  non-current assets
              
              
              23,000
              
              
              (56,000
              )Net
                  cash used in investing activities
              
              
              (8,818,000
              )
              
              (290,000
              )**Cash
                  flows from financing activities**Proceeds
                  from exercise of stock options and purchases from Employee Stock
                  plan
              
              
              867,000
              
              
              -Proceeds
                  from issuance of Series A preferred stock, net of issuance
                  costs
              
              
              -
              
              
              593,000Proceeds
                  from issuance of Series B preferred stock, net of issuance
                  costs
              
              
              -
              
              
              1,818,000Proceeds
                  from issuance of Series C preferred stock, net of issuance
                  costs
              
              
              -
              
              
              2,289,000Proceeds
                  from issuance of common stock in a private placement net of issuance
                  cost
              
              
              7,408,000
              
              
              358,000Proceeds
                  from warrant exercises
              
              
              141,000
              
              
              -Acquisition
                  of treasury stock
              
              
              (54,000
              )
              
              -Repayment
                  of long-term lease liability
              
              
              (5,000
              )
              
              -Repayments
                  of long-term debt and capital lease obligations
              
              
              (651,000
              )
              
              (312,000
              )Payments
                  received from notes
              
              
              
              
              
              85,000Repayments
                  of equipment financing
              
              
              (1,100,000
              )
              
              (886,000
              )Net
                  cash provided by financing activities
              
              
              6,606,000
              
              
              3,945,000Net
                  increase (decrease) in cash and cash equivalents
              
              
              (4,859,000
              )
              
              1,869,000Cash
                  and cash equivalents, beginning
              
              
              6,906,000
              
              
              959,000Cash
                  and cash equivalents, ending
              
              $
              2,047,000
              
              $
              2,828,000
   The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.


4


**Nine
                  Months
                  Ended****March
                  31,****2005**
              
              **2004****Supplemental
                  Disclosure of Cash Flow Information:**Interest
                  paid in cash
              
              $
              46,000
              
              $
              65,000**Noncash
                  Investing and Financing Activity:**Issuance
                  of Series B warrants
              
              $
              -
              
              $
              184,000Noncash
                  beneficial conversion feature - Series B
              
              $
              -
              
              $
              826,000Issuance
                  of Series C warrants
              
              $
              -
              
              $
              305,000Noncash
                  beneficial conversion feature - Series C
              
              $
              -
              
              $
              700,000Conversion
                  of Series A Cumulative Convertible Preferred stockand
                  accrued dividends into common stock
              
              $
              -
              
              $
              1,500,000Conversion
                  of Series B Cumulative Convertible Preferred stockand
                  accrued dividends into common stock
              
              $
              -
              
              $
              2,000,000Conversion
                  of Series C Cumulative Convertible Preferred stockand
                  accrued dividends into common stock
              
              $
              1,406,000
              
              $
              -Value
                  of amortizable intangible asset acquired inexchange
                  for long term note payable
              
              $
              -
              
              $
              1,007,000Accretion
                  of 7% Series A Cumulative Convertible Preferresd Stockdividends,
                  beneficial conversion feature and warrants
              
              $
              -
              
              $
              556,000Accretion
                  of 5% Series B Cumulative Convertible Preferred Stockdividends,
                  beneficial conversion feature and warrants
              
              $
              -
              
              $
              1,254,000Accretion
                  of 5% Series C Cumulative Convertible Preferred Stockdividends,
                  beneficial conversion feature and warrants
              
              $
              704,000
              
              $
              336,000Value
                  of non-cash investment in CorNova
              
              
              
              
              $
              113,000Value
                  of IPO warrant extension
              
              $
              479,000**On
                  October 15, 2004, the Company acquired Core Systems Incorporated
                  -****Fair
                  value of assets:**Accounts
                  receivable
              
              $
              450,000Inventory
              
              
              174,000Property,
                  plant and equipment
              
              
              3,422,000Other
                  intangible assets
              
              
              75,000Goodwill
              
              
              4,973,000Other
                  assets
              
              
              74,000**Liabilities
                  assumed:**Accounts
                  payable and accrued expenses
              
              
              (1,062,000
              )Debt
                  and capital leases
              
              
              (621,000
              )**Purchase
                  price:**Cash
                  paid for purchase of Core Systems, net of cash acquired
              
              
              (2,603,000
              )Fair
                  value of warrants issued
              
              
              (1,122,000
              )Fair
                  value of common stock issued
              
              $
              3,760,000
 The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.





5




**On
                  March 9, 2005, the Companyacquired Accurel Systems
                  International Corporation -****Fair
                  value of assets:**Accounts
                  receivable
              
              $
              1,073,000Property,
                  plant and equipment
              
              
              3,957,000Assets
                  held for sale
              
              
              1,400,000Other
                  intangible assets
              
              
              1,000,000Goodwill
              
              
              8,050,000Other
                  assets
              
              
              182,000**Liabilities
                  assumed:**Accounts
                  payable and accrued expenses
              
              
              (555,000
              )Long
                  term lease liability
              
              
              (800,000
              )Debt
                  and capital leases
              
              
              (2,433,000
              )**Purchase
                  price:**Debt
                  issued to selling shareholders
              
              
              (1,650,000
              )Cash
                  paid for purchase of Accurel, net of cash acquired
              
              
              (6,978,000
              )Fair
                  value of common stock issued
              
              $
              3,246,000


The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.




6




**IMPLANT
      SCIENCES CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**March
      31, 2005**


**(Unaudited)**


**1.**
              **Description
                  of
                  Business**


Implant
      Sciences Corporation (the “Company”) develops products for the medical device
      and explosives detection industry using ion implantation and thin film coatings
      of radioactive and non-radioactive materials. The Company has received Food
      and
      Drug Administration 510(k) clearance to market its I-Plant ’ Iodine-125 radioactive seed for the treatment of prostate cancer. The Company
      also has under development brachytherapy systems for the treatment of breast
      cancer. The Company also modifies the surface characteristics of orthopedic
      joint implants to reduce polyethylene wear and thereby increasing the life
      of
      the implant and provides wafer processing services, equipment and analysis
      for
      the semiconductor industry. Additionally, the Company continues to develop
      explosives detection systems to be used in the detection of trace residues
      of
      explosives.





**2.**
            **Interim
                Financial Statements**




The
      financial information for the three and nine months ending March 31, 2005 and
      2004 is unaudited but includes all adjustments (consisting only of normal
      recurring adjustments), which we consider necessary for a fair presentation
      of
      the financial position at such date and of the operating results and cash flows
      for these periods. The result of operations and cash flows for the three and
      nine months ended March 31, 2005 are not necessarily indicative of results
      that
      may be expected for the entire year. The information contained in this Form
      10-QSB should be read in conjunction with our audited financial statements,
      included in our Form 10-KSB/A No. 1 as of and for the year ending June 30,
      2004
      filed with the Securities and Exchange Commission on November 10, 2004. Certain
      amounts in the prior period financial statements have been reclassified to
      conform to the current period’s presentation.





**3.**
            **Stock-based
                Compensation**




The
      Company accounts for its employee stock based compensation arrangements under
      the provisions of Accounting Principal Board (APB) Opinion No. 25, “Accounting
      for Stock Issued to Employees,” rather than the alternative fair value
      accounting method provided for under Statement of Financial Accounting Standards
      (SFAS) No. 123, “Accounting for Stock-Based Compensation.” Under APB 25, when
      the exercise price of options granted to employees and non-employee directors
      under these plans equals the market price of the underlying stock on the date
      of
      the grant, no compensation expense is recorded.




The
      Company has elected to use the disclosure-only provisions of SFAS No. 123 and
      SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and
      Disclosure.” Had compensation expense for stock option grants to employees been
      determined based on the fair value method at the grant dates for awards under
      the stock option plans consistent with the method prescribed by SFAS No. 123,
      the Company’s net loss would have increased to the pro forma amounts indicated
      as follows:




7


**Three
                    Months Ended**
                
                **Nine
                    Months Ended****March
                    31,**
                
                **March
                    31,****2005**
                
                **2004**
                
                **2005**
                
                **2004**Net
                    loss applicable to common shareholders, as reported
                
                $
                (2,882,000
                )
                $
                (2,066,000
                )
                $
                (6,668,000
                )
                $
                (4,901,000
                )Add:
                    Stock-based employee compensation expense included in reported
                    net loss
                    applicable to common shareholders, net of tax
                
                
                71,000
                
                
                70,000
                
                
                208,000
                
                
                551,000Deduct:
                    Total stock-based employee compensation expense determined under
                    the fair
                    value based method of all awards, net of tax
                
                
                (466,000
                )
                
                (193,000
                )
                
                (1,482,000
                )
                
                (576,000
                )Pro
                    forma net loss applicable to common shareholders
                
                $
                (3,277,000
                )
                $
                (2,189,000
                )
                $
                (7,942,000
                )
                $
                (4,926,000
                )Net
                    loss per share applicable to common shareholders, basic and
                    diluted:As
                    reported
                
                $
                (0.30
                )
                $
                (0.27
                )
                $
                (0.74
                )
                $
                (0.69
                )Pro
                    forma
                
                $
                (0.34
                )
                $
                (0.29
                )
                $
                (0.88
                )
                $
                (0.69
                )


In
      December 2003, the Company issued stock options below fair market value. This
      amount is being amortized over the vesting period of the options which averages
      3 years. During the quarter ended March 31, 2005, the Company recorded $59,000
      in compensation expense related to this transaction.




In
      December 2004, the Company recorded deferred compensation of $144,000 relating
      to stock options issued at prices below fair market value. This amount is being
      amortized over the vesting period of the options which averages 3 years. During
      the quarter ended March 31, 2005, the Company recorded compensation expense
      of
      $12,000 related to this transaction.




In
      September 2004, the Company issued warrants to consultants in exchange for
      services. This amount is being amortized over the vesting period of the warrants
      which averages 3 years. During the quarter ended March 31, 2005, the Company
      recorded approximately $12,000 in expense associated with these transactions.
      The Company estimated the fair value of the common stock warrants using the
      Black-Scholes option-pricing model with the following assumptions: volatility
      of
      .647, risk-free interest rate of 3.47% and a Black Scholes value of 5.81.




In
      October 2004, the Company issued 200,000 common stock warrants to a consultant
      in connection with the Core acquisition. The Company recorded the fair value
      of
      these warrants, of approximately $1,122,000, as additional costs associated
      with
      the Core acquisition and included this value in the total purchase price of
      the
      acquisition. The Company estimated the fair value of the warrants using the
      Black Scholes option-pricing model with the following assumptions: volatility
      of
      .641, risk-free interest rate of 3.36% and a Black Scholes value of 5.61.




In
      January 2005, the Company issued fully vested warrants to consultants in
      exchange for services. In the quarter ended March 31, 2005, the Company
      recognized approximately $84,000 in expense related to these transactions.
      The
      Company estimated the fair value of the warrants using the Black Scholes
      option-pricing model with the following assumptions: volatility of .628,
      risk-free interest rate of 3.53% and a Black Scholes value of 5.68.





8




**4.**
            **Loss
                Per Share**




Basic
      loss per share is computed based only on the weighted average number of common
      shares outstanding during the period. Diluted earnings per share is computed
      by
      using the weighted average number of common shares outstanding during the
      period, plus the dilutive effects of shares issuable through the exercise of
      stock options (common stock equivalents) unless their inclusion would be
      antidilutive. Approximately 1,535,000 options and 2,310,000 warrants were
      excluded from the loss per share calculation in 2005 and 1,261,000 options
      and
      1,594,000 warrants were excluded in 2004 periods as their effect would have
      been
      antidilutive.





**5.**
            **Comprehensive
                Income (Loss)**




The
      Company has accumulated other comprehensive income (loss) resulting from the
      unrealized gain/loss on an investment in marketable equity securities of
      CardioTech International Inc. (Note 9) and the recognition of the unrealized
      gain/loss of the Company’s share of CardioTech and Implant Sciences stock owned
      by CorNova (Note 11) which is recorded in the stockholders’ equity section of
      the accompanying condensed consolidated balance sheets. Comprehensive income
      (loss) is summarized below:




**Three
                      Months Ended**
                  
                  **Nine
                      Months Ended****March
                      31,**
                  
                  **March
                      31,****2005**
                  
                  **2004**
                  
                  **2005**
                  
                  **2004**Net
                      Loss
                  
                  $
                  (2,267,000
                  )
                  $
                  (839,000
                  )
                  $
                  (5,486,000
                  )
                  $
                  (2,700,000
                  )Other
                      Comprehensive Income (Loss)
                  
                  
                  (185,000
                  )
                  
                  195,000
                  
                  
                  (317,000
                  )
                  
                  302,000Comprehensive
                      Loss
                  
                  $
                  (2,452,000
                  )
                  $
                  (644,000
                  )
                  $
                  (5,803,000
                  )
                  $
                  (2,398,000
                  )


**6.**
            **Accounts
                Receivable**




Contract
      revenue under cost sharing research and development agreements is recognized
      as
      eligible expenses are incurred. Invoicing of research and development contracts
      occurs in accordance with the terms of the contract. Revenue recognized but
      unbilled is recorded as unbilled accounts receivable. At March 31, 2005,
      unbilled accounts receivable represented approximately 15% of total accounts
      receivable.





**7.**
            **Issuance
                of Series C 5% Cumulative Convertible Preferred
                Stock**




On
      November 25, 2003, the Company issued 250,000 shares of Series C 5% Cumulative
      Convertible Preferred Stock (“Series C”) having a stated value of $10 per share,
      pursuant to a Securities Purchase Agreement executed on November 25, 2003 with
      the Laurus Master Fund, Ltd. (Laurus). The Company received $2,500,000 in gross
      proceeds, less a management and placement agent fee of approximately $125,000,
      and related transaction costs of approximately $86,000. The terms of the Series
      C provide for repayment with shares of the Company’s common stock or in cash,
      pursuant to an amortization schedule. Repayment of the Series C commenced on
      March 31, 2004. The Company had the sole option to determine whether to satisfy
      payment of the monthly amount in full on each repayment date either in cash
      or
      in shares of common stock, or a combination of both, unless the closing price
      of
      the Company’s common stock for any of the eleven trading days preceding a
      repayment date was less than $7.35, wherein the Company was required to pay
      such
      monthly amount in cash. If the payment of the monthly amount is made in common
      stock, the fixed conversion price is $6.75. The Company also issued to Laurus
      a
      warrant to purchase 50,000 shares of common stock at $8.44 per share and 50,000
      shares of common stock at $10.13 per share. The Securities Purchase Agreement
      also provided for a security interest in substantially all of the Company’s
      assets and provided Laurus a right of first refusal on future financing
      arrangements during the Term of the agreement. In the event Laurus declines
      to
      exercise its right of first refusal, it agreed to enter into such documentation
      as shall be reasonable requested by the Company in order to subordinate its
      rights under the Series C to the subsequent financier. The Company utilized
      the
      proceeds of this financing to purchase an ion implanter and for general working
      capital purposes.




9


In
      accordance with the provisions of Emerging Issues Task Force (EITF) Issue 00-27,
      "Application of EITF Issue No. 98-5 'Accounting for Convertible Securities
      with
      Beneficial Conversion Features of Contingently Adjustable Conversion Ratios',
      to
      Certain Convertible Securities", which became effective in November 2000, the
      allocated value of the Series C contained a beneficial conversion feature
      calculated based on the difference between the effective conversion price of
      the
      proceeds allocated to the Series C and the fair market value of the common
      stock
      at the date of issuance.  The
      discount arising from the beneficial conversion feature aggregated $700,000.
      The
      discount was being amortized and recorded as a preferred dividend during the
      period from the issuance of the preferred stock to March 7, 2005 the actual
      conversion date, using the effective interest method.




The
      Company valued the Series C at issuance to be $1,284,000 based on the relative
      fair market values of the financial instruments issued in connection with this
      placement, net of offering costs and the beneficial conversion feature. The
      amounts recorded in the financial statements represent the amounts attributed
      to
      the sale of the preferred stock, net cash proceeds of $2,289,000 ($211,000
      of
      issuance costs incurred), the amount allocated to warrants of $305,000, and
      the
      amount of the discount related to the value of beneficial conversion feature
      of
      $700,000. The Company accreted these discounts on the carrying value of the
      preferred stock to its redemption value of $2,500,000 at the actual conversion
      date. The accretion of these amounts was recorded as a preferred dividend in
      the
      period of accretion. During the period ended March 31, 2005, , approximately
      $134,000 was amortized. As of March 31, 2005, the Series C was converted in
      full.




During
      the three months ended March 31, 2005, Laurus redeemed 25,762 shares of Series
      C
      into 38,165 shares of the Company’s common stock at conversion price of $6.75
      per share and redeemed approximately $3,000 of accrued dividends into 376 shares
      of the Company’s common stock. The conversion of accrued dividends into common
      stock resulted in additional dividends of approximately $1,000 during the three
      months ended March 31, 2005, in excess of 5% stated value.




**8.**
              **Issuance
                  of Common Stock**
  On
        March
        8, 2005 the Company issued 1,080,780 shares of common stock at $7.22, in
        a
        private placement with fifteen investors. The Company received $7,803,000
        in
        gross proceeds, less placement agent fees and related transaction costs of
        approximately $433,000.
  In
        connection with the transaction, the
        Company issued warrants
        to the
        investors to purchase
        270,195 shares of common stock at an exercise price of $9.35 ,
        which
        are exercisable anytime between September 4 ,
        2005 and
        September 4, 2010. In addition ,
        the
        investors have
        rights to
        purchase up
        to 588,235
        shares of common stock at a price of $8.50 per
        share, which are exercisable for a period commencing (i) anytime on or after
        September 4, 2005 and (ii) on or prior to the later of the 6 month anniversary
        of the effective
        date of the registration statement filed on April 12, 2005, or March 4, 2006.
        The Company also issued warrants to the placement agent to purchase 33,383
        shares of common stock at an exercise price of $9.35 per share, which are
        exercisable until March 4, 2010. Should the investors exercise these additional
        investment rights, the placement agent will receive an additional warrant
        for
        21,390 shares at an exercise price of $9.35 per share.
  10
  **9.**
              **Related
                  Party Transactions**
 
 SFAS
        No.
        57, “Related Party Disclosures,” specifies the nature of information that should
        be disclosed in financial statements regarding related party transactions.
        CardioTech International, Inc. (“CardioTech”) a public company, whose common
        stock trades under the symbol CTE on the American Stock Exchange, is a related
        party with the Company by virtue of its significant business
        relationships.
 
 Certain
        directors of the Company hold positions as directors of CardioTech. The CEO
        and
        Chairman of the Board of Directors of the Company is also a director of
        CardioTech. The CEO and Chairman of the Board of Directors of CardioTech
        is also
        a director of the Company.
 
 In
        March
        2000, the Company entered into a joint research agreement with CardioTech
        to
        develop a proprietary porous polymer biocompatible coating technology as
        a
        platform for the Company’s proprietary radioactive brachytherapy technology. In
        consideration for this agreement, the Company agreed to pay $150,000 in cash
        and
        purchase 100,000 shares of CardioTech stock at a price of $1.00 per share.
        As of
        March 31, 2005, the fair market value of the 100,000 shares of CardioTech
        stock
        is $190,000, which is recorded as investment in available for sale securities
        in
        the accompanying condensed consolidated balance sheet.
  In
        March
        2004 the Company entered into an Exchange & Venture Agreement with
        CardioTech and CorNova, Inc. (Note 10). The Company’s CEO and a director are
        also on the Board of Directors of CorNova. As of March 31, 2005, the Company
        has
        an outstanding receivable from CorNova of approximately $4,000.
 **10.**
                **MED-TEC**


On
      July
      31, 2003, the Company entered into an agreement with its former exclusive
      distributor of prostate seeds, to release each other from further obligations
      under the 2000 Agreement. The new agreement conveys to the Company direct
      marketing and sales capabilities to sell its I-Plant Seed brachytherapy seeds
      for use in the treatment of prostate cancer. In connection with this, the
      Company’s former exclusive distributor transitioned customers and marketing
      materials directly to the Company. The distributor also agreed not to compete
      with the Company for a period of three years. The Company will pay the
      distributor an average of approximately $39,000 per month over the 28 months,
      beginning September 1, 2003. As of March 31, 2005 , the outstanding principal
      balance is approximately $348,000. For the three months ended March 31, 2005,
      the Company recorded approximately $10,000 of interest expense relating to
      this
      transaction.




The
      present value of this asset was recorded as approximately $1,007,000, using
      a
      rate of 10.24%, and is being amortized over its estimated useful life of 29
      months. During the three months ended March 31, 2005, approximately $104,000
      of
      amortization expense was recognized.




**11.**
                **Investment
                    in Unconsolidated
                    Subsidiary**
  In
            March
            2004, the Company entered into an Exchange & Venture Agreement with
            CardioTech International and CorNova. CorNova is a start-up company focused
            on
            the development and marketing of innovative interventional cardiology
            products.
            The Company issued 10,344 shares of common stock bearing an aggregate
            fair
            market value of $113,000 as of the date of issuance. In exchange, the
            Company
            received 1,500,000 shares of the CorNova’s common stock, which represented a 30%
            ownership position, and a position on the Board of Directors.
 
 Upon
            CorNova’s securing of an additional $3,000,000 in financing (the “Series A
            Financing”), CardioTech and the Company each issued additional shares of their
            common stock (the “Investment Shares”), which was equal in value to twenty-five
            percent (25%) of the gross proceeds of the Series A Financing, or $750,000.
            As
            of March 31, 2005, 87,031 shares, representing a 19% ownership position
            have
            been issued by the Company, 16,449 of which have been categorized as
            treasury
            stock. During the three months ended March 31, 2005, the Company recognized
            approximately $40,000 of other expense representing the Company’s portion of
            CorNova’s net loss. The Company also recorded approximately $80,000 as
            unrealized loss, which is included in accumulated other comprehensive
            income for
            the three months ended March 31, 2005. This unrealized loss relates to
            the
            Company’s portion of the decline in value of the Investment Shares issued to
            CorNova. The Company is accounting for this investment under the equity
            method
            under APB Opinion No. 18, “The Equity Method of Accounting for Investments in
            Common Stock.”
  11
  **12.**
                  **Bay
                      Area MRI**
  In
            March
            2004, the Company entered into a consulting agreement with Christopher
            Lang and
            Bay Area MRI to assist the Company in the sale of radioactive prostate
            seeds. As
            compensation for consulting services, the Company may be required to
            pay
            commissions of up to $600,000 ($300,000 in cash and $300,000 in shares
            of common
            stock.). During the period ended March 31, 2004, the Company issued 3,205
            shares
            of restricted common stock, bearing an aggregate fair market value of
            approximately $37,500 and advanced $50,000 of cash commissions. In the
            period
            ended September 31, 2004 the Company had determined that this asset was
            impaired
            and has recorded a reserve against the prepaid commission of approximately
            $81,000 or 100% of the recorded prepaid commission.
 
 **13**.
                  **Treasury
                      Stock**
  In
            June
            2004, the Board authorized the Company to repurchase of up to 300,000
            shares of
            the Company’s common stock, from time to time in the open market, privately
            negotiated transactions, block transactions or at time and prices deemed
            appropriate by management. As of March 31, 2005, the Company had repurchased
            a
            total of 6,000 shares of common stock at prices ranging from $8.91 to
            $9.02 per
            share at a total cost of approximately $54,000, which is recorded as
            treasury
            stock in the accompanying condensed consolidated balance sheet.
  In
            March
            2004, the Company entered into an Exchange & Venture Agreement with
            CardioTech International and CorNova and issued 10,344 shares of common
            stock
            bearing an aggregate fair market value of $113,000. In February 2005,
            the
            Company issued an additional 76,687 shares of common stock bearing an
            aggregate
            fair market value of $750,000. As of March 31, 2005, 16,449 shares, representing
            a 19% ownership in CorNova, have been categorized as treasury stock.
 
 **14**.
                  **Financial
                      Information by Segment**
 
 Under
            SFAS No. 131, “Disclosures about Segments of an Enterprise and Related
            Information,” operating segments are defined as components of an enterprise
            about which separate financial information is available that is evaluated
            regularly by the chief operating decision maker, or decision making group,
            in
            deciding how to allocate resources and in assessing performance. The
            Company's
            chief operating decision making group is composed of the chief executive
            officer
            and members of senior management. The Company's reportable segments are:
            Medical, Semiconductor and Explosives.
 
 Gross
            margin is the measure that management uses when evaluating the Company’s
            segments, therefore, operating expenses are excluded from the financial
            information below.
  The
            revenues and expenses related to these segments for the three and nine
            months
            ended March 31, 2005 and 2004, respectively, are:
  12
  Three
                      Months Ended March 31, 2005**Medical**
                  
                  **Semiconductor**
                  
                  **Explosives**
                  
                  **Total**Revenue
                  
                  $
                  1,083,000
                  
                  $
                  1,604,000
                  
                  $
                  175,000
                  
                  $
                  2,862,000COGS
                  
                  
                  (787,000
                  )
                  
                  (1,613,000
                  )
                  
                  (481,000
                  )
                  
                  (2,881,000
                  )Gross
                      Margin
                  
                  $
                  296,000
                  
                  $
                  (9,000
                  )
                  $
                  (306,000
                  )
                  $
                  (19,000
                  )Three
                      Months Ended March 31, 2004**Medical**
                  
                  
                  **Medical**
                  
                  
                  **Semiconductor**
                  
                  
                  **Explosives**
                  
                  
                  **Total**Revenue
                  
                  $
                  1,494,000
                  
                  $
                  310,000
                  
                  $
                  831,000
                  
                  $
                  2,635,000COGS
                  
                  
                  (1,050,000
                  )
                  
                  (422,000
                  )
                  
                  (396,000
                  )
                  
                  (1,868,000
                  )Gross
                      Margin
                  
                  $
                  444,000
                  
                  $
                  (112,000
                  )
                  $
                  435,000
                  
                  $
                  767,000Nine
                      Months Ended March 31, 2005**Medical**
                  
                  
                  **Medical**
                  
                  
                  **Semiconductor**
                  
                  
                  **Explosives**
                  
                  
                  **Total**Revenue
                  
                  $
                  2,976,000
                  
                  $
                  3,226,000
                  
                  $
                  1,475,000
                  
                  $
                  7,677,000COGS
                  
                  
                  (2,586,000
                  )
                  
                  (3,520,000
                  )
                  
                  (1,561,000
                  )
                  
                  (7,667,000
                  )Gross
                      Margin
                  
                  $
                  390,000
                  
                  $
                  (294,000
                  )
                  $
                  (86,000
                  )
                  $
                  10,000Nine
                      Months Ended March 31, 2004**Medical**
                  
                  
                  **Medical**
                  
                  
                  **Semiconductor**
                  
                  
                  **Explosives**
                  
                  
                  **Total**Revenue
                  
                  $
                  3,860,000
                  
                  $
                  838,000
                  
                  $
                  1,462,000
                  
                  $
                  6,160,000COGS
                  
                  
                  (2,863,000
                  )
                  
                  (970,000
                  )
                  
                  (714,000
                  )
                  
                  (4,547,000
                  )Gross
                      Margin
                  
                  $
                  997,000
                  
                  $
                  (132,000
                  )
                  $
                  748,000
                  
                  $
                  1,613,000
 **15****.**
                  **Acquisition
                      of Core Systems
                      Incorporated**
  On
            October 15, 2004, the Company
            completed the acquisition of Core Systems, a privately held semiconductor
            wafer
            processing company. The transaction was structured as a reorganization
            of Core
            with and into a newly formed, wholly-owned subsidiary of the Company.
            The
            operating results of Core Systems have been included in the Company’s statement
            of operations beginning October 15, 2004.
    The aggregate purchase price of Core was $7,485,000, which consisted
            of
            $2,000,000 in cash; 311,437 shares of the Company's common stock with
            an
            aggregate fair value of $3,250,000; direct acquisition costs of approximately
            $1,614,000 and the payment of approximately $621,000 of debt and other
            obligations coincident with the closing. The number of shares issued
            was
            initially determined by the average price of the Company’s stock over a
            twenty-day period ending October 8, 2004. The share price was subject
            to
            adjustment limiting the gain or loss in the value of the Company stock,
            over a
            twenty-day period at the end of a six month lock-up, ending April 15,
            2005, to
            25% from the initial value. The twenty-day average price of the stock
            for the
            period ending April 15, 2005 was $5.75, which will result in the issuance
            of an
            additional 112,475 shares. The fair value of the Company's common stock
            was
            determined based on the average market price of the Company's common
            stock over
            a period of time before and after October 8, 2004 the date of the merger
            agreement announcement, pursuant to Emerging Issues Task Force ("EITF")
            Issue
            No. 99-12, “Determination of the Measurement Date for the Market Price of
            Acquirer Securities Issued in a Purchase Business Combination.”  The
            fair
            value of the warrants issued in conjunction with the Core Systems acquisition
            was calculated using the Black Scholes Model. These were five-year warrants
            issued at market price with an expected volatility of .641 and a risk-free
            interest rate of 3.36%. This resulted in a Black Scholes value of $5.61. In
            addition the purchase is subject to an earn out which will be accounted
            for as
            additional purchase price when and if earned.
   13
 Core
                        Purchase PriceCash
                    
                    $
                    2,000,000Equity
                    
                    
                    3,250,000Equity
                        used to retire debt
                    
                    
                    510,000Warrant
                    
                    
                    1,122,000Direct
                        Costs
                    
                    
                    603,000$
                    7,485,000
 The
                following table summarizes the allocation of the purchase price to
                the fair
                value of the assets acquired and liabilities assumed at the date
                of acquisition:
  October
                            15, 2004Accounts
                            receivable
                        
                        $
                        450,000Inventory
                        
                        
                        174,000Property,
                            plant and equipment
                        
                        
                        3,422,000Other
                            intangible assets
                        
                        
                        75,000Goodwill
                        
                        
                        4,973,000Other
                            Assets
                        
                        
                        74,000Accounts
                            payable and accrued expenses
                        
                        
                        (1,062,000
                        )Debt
                            and capital leases
                        
                        
                        (621,000
                        )$
                        7,485,000
 The
                allocation of purchase price is the responsibility of management
                The Company has
                considered a number of factors, including professional appraisers,
                for the
                valuation of equipment acquired, in making its determination. The
                acquisition of
                Core resulted in goodwill of $4,973,000. The Company feels the amount
                of
                goodwill is appropriate based on operating efficiencies expected
                as the
                Wakefield semiconductor and Core operations are integrated, added
                opportunities
                for revenue growth as the semiconductor industry serviced by Core
                continues to
                recover and additional revenue opportunities from providing a broad
                range of
                services to the industry.
  The
                acquisition of Core is accounted for as a purchase under SFAS No. 141,
                “Business Combinations.” Accordingly, the operating results of Core are included
                in the accompanying condensed consolidated financial statements since
                the
                acquisition date as part of the Company's semiconductor reporting
                segment.
 **16.**
                        **Acquisition
                            of Accurel Systems International
                            Corporation**
   On
                  March
                  9, 2005, The Company acquired all of the stock of Accurel Systems
                  International
                  Corporation, a California S Corporation, from existing shareholders. 
                  The
                  aggregate purchase price of Accurel is estimated to be $12,270,000,
                  which
                  consists of the issuance of 418,194 shares of the Company’s common stock with a
                  fair value of $ 3,246,000 based upon a value per share of $7.761,
                  $6,000,000 in
                  cash, $1,650,000 in notes payable to the former Accurel shareholders
                  and
                  estimated direct acquisition costs of $1,100,000. The shareholder
                  note payable
                  is due in 120 days from the closing and earns interest at 5%. The
                  note is
                  secured by all of the equipment of Accurel. The shares issued were
                  determined
                  based on the average market price of the securities over a twenty
                  day period
                  ending March 8 , 2005.
                  The
                  share price for valuation purposes was determined by the average
                  share price for
                  the period just prior to and following the date of the merger agreement
                  announcement, pursuant to the guidance in EITF Issue No. 99-12. The
                  purchase is subject to a holdback of $500,000 to be released at
                  a rate of 25%
                  every 90 days subject to the settlement of any and all liabilities
                  not reflected
                  in the closing balance sheet. The shares issued are also subject
                  to adjustment
                  if the Company’s average stock price during the twenty trading days prior to the
                  end of a three month lock-up is 25% higher or lower than the price
                  on the
                  closing date. The effect of this adjustment is to limit the selling
                  shareholders’ gain or loss on the Company’s common stock to 25% during the
                  lock-up period ending September 9, 2005. Accurel’s results from operations are
                  included in the Company’s statement of operations beginning March 9, 2005, the
                  date of acquisition.
   14
  Accurel
                            Purchase PriceCash
                        
                        $
                        6,000,000Equity
                        
                        
                        3,520,000Notes
                            payable to former shareholders
                        
                        
                        1,650,000Direct
                            costs
                        
                        
                        1,100,000$
                        12,270,000
  The
                    following table summarizes the preliminary allocation of the
                    purchase price to
                    the fair value of the assets acquired and liabilities assumed
                    at the date of
                    acquisition :
 March
                              9, 2005Cash
                          
                          $
                          123,000Accounts
                              receivable
                          
                          
                          1,073,000Prepaid
                              expensesand other assets
                          
                          
                          182,000Property,
                              plant and equipment
                          
                          
                          3,957,000Goodwill
                              and other intangibles
                          
                          
                          9,324,000Assets
                              held for sale
                          
                          
                          1,400,000Other
                              liabilities
                          
                          
                          (
                              1,356,000
                          )Debt
                              and capital leases
                          
                          
                          (
                              2,433,000
                          )$
                          12,270,000
 The
                  above
                  allocation of the preliminary purchase price, including the value
                  of the
                  intangible assets, is subject to change. The
                  preliminary allocation of the estimated purchase price of Accurel
                  is based on
                  management estimates and assumptions and the preliminary results
                  of independent
                  appraisals. The
                  allocation of purchase price is the responsibility of management.
                  The Company
                  will consider a number of factors, including professional appraisals,
                  in making
                  its final determination. Included in the above allocation is a
                  lease liability
                  of $800,000. This liability reflects the amount that Accurel’s future
                  obligations under its facility lease are above the fair value of
                  the leased
                  facility based on current market conditions. The lease expires
                  in 2010.
  The
                  Company believes that in the final valuation of acquired assets,
                  values could be
                  assigned to technology related intangible assets and customer related
                  intangible
                  assets. The final allocation of the aggregate purchase price is
                  expected to be
                  completed during the three months ended June 30, 2005
  The
                  acquisition of Accurel is accounted for as a purchase under SFAS
                  No. 141,
“Business Combinations.” Accordingly, the operating results of Accurel are
                  included in the accompanying condensed consolidated financial statements
                  since
                  the acquisition date as part of the Company's semiconductor reporting
                  segment.
  15
  The
                  following table presents selected unaudited financial information
                  of the Company
                  including Core Systems Incorporated and Accurel Systems International
                  Corporation as if the acquisitions had occurred on July 1, 2003.
                  The unaudited
                  pro forma results are not necessarily indicative of the results
                  that would have
                  occurred had the acquisition of Core Systems and Accurel been consummated
                  on
                  July 1, 2003, or of future results.
 **IMPANT
                    SCIENCES CORPORATION**
 **PROFORMA
                    CONSOLIDATED STATEMENT OF OPERATIONS**
 **(Unaudited)**
 **Three
                            Months Ended**
                        
                        **Nine
                            Months Ended****March
                            31,**
                        
                        **March
                            31,****2005**
                        
                        **2004**
                        
                        **2005**
                        
                        **2004****Revenue**
                        
                        $
                        4,406,000
                        
                        $
                        5,706,000
                        
                        $
                        14,483,000
                        
                        $
                        14,977,000**Net
                            Income (Loss) Before Taxes**
                        
                        
                        (2,275,000
                        )
                        
                        (624,000
                        )
                        
                        (5,817,000
                        )
                        
                        (2,943,000
                        )**Preferred
                            distribution, dividends**
                        
                        
                        553,000
                        
                        
                        1,227,000
                        
                        
                        1,120,000
                        
                        
                        2,201,000**Net
                            Income (Loss)**
                        
                        $
                        (2,828,000
                        )
                        $
                        (1,851,000
                        )
                        $
                        (6,937,000
                        )
                        $
                        (5,144,000
                        )**Net
                            loss per share applicable to common**
                        
                        $
                        (0.25
                        )
                        $
                        (0.20
                        )
                        $
                        (0.66
                        )
                        $
                        (0.58
                        )**Weighted
                            average common shares**
                        
                        
                        11,469,000
                        
                        
                        9,298,000
                        
                        
                        10,526,000
                        
                        
                        8,941,000**outstanding,
                            basic and diluted**
  **17.**
                          **Goodwill and other intangible
                              assets:**
  At
                    March 31, 2005, the Company had goodwill and intangible assets
                    of $14,684,000.
                    SFAS No. 142, Goodwill and Other Intangible Assets, requires
                    that goodwill and
                    intangible assets with indefinite lives no longer be amortized
                    but instead be
                    measured for impairment at least annually or whenever events
                    indicate that there
                    may be an impairment. We will make our annual assessment as of
                    August 31, 2005.
                    As of March 31, 2005 the Company has determined that our goodwill
                    and intangible
                    assets with indefinite lives are not impaired. Future events
                    could cause us to
                    conclude that impairment indicators exist and that goodwill and
                    intangible
                    assets with indefinite lives associated with our acquired businesses
                    are
                    impaired. Any resulting impairment loss could have a material
                    adverse impact on
                    our financial condition and results of operations.
 16
 Intangible
            assets with finite lives are amortized over the period of time their
            future cash
            flows are estimated to be produced. These values are evaluated based
            upon their
            estimated future cash flows.. We continually evaluate whether events
            or
            circumstances have occurred that indicate that the estimated remaining
            useful
            life or the carrying value of these assets has been impaired.
  The
            intangible assets attributable to Accurel are preliminary management
            estimates.
            Management will engage the use of professional appraisers in making its
            final
            determination of the fair value of these items.
  The following table summarizes goodwill and intangible assets:
  Goodwill
                      attributable to the acquisition of Core Systems
                  
                  $
                  4,973,000Goodwill
                      attributable to the acquisition of Accurel Systems
                  
                  $
                  8,324,000Intangible
                      assets with finite useful lives attributable to Accurel
                  
                  $
                  1,000,000Intangible
                      assets with finite useful lives, other
                  
                  $
                  387,000Total
                      goodwill and intangible assets
                  
                  $
                  14,684,000
  **18**.
                  **Credit
                      Arrangements**
 
 At
            the
            time of its acquisition Accurel Systems had a $1,400,000 fixed rate installment
            note with a bank. The note calls for monthly payments of $29,000 plus
            interest
            at a rate of 6.84%, through September 1, 2008. As of March 31, 2005 the
            note
            balance is $1,254,000. The note is secured by substantially all assets
            of
            Accurel. The bank has consented to continue the note under the same terms
            after
            the acquisition.
 
 The
            Loan
            Agreement requires Accurel to report monthly financial results to the
            bank and
            for Accurel to comply with certain financial covenants. As of March 31,
            2005
            Accurel was in compliance with the covenants.
 
 **19**.
                  **Rapiscan
                      contract:**
 
 On
            March
            23, 2005, Rapiscan Systems Inc (“Rapiscan”) and Implant Sciences Corporation
            (“Implant”) entered into a Development, Distribution and Manufacturing Agreement
            (the “Agreement”). The Agreement provides for i) the manufacture of Implant’s
            existing Quantum Sniffer TM explosives detection equipment (the “QS TM Products”) by Implant and sale of the QS TM Products
            to Rapiscan, on a private label basis at a discounted price as agreed
            to by the
            parties, ii) a grant by Rapiscan to Implant of the right to continue
            selling the
            QS TM Products
            through Implant’s direct and indirect sales force, iii) the development by
            Implant of a trace explosives detection subsystem using Implant’s Quantum
            Sniffer TM Technology (the “QS TM Technology”) that could be integrated with Rapiscan’s X-ray baggage screening
            device technology, resulting in an automated baggage screening device
            (the
“QS TM Baggage
            Screening Prototype”) to be delivered within twelve (12) months from the date of
            the Agreement, iv) the funding by Rapiscan of up to $1,000,000 for the
            development of the QS TM Baggage
            Screening Prototype to be paid periodically as the development continues
            based
            upon achievement of certain milestones, v) the development by Implant
            of other
            trace explosives detection subsystems (the “Other QS TM Trace
            Prototype”) utilizing the QS TM Technology to be delivered within fourteen (14) months from the date
            of the
            Agreement, vi) the funding by Rapiscan of up to $2,000,000 for the development
            of the Other QS TM Trace
            Prototype to be paid periodically as the development continues based
            upon
            achievement of certain milestones, vii) the parties granting each other
            various
            rights to manufacture components of commercial products resulting from
            the
            development of the QS TM Baggage
            Screening Prototype and the Other QS TM Trace
            Prototype (collectively, the “Developed Products”), viii) the sale to Rapiscan
            of components for the Developed Products manufactured by Implant, ix)
            distribution rights granted by Implant to Rapiscan for the marketing,
            sales and
            service of the Developed Products, and x) royalty payments to Implant
            on an
            agreed-upon portion of the sales of the Developed Products made by Rapiscan
            to
            end-user customers. No revenue has been recorded related to this
            agreement.
 
 17
 
 **18.**
                  **IPO
                      Warrant Extension**
 
 In
            June
            1999, the Company issued 1,138,000 Units, consisting of one share of
            common
            stock, and one redeemable common stock purchase warrant (the “IPO Warrants”) in
            connection with its initial public offering. Each Unit carries the right
            to
            purchase one share of common stock at $9.00, and is redeemable by the
            Company at
            $0.20 per warrant if the closing bid price of the common stock averages
            in
            excess of $10.50 for a period of 20 consecutive trading days. On March
            28, 2002,
            the Company extended the expiration date of the IPO Warrants from June
            23, 2002
            to June 30, 2003. The Company did not receive any consideration from
            the holders
            of the warrants; accordingly the Company recognized this transaction
            as a
            preferred distribution based upon the estimated fair value of the extension
            of
            approximately $530,000. On April 15, 2003, the Company extended the expiration
            date of the IPO Warrants from June 30, 2003 to June 30, 2005. The Company
            did
            not receive any consideration from the holders of the warrants; accordingly,
            the
            Company recognized the value of this transaction as a preferred distribution
            based upon the estimated fair value of the extension of approximately
            $195,000.
            On March 14, 2005, the Company again extended the expiration date of
            the IPO
            Warrants from June 30, 2005 to March 31, 2006. The Company did not receive
            any
            consideration from the holders of the warrants; accordingly, the Company
            recognized the value of this transaction as a preferred distribution
            based upon
            the estimated fair value of the extension of approximately $479,000.
            As of March
            31, 2005, 1,064,700 IPO Warrants remain outstanding. .
  18
  **Item
                      2****.**
                  **Management’s
                      Discussion and Analysis of Financial Condition and Results
                      of
                      Operations**
 
 The
            following management discussion and analysis should be read in conjunction
            with
            the financial statements and notes thereto as filed in our Form 10-KSB/A
            No. 1
            for the year ended June 30, 2004. In addition to historical information,
            this
            Form 10-QSB contains forward-looking statements. The forward-looking
            statements
            are subject to certain risks and uncertainties that could cause actual
            results
            to differ materially from those reflected in such forward-looking statements.
            Readers are cautioned not to place undue reliance on these forward-looking
            statements, which reflect management’s opinions only as of the date hereof. We
            undertake no obligation to revise or publicly release the results of
            any
            revision to these forward-looking statements. Readers should carefully
            review
            documents that we file from time to time with the Securities and Exchange
            Commission, including our Quarterly Reports and Annual Reports filed
            by us in
            fiscal 2003 and 2004.
 
 Implant
            Sciences Corporation, incorporated in 1984, has three locations. It operates
            out
            of a 51,000 square foot leased facility in Wakefield, Massachusetts.
            Since
            October 15, 2004, Implant also operates out of a 35,000 square foot leased
            facility in Sunnyvale, California and since March 9, 2005, out of a 20,000
            square foot leased facility also in Sunnyvale, California. The Company
            has
            approximately 155 employees and runs three shifts in Wakefield and two
            shifts in
            Sunnyvale. The Company generates revenues from the sale of ion implantation
            services, radioactive prostate seed and explosives trace detection equipment
            manufacturing and government research and development contracts. Ion
            implantation services include semiconductor wafer processing and medical
            and
            industrial coatings. Semiconductor products and services are conducted
            in both
            the Wakefield and Sunnyvale facilities. Medical and industrial coatings,
            radioactive prostate seed manufacturing, explosives detection equipment
            manufacturing and research and development programs are conducted in
            Wakefield.
 
 The
            quarter ended March 31, 2005 is the first quarter that includes a full
            three
            months of revenues from Core Systems which was acquired by the Company
            on
            October 15, 2004. The quarter also includes the results of Accurel Systems
            which
            was acquired on March 9, 2005. These acquisitions contributed revenues
            of $1.5
            million in the quarter out of total revenues of $2.9 million. Core and
            Accurel
            are inlcuded in the semiconductor segment. Revenues from our medical
            and
            explosives detection segments, during the quarter ended March 31, 2005,
            are down
            $1.1 million from the prior year quarter. This weakness is attributable
            to a
            decline in prostate seed volumes and the completion of government contracts
            in
            the quarter ended December 31, 2004 The Company is taking steps to increase
            sales of its prostate seeds, semiconductor and explosives detection business.
            We
            have recently announced the signing of a development, manufacturing and
            distribution agreement with Rapiscan for our explosives detection products
            that
            will start contributing to revenues in our fourth quarter of 2005.
 
 The
            Company has made and continues to make a significant financial commitment
            to the
            development of its trace explosives detection products. However, in order
            to
            continue explosives trace detection research and development, additional
            loans
            or funding may become necessary.
 
 As
            a
            result of the acquisition of Core Systems on October 15, 2004, the acquisition
            of Accurel on March 9, 2005, and the Company’s presentation of consolidated
            financial statements, it should be noted that the 2004 vs 2005 comparative
            information may not be meaningful.
 
 **Results
            of Operations**
 
 *Comparison
            for the three months ended March 31, 2005 and 2004*
 
 *Revenues.* Total
            revenues for the three months ended March 31, 2005 were $2,862,000 as
            compared
            to $2,635,000 for the comparable prior year period, an increase of $227,000
            or
            9%. The increase is primarily attributable to $948,000 of semiconductor
            revenues
            from Core Systems and $516,000 from Accurel since it was acquired on
            March 9,
            2005. This increase was offset by a $441,000 or 30% decrease in medical
            product
            sales, primarily relating to a decrease in prostate seed revenue of $460,000
            or
            55%. In addition, explosive detection sales decreased by $661,000 or
            80% as
            compared with the comparable prior year period, due to the completion
            of several
            government contracts prior to the March 31, 2005 quarter.
 
 It
            should
            be noted that our revenues recognized from Small Business Innovative
            Research
            (SBIR) programs, fluctuate due to: (a) our desire to obtain external
            funding for
            our research and development efforts; (b) the availability of government
            funding; and (c) the time required to obtain approval of a grant application.
            We
            have been successful in obtaining SBIR grants in fiscal 2004 and 2003
            and we
            expect to continue to seek continuation or replacement of our existing
            SBIR
            grants during the remainder of fiscal 2005 and beyond.
 
 19
 
 In
            the
            first quarter of fiscal 2004, we entered into a new agreement with MED-TEC,
            our
            former exclusive distributor of I-Plant prostate seeds to replace the
            original
            Distributor Agreement, which had expired. Management believed this direct
            marketing and sales program would enable the Company to expand distribution
            channels targeting the radiation oncology market. MED-TEC agreed to work
            cooperatively with the Company to transition its customers and marketing
            materials directly to Implant Sciences and MED-TEC also agreed not to
            compete
            with the Company for a period of three years. Implant Sciences is paying
            MED-TEC
            an average of approximately $39,000 per month over a period of 29 months,
            beginning September 1, 2003. As of March 31, 2005, the outstanding principal
            balance is approximately $348,000. The Company continues its effort to
            re-establish the prostate seed business.
 
 *Cost
            of Sales.*  ** Cost
            of
            sales for the three months ended March 31, 2005 was $2,881,000 as compared
            to
            $1,868,000 for the comparable prior year period, an increase of $1,013,000
            or
            54%. This increase is primarily a result of an additional $925,000 in
            associated
            expenses incurred by Core in the three month period ended March 31, 2005
            and
            $315,000 from Accurel since its acquisition on March 9, 2005 offset by
            reduced
            expenses at the Wakefield, MA semiconductor facility. Medical product
            costs were
            reduced by $244,000 primarily due to lower manufacturing activity levels.
            In
            addition, direct labor costs increased $100,000 as we continue to build
            our
            manufacturing work force in anticipation of new orders for our explosives
            trace
            detectors.
   Cost
              of
              medical product revenue for the three months ended March 31, 2005 and
              2004 was
              $787,000 and $1,050,000, respectively. As a percentage of revenue,
              medical
              product cost of revenue for the three months ended March 31, 2005 and
              2004
              represents 73% and 70%, respectively, indicating a decrease in gross
              margin. In
              fiscal 2004 we transitioned our prostate seeds business from a distributor
              based
              sales model to a direct, in-house, sales model. During this time, we
              experienced
              a disruption in sales to some of our customers as we ramped up our
              direct
              selling efforts. In addition, the radioactive seed market experienced
              extreme
              pricing pressures that further reduced our gross margins. Because much
              of our
              manufacturing costs are fixed, the lower volumes and prices have a
              significant
              impact on our gross margins. We have reviewed our inventory valuations
              and have
              determined that the valuations do not need to be adjusted.
  Cost
              of
              semiconductor product revenue for the three months ended March 31,
              2005 and 2004
              was $1,613,000 and $422,000, respectively. As a percentage of revenue,
              the cost
              of semiconductor revenue for the three month periods ended March 31,
              2005 and
              2004, represents 100% and 136%, respectively, indicating an improvement
              in gross
              margin. During the second quarter of fiscal 2005, we acquired Core
              Systems, a
              California corporation and began the process of integrating this acquisition
              into our business. In addition, in the three month period ended March
              31, 2005,
              we acquired Accurel Systems International, a California corporation
              and began
              the process of integrating this acquisition into our business. Management
              expects the acquisitions to be fully integrated by the end of the fiscal
              year.
              For the three months ended March 31, 2005, the improvement in the semiconductor
              gross margin is a direct result of these acquisitions. This is essentially
              a
              service business and inventories are generally not a factor in the
              cost of
              revenue.
  Cost
              of
              explosives detection product revenue for the three months ended March
              31, 2004
              was $481,000 and $396,000, respectively. As a percentage of revenue,
              the cost of
              explosives detection revenue for the three month periods ended March
              31, 2005
              and 2004, represents 274% and 48%, respectively. The decrease in gross
              margin is
              a result of the additional expenses relating to the set up and staffing
              of the
              explosives detection department in preparation for the Company’s upcoming
              manufacturing needs. In addition, there maybe delays between the time
              we finish
              a significant contract and the time we can recognize revenues on new
              contracts.
 *Gross
            Margin.*  Gross
            margin for the three month period ending March 31, 2005 was a loss of
            $19,000
            compared to income of $767,000 for the comparable prior year period.
            This loss
            is primarily due to explosives detection manufacturing costs. Management
            has
            determined that significant manufacturing cost reductions, to address
            short term
            sales weakness, would not be in the Company’s best interest. Management will
            continue to monitor revenue levels and take appropriate action when needed.
 
 *Research
            and Development.* Research
            and Development expenses for the three months ended March 31, 2005 were
            $715,000
            compared to $418,000 for the comparable prior year period, an increase
            of
            $317,000 or 80%. The increase in Research and Development expenses is
            a result
            of increased personnel costs and temporary help combined with additional
            rent
            expenses due to a physical expansion of the department.
 
 *Selling
            General and Administrative.* Selling,
            general and administrative expense for the three month period ended March
            31,
            2005 were $1,464,000 compared to $1,156,000 for the comparable prior
            year
            period, an increase of $386,000 or 36%. Selling, general and administrative
            expenses included $394,000 of additional expenses from Core Systems and
            from
            Accurel since its acquisition on March 9, 2005. Stock based compensation
            expense
            was $240,000 lower in the current quarter vs. the previous year offset
            in part
            by increases in audit, legal, recruiting and consulting fees.
  *Other
            expense, Net.* For
            the
            three month period ended March 31, 2005 the company recorded other expense,
            net
            of $69,000 as compared to other expense, net of $32,000 for the comparable
            prior
            year period. The increase in other expenses, net is primarily due to
            increased
            equity losses at our unconsolidated subsidiary.
  *Net
            Loss.* Net
            loss
            for the three month period ended March 31, 2005 was $2,267,000 as compared
            to a
            loss of $839,000 for the comparable prior year period, an increase of
            $1,428,000
            or 170%.  The increase in net loss is due to $786,000 in lower
            gross
            margins and a $605,000 increase in operating expenses due to the acquisition
            of
            Core Systems and Accurel.
 
 On
            March
            14, 2005, the Company extended the expiration date of the remaining 1,064,700
            warrants issued on June 23, 1999, which were part of the 1,138,000 warrants
            issued in conjunction with our initial public offering, from June 30,
            2005 to
            March 31, 2006. The Company did not receive any consideration from the
            holders
            of the warrants. We have recognized this transaction as a preferred distribution
            based upon the estimated fair value of the extension of approximately
            $479,000.
            Additionally, during the period ended March 31, 2005, accretion of dividends,
            the beneficial conversion feature and amortization of warrants in the
            amount of
            $136,000 relating to the Series C, was recognized as a preferred distribution
            as
            compared with $1,227,000 recognized as preferred distributions relating
            to the
            Series B and C for the comparable prior year period. These transactions
            have no
            overall effect on stockholders’ equity or cash, but increased net loss per share
            applicable to common shareholders by ($0.06) and ($0.16) per share respectively.
            The basic and diluted net loss per share applicable to common shares
            for the
            period ended March 31, 2005 was ($0.30) per share as compared to ($0.27)
            per
            share for the comparable prior year period, an increase in net loss applicable
            to common shares of $0.03 or 11%.
 
 20
 
 *Comparison
            for the nine months ended March 31, 2005 and 2004*
 
 *Revenues.* Total
            revenues for the nine months ended March 31, 2005 were $7,677,000 as
            compared to
            $6,161,000 for the comparable prior year period, an increase of $1,516,000
            or
            25%. The increase is primarily attributable to $2,076,000 of revenues
            from Core
            Systems since its acquisition on October 15, 2004 and $516,000 from Accurel
            since its acquisition on March 9, 2005. The Core Systems and Accurel
            revenues
            are included in our semiconductor business segment. These increases were
            offset
            by a $914,000 or 24% decrease in medical product sales as compared with
            the
            corresponding prior year period. The medical products loss is primarily
            from
            prostate seeds.
 
 *Cost
            of Sales.* Cost
            of
            sales for the nine months ended March 31, 2005 was $7,667,000 as compared
            to
            $4,547,000 for the comparable prior year period, an increase of $3,120,000
            or
            69%. Included in the cost of sales for the period ended March 31, 2005
            are
            $2,014,000 of costs from Core Systems since its acquisition on October
            15, 2004
            and $314,000 of costs from Accurel since its acquisition on March 9,
            2005.
            Explosives detection costs increased by $847,000 or 119% as compared
            with the
            prior year period as we continue to invest in our explosive detection
            manufacturing capabilities in anticipation of new orders for our explosives
            trace detectors.
   Cost
              of
              medical product revenue for the nine months ended March 31, 2005 and
              2004 was
              $2,586,000 and $2,863,000, respectively. As a percentage of revenue,
              medical
              product cost of revenue for the nine months ended March 31, 2005 and
              2004
              represents 87% and 74%, respectively, indicating a decrease in gross
              margin. In
              fiscal 2004 we transitioned our prostate seeds business from a distributor
              based
              sales model to a direct, in-house, sales model. During this time, we
              experienced
              a disruption in sales to some of our customers as we ramped up our
              direct
              selling efforts. In addition, the radioactive seed market experienced
              extreme
              pricing pressures that further reduced our gross margins. Because much
              of our
              manufacturing costs are fixed, the lower volumes and prices have a
              significant
              impact on our gross margins. We have reviewed our inventory valuations
              and have
              determined that the valuations do not need to be adjusted.
  Cost
              of
              semiconductor product revenue for the nine months ended March 31, 2005
              and 2004
              was $3,520,000 and $970,000, respectively. As a percentage of revenue,
              the cost
              of semiconductor revenue for the nine month periods ended March 31,
              2005 and
              2004, represents 110% and 116%, respectively, indicating an improvement
              in gross
              margin. During the second quarter of fiscal 2005, we acquired Core
              Systems, a
              California corporation and began the process of integrating this acquisition
              into our business. In addition, in the nine month period ended March
              31, 2005,
              we acquired Accurel Systems International, a California corporation
              and began
              the process of integrating this acquisition into our business. Management
              expects the acquisitions to be fully integrated by the end of the fiscal
              year.
              For the nine months ended March 31, 2005, the improvement in the semiconductor
              gross margin is a direct result of these acquisitions. This is essentially
              a
              service business and inventories are generally not a factor in the
              cost of
              revenue.
  Cost
              of
              explosives detection product revenue for the nine months ended March
              31, 2005
              and 2004 was $1,561,000 and $714,000, respectively. As a percentage
              of revenue,
              the cost of explosives detection revenue for the nine month periods
              ended March
              31, 2005 and 2004, represents 106% and 49%, respectively. The decrease
              in gross
              margin is a result of the additional expenses relating to the set up
              and
              staffing of the explosives detection department in preparation for
              the Company’s
              upcoming manufacturing needs. In addition, there maybe delays between
              the time
              we finish a significant contract and the time we can recognize revenues
              on new
              contracts.
   *Gross
            Margin* . Gross
            margin for the nine months ended March 31, 2005 was $10,000 as compared
            to
            $1,613,000 for the comparable prior year period. The decrease in gross
            margin is
            primarily due to costs associated with increasing our manufacturing capability
            for our explosives detection systems and not being able to reduce our
            prostate
            seed manufacturing costs in proportion to the decrease in revenues.
 
 *Research
            and Development.* Research
            and Development expenses for the nine months ended March 31, 2005 were
            $1,566,000 compared to $1,299,000 for the comparable prior year period,
            an
            increase of $267,000 or 21%. This increase is a result of increased personnel
            and temporary help combined with additional rent expenses due to a physical
            expansion of the department.
 
 *Selling,
            General and Administrative.* Selling,
            general and administrative expenses for the nine-month period ending
            March 31,
            2005 were $3,811,000 as compared to $2,905,000 for the comparable prior
            year
            period, an increase of $906,000 or 31%. Included in selling, general
            and
            administrative expenses for the nine-month period ended March 31, 2005
            are
            $483,000 relating to Core Systems since its acquisition on October 15,
            2004 and
            $138,000 from Accurel incurred since its acquisition on March 9, 2005.
            In
            addition the Company has increased its spending to promote its prostate
            seed
            business and increased sales and marketing expenses associated with its
            explosives detection business.
 
 *Other
            expense, Net.* For
            the
            nine-month period ended March 31, 2005 the company recorded other expense,
            net
            of $119,000 as compared to other expense, net of $109,000 for the comparable
            prior year period, an increase of $10,000 or 9%. The increase is due
            to
            increased equity losses in our unconsolidated subsidiary of $56,000 over
            the
            previous year, a loss on sale of capital asset of $6,000 offset by lowered
            net
            interest expense of $56,000 due to lower levels of debt during the periods
            being
            compared.
 
 *Net
            Loss.* Net
            loss
            for the nine month period ended March 31, 2005 was $5,486,000 as compared
            to a
            loss of $2,700,000 for the comparable prior year period, an increase
            of
            $2,885,000 or 109%. Contributing to these losses are reduced gross margin
            in the
            medical products segment of $636,000 due to lower sales and manufacturing
            levels, and yield losses. Explosives detection gross margin decreased
            $839,000
            primarily due to increased costs attributable to bringing on additional
            manufacturing capabilities.
 
 On
            March
            14, 2005, the Company extended the expiration date of the remaining 1,064,700
            warrants issued on June 23, 1999, which were part of the 1,138,000 warrants
            issued in conjunction with our initial public offering, from June 30,
            2005 to
            March 31, 2006. The Company did not receive any consideration from the
            holders
            of the warrants. We have recognized this transaction as a preferred distribution
            based upon the estimated fair value of the extension of approximately
            $479,000.
            Additionally, during the period ended March 31, 2005, accretion of dividends,
            the beneficial conversion feature and amortization of warrants in the
            amount of
            $703,000 relating to the Series C, was recognized as a preferred distribution
            as
            compared with $2,201,000 recognized as preferred distributions relating
            to the
            Series A, B and C for the prior year period. The effect of these transactions
            has no overall effect on stockholders’ equity or cash, but increased net loss
            per share applicable to common shareholders by $0.13 and $0.31 per share
            respectively. The basic and diluted net loss per share applicable to
            common
            shares for the period ended March 31, 2005 was $0.74 per share as compared
            to
            $0.69 per share for the comparable prior year period, a increase in net
            loss
            applicable to common shares of $0.05 or 7%.
 
 21
 
 **Liquidity
            and Capital Resources**
  As
            of
            March 31, 2005, we had approximately $2,047,000 in cash and cash equivalents.
            During the nine months ended March 31, 2005, operating activities used
            cash of
            approximately $2,647,000. Net cash used by operating activities primarily
            reflects the net loss of $5,486,000, offset by depreciation and amortization
            of
            $1,289,000, stock-based compensation expense of $318,000, a net increase
            in
            inventory and other current assets of $287,000 offset by an increase
            in accounts
            payable and other accrued liabilities of $908,000. The Company has accrued
            $600,000 for additional cash payments it expects to make in connection
            with its
            acquisition of Accurel. During the nine months ended March 31, 2005,
            investing
            activities used cash of approximately $8,818,000, including $2,603,000
            used in
            the acquisition of Core Systems and $6,978,000 used in the acquisition
            of
            Accurel. The Company received $1,400,000 in cash from the sale of equipment
            acquired from Accurel and used $1,100,000 of these proceeds to repay
            debt
            associated with that equipment. As part of the acquisition of Accurel
            the
            Company issued a $1,650,000 note to the Accurel shareholders. This note
            is due
            on July 9, 2005. The
            Company will repay the $1,650,000 shareholder note by using a combination
            of
            working capital and third party credit. The company is currently negotiating
            with a California bank to secure a credit facility and expects to have
            it in
            place in the fourth quarter of fiscal 2005.
   During
            the nine months ended March 31, 2005, financing activities provided
            approximately $6,606,000 in cash. Net cash provided by financing activities
            primarily includes the proceeds from a private placement of common stock
            for
            $7,537,000, net, combined with the exercise of employee stock options
            and
            warrants, offset by payments on the factoring line of credit, repayment
            of debt,
            and the acquisition of treasury stock.
 
 On
            November 25, 2003, the Company issued 250,000 shares of Series C 5% Cumulative
            Convertible Preferred Stock (“Series C”) having a stated value of $10 per share,
            pursuant to a Securities Purchase Agreement executed on November 25,
            2003 with
            the Laurus Master Fund, Ltd. (Laurus). The Company received $2,500,000
            in gross
            proceeds, less a management and placement agent fee of approximately
            $125,000,
            and related transaction costs of approximately $86,000. The terms of
            the Series
            C provided for repayment with shares of the Company’s common stock or in cash,
            pursuant to an amortization schedule. Repayment of the Series C commenced
            on
            March 31, 2004. The Company had the sole option to determine whether
            to satisfy
            payment of the monthly amount in full on each repayment date either in
            cash or
            in shares of common stock, or a combination of both, unless the closing
            price of
            the Company’s common stock for any of the eleven trading days preceding a
            repayment date was less than $7.35, wherein the Company was required
            to pay such
            monthly amount in cash. If the payment of the monthly amount was made
            in common
            stock, the fixed conversion price was $6.75. The Company also issued
            to Laurus a
            warrant to purchase 50,000 shares of common stock at $8.44 per share
            and 50,000
            shares of common stock at $10.13 per share. The Securities Purchase Agreement
            also provided for a security interest in substantially all of the Company’s
            assets and provided Laurus a right of first refusal on future financing
            arrangements during the term of the agreement. In the event Laurus declines
            to
            exercise its right of first refusal, it agreed to enter into such documentation
            as shall be reasonable requested by the Company in order to subordinate
            its
            rights under the Series C to the subsequent financier. The Company utilized
            the
            proceeds of this financing to purchase an ion implanter and for general
            working
            capital purposes.
 
 In
            accordance with the provisions of Emerging Issues Task Force (EITF) Issue
            00-27,
            "Application of EITF Issue No. 98-5 'Accounting for Convertible Securities
            with
            Beneficial Conversion Features of Contingently Adjustable Conversion
            Ratios', to
            Certain Convertible Securities", which became effective in November 2000,
            the
            allocated value of the Series C contained a beneficial conversion feature
            calculated based on the difference between the effective conversion price
            of the
            proceeds allocated to the Series C and the fair market value of the common
            stock
            at the date of issuance.  The
            discount arising from the beneficial conversion feature aggregated $700,000.
            The
            discount was amortized and recorded as a preferred dividend during the
            period
            from the issuance of the preferred stock to March 7, 2005, the actual
            conversion
            date, using the effective interest method.
 
 The
            Company valued the Series C at issuance to be $1,284,000 based on the
            relative
            fair market values of the financial instruments issued in connection
            with this
            placement, net of offering costs and the beneficial conversion feature.
            The
            amounts recorded in the financial statements represent the amounts attributed
            to
            the sale of the preferred stock, net cash proceeds of $2,289,000 ($211,000
            of
            issuance costs incurred), the amount allocated to warrants of $305,000,
            and the
            amount of the discount related to the value of beneficial conversion
            feature of
            $700,000. The Company accreted these discounts on the carrying value
            of the
            preferred stock to its redemption value of $2,500,000 at the actual conversion
            date. The accretion of these amounts was recorded as a preferred dividend
            in the
            period of accretion. During the period ended March 31, 2005, approximately
            $134,000 was amortized. As of March 31, 2005, the Series C was converted
            in
            full.
 
 22
 
 During
            the three months ended March 31, 2005, Laurus redeemed 25,762 shares
            of Series C
            into 38,165 shares of the Company’s common stock at conversion price of $6.75
            per share and redeemed approximately $3,000 of accrued dividends into
            376 shares
            of the Company’s common stock. The conversion of accrued dividends into common
            stock resulted in additional dividends of approximately $1,000 during
            the three
            months ended March 31, 2005, in excess of 5% stated value.
  On
            March
            8, 2005 the Company issued 1,080,780 shares of common stock at $7.22,
            in a
            private placement with fifteen investors. The Company received $7,803,000
            in
            gross proceeds, less placement agent fees and related transaction costs
            of
            approximately $433,000.
  In
            connection with the transaction, the Company issued warrants to the investors
            to
            purchase 270,195 shares of common stock at an exercise price of $9.35,
            which are
            exercisable anytime between September 4, 2005 and September 4, 2010.
            In
            addition, the investors have rights to purchase up to 588,235 shares
            of common
            stock at a price of $8.50 per share, which are exercisable for a period
            commencing (i) anytime on or after September 4, 2005 and (ii) on or prior
            to the
            later of the 6 month anniversary of the effective date of the registration
            statement filed on April 12, 2005, or March 4, 2006. We also issued warrants
            to
            the placement agent to purchase 33,383 shares of common stock at an exercise
            price of $9.35 per share, which are exercisable until March 4, 2010.
            Should the
            investors exercise these additional investment rights, the placement
            agent will
            receive an additional warrant for 21,390 shares at an exercise price
            of $9.35
            per share.
  We
            have
            developed two models of explosive detection systems that could be used
            in
            airports, public and government buildings, and sporting event facilities.
            The
            systems use our proprietary Laser IMS technology, which includes the
            use of
            laser beams in combination with ion mobility spectrometry, to electronically
            detect minute quantities of explosive vapor molecules in the air. This
            project
            has been ongoing since approximately May 1999. We are presently extending
            this
            technology to develop a belt-driven trace explosives detection
            machine and
            other trace explosives detection systems with internal and outside funding
            from
            Rapiscan Systems Inc.
 
 We
            continue to fund as much research and development as possible through
            government
            grants in accordance with the provisions of the respective grant awards.
            We will
            require additional funding in order to advance the commercial development
            of the
            explosives detection system. We will attempt to obtain such financing
            by: (i)
            government grants, (ii) the exercise of the redeemable common stock purchase
            warrants, (iii) private financing, or (iv) strategic partnerships. However,
            there can be no assurance that we will be successful in our attempts
            to raise
            such additional financing.
 
 Consistent
            with our policy to protect our proprietary technologies, we have been
            awarded
            four patents and submitted four (4) patent applications to the United
            States
            Patent and Trademark Office. These patent applications will cover specific
            design configurations that are responsible for our improved vapor detection
            sensitivity.
 
 As
            of
            March 31, 2005, we were conducting our operations with approximately
            $2,047,000
            in cash and cash equivalents. Future expenditures for research and product
            development will require additional sources of funding and the Company
            is
            currently exploring its options. Our recently announced development,
            manufacturing and distribution agreement with Rapiscan (see note 17 of
            financial
            statements) will provide $3 million in cash over the next 12 to 18 months,
            upon
            achieving certain milestones, to fund our ongoing efforts in the explosives
            detection segment.
  The
            Company’s future minimum payments under contractual obligations related to
            capital leases, operating leases and term notes as of March 31, 2005,
            are as
            follows:
 
 23
 **Capital**
                      **leases
                        and short and long term debt (1)**
                    
                    **Operating**
                      **lease
                        (2)**
                    
                    **MED-TEC
                        (3)**
                    
                    **Total**Year
                        ending June 30:2005
                    
                    $
                    1,765,000
                    
                    $
                    436,000
                    
                    $
                    168,000
                    
                    $
                    2,369,0002006
                    
                    
                    401,000
                    
                    
                    1,746,000
                    
                    
                    180,000
                    
                    
                    2,327,0002007
                    
                    
                    386,000
                    
                    
                    1,771,000
                    
                    
                    
                    
                    
                    2,157,0002008
                    
                    
                    379,000
                    
                    
                    1,784,000
                    
                    
                    
                    
                    
                    2,163,0002009
                    
                    
                    129,000
                    
                    
                    1,187,000
                    
                    
                    
                    
                    
                    1,316,000Total
                    
                    $
                    3,060,000
                    
                    $
                    6,924,000
                    
                    $
                    348,000
                    
                    $
                    10,332,000
   (1)
                    Includes
                        the $1,650,000 Accurel shareholder note payable due July
                        9,
                        2005.
 (2)
                    Includes
                        the $795,000 long term lease liability for Accurels facility
                        lease.
 (3)
                    Relates
                        to MED-TEC payment obligation (See Note 10 of financial
                        statements).
 
 On
              June
              30, 2004, we entered into an employment agreement with Dr. Anthony
              J. Armini,
              the Company’s President and CEO, with an initial term of three years and an
              automatic renewal for a successive period of three years, unless we
              or Dr.
              Armini give the other party not less than three months written notice
              of
              non-renewal. Under this employment agreement, Dr. Armini serves as
              our president
              and chief executive officer at a base salary of up to $210,000. In
              addition, Dr.
              Armini may participate in our employee fringe benefit plans or programs
              generally available to employees of comparable status and position.
              We are
              entitled to terminate his employment for any material breach of his
              employment
              agreement at any time upon at least 30 days written notice. In the
              event we
              terminate Dr. Armini’s employment without cause, we will pay him 12 months
              salary. Under his employment agreement, he is subject to restrictive
              covenants,
              including confidentiality provisions. Also, during his employment and
              for a
              period of two years after the term of the employment agreement, Dr.
              Armini is
              subject to a non-competition provision.
 
 On
              June
              30, 2004, we entered into an employment agreement Dr. Stephen Bunker,
              the
              Company’s Vice President and Chief Scientist, with an initial term of three
              years and an automatic renewal for a successive period of three years,
              unless we
              or Dr. Bunker give the other party not less than three months written
              notice of
              non-renewal. Under this employment agreement, Dr. Bunker serves as
              our vice
              president and chief executive scientist at a base salary of up to $150,000.
              In
              addition, Dr. Bunker may participate in our employee fringe benefit
              plans or
              programs generally available to employees of comparable status and
              position. We
              are entitled to terminate his employment for any material breach of
              his
              employment agreement at any time upon at least 30 days’ written notice. In the
              event we terminate Dr. Bunker’s employment without cause, we will pay him 12
              months salary. Under his employment agreement, he is subject to restrictive
              covenants, including confidentiality provisions. Also, during his employment
              and
              for a period of two years after the term of the employment agreement,
              Dr. Bunker
              is subject to a non-competition provision.
  In
              June
              2004, the Board authorized the Company to repurchase of up to 300,000
              shares of
              the Company’s common stock, from time to time in the open market, privately
              negotiated transactions, block transactions or at time and prices deemed
              appropriate by management. As of March 31, 2005, the Company repurchased
              6,000
              shares of common stock at prices ranging from $8.91 to $9.02 per share
              at a
              total cost of approximately $54,000, which is recorded as treasury
              stock in the
              accompanying balance sheet.
  On
              October 15, 2004 (“Closing Date”), the Company completed the acquisition of
              Core. In connection with the Transaction, the Company issued 311,437
              shares of
              its common stock as the Stock Consideration and $2,000,000 in cash,
              to the
              former Core stockholders.
 
  24
  
 The
            holders of the shares of common stock comprising the Stock Consideration
            have
            agreed not to sell any of their shares of common stock for a period of
            six (6)
            months from the Closing Date. Pursuant to the terms of the merger agreement,
            the
            shares of common stock comprising the Stock Consideration will be adjusted
            in
            the event the Company's stock price at the end of the lock-up period
            is either
            greater than twenty-five percent (25%) higher or lower than $10.4355
            per share.
            The twenty day average price of the stock for the period ending April
            15, 2005,
            the end of the lock-up, was $5.75, which will result in the issuance
            of an
            additional 112,475 shares. In addition, the merger agreement includes
            an earnout
            provision equal to Core's earnings before taxes, depreciation and amortization
            for the twelve (12) month period beginning on October 13, 2004, the execution
            date of the merger agreement, and ending on October 12, 2005, which will
            be paid
            in the form of additional shares of the Company's common stock. The number
            of
            shares to be issued in connection with the earnout, if any, will be calculated
            by dividing the dollar amount of the earnout by the twenty (20) day average
            closing price of the Company’s common stock prior to the end of the earnout
            Period. The earnout shares will also be subject to a six (6) month lock-up,
            beginning on October 13, 2005, and will be adjusted in the event the
            Company's
            stock price is either greater than twenty-five percent (25%) higher or
            lower
            than the earnout share price at the end of the earnout lock-up period.
            The
            Company has agreed to use its “best-efforts” to file a registration statement
            with the Securities and Exchange Commission, registering the resale of
            all of
            the shares of common stock included in the Stock Consideration within
            six (6)
            months from the Closing Date.
 
 Additionally,
            pursuant to the terms of the merger agreement, ten percent (10%) of each
            of the
            Stock Consideration and the Cash Consideration has been heldback by the
            Company,
            pursuant to a holdback agreement, for a period of twelve (12) months
            from the
            Closing Date for the purpose of settling any undisclosed liabilities
            that may be
            discovered by the Company during the Holdback Period, for indemnification
            of any
            breach of the representations and warranties made by Core and its primary
            stockholder, and for other potential expenses related to the
            transaction.
   On
            March
            9, 2005, the Company acquired all of the stock of Accurel Systems International
            Corporation from existing shareholders.  The aggregate purchase
            price of
            Accurel is estimated to be $12,270,000, which consists of the issuance
            of
            418,194 shares of Implant common stock with a fair value of $ 3,520,000
            based
            upon a fair value per share of $8.42, $6,000,000 in cash, $1,650,000
            in
            shareholder notes and estimated direct acquisition costs of $1,100,000.
            The fair
            value of the shares issued was determined based on the average market
            price of
            the securities over the periods just prior to and following the date
            of the
            merger agreement announcement, pursuant to the guidance in EITF Issue
            No.
            99-12. The purchase is subject to a holdback of $500,000 to be
            released at
            a rate of 25% every 90 days subject to the settlement of any and all
            liabilities
            not reflected in the closing balance sheet. The shares issued are also
            subject
            to adjustment if the Company’s average stock price during the twenty trading
            days prior to the end of a three month lock-up is 25% higher or
            lower than
            the price on the closing date. The effect of this adjustment is to limit
            the
            selling shareholders’ gain or loss on Implant common stock to 25% during the
            lock-up period ending September 9, 2005.
   On
            March
            23, 2005, Rapiscan Systems Inc (“Rapiscan”) and Implant Sciences Corporation
            (“Implant”) entered into a Development, Distribution and Manufacturing Agreement
            (the “Agreement”). The Agreement provides for i) the manufacture of Implant’s
            existing Quantum Sniffer TM explosives detection equipment (the “QS TM Products”) by Implant and sale of the QS TM Products
            to Rapiscan, on a private label basis at a discounted price as agreed
            to by the
            parties, ii) a grant by Rapiscan to Implant of the right to continue
            selling the
            QS TM Products
            through Implant’s direct and indirect sales force, iii) the development by
            Implant of a trace explosives detection subsystem using Implant’s Quantum
            Sniffer TM Technology (the “QS TM Technology”) that could be integrated with Rapiscan’s X-ray baggage screening
            device technology, resulting in an automated baggage screening device
            (the
“QS TM Baggage
            Screening Prototype”) to be delivered within twelve (12) months from the date of
            the Agreement, iv) the funding by Rapiscan of up to $1,000,000 for the
            development of the QS TM Baggage
            Screening Prototype to be paid periodically as the development continues
            based
            upon achievement of certain milestones, v) the development by Implant
            of other
            trace explosives detection subsystems (the “Other QS TM Trace
            Prototype”) utilizing the QS TM Technology to be delivered within fourteen (14) months from the date
            of the
            Agreement, vi) the funding by Rapiscan of up to $2,000,000 for the development
            of the Other QS TM Trace
            Prototype to be paid periodically as the development continues based
            upon
            achievement of certain milestones, vii) the parties granting each other
            various
            rights to manufacture components of commercial products resulting from
            the
            development of the QS TM Baggage
            Screening Prototype and the Other QS TM Trace
            Prototype (collectively, the “Developed Products”), viii) the sale to Rapiscan
            of components for the Developed Products manufactured by Implant, ix)
            distribution rights granted by Implant to Rapiscan for the marketing,
            sales and
            service of the Developed Products, and x) royalty payments to Implant
            on an
            agreed-upon portion of the sales of the Developed Products made by Rapiscan
            to
            end-user customers. Initial payments of $200,000 under these contracts
            were made
            in April.
   25
 *Critical
              Accounting Policies*
 
 Our
              significant accounting policies are described in Note 2 to the financial
              statements included in Item 7 of our Form 10-KSB/A No. 1 as of June
              30, 2004.
              Our discussion and analysis of our financial condition and results
              of operations
              are based upon the financial statements, which have been prepared in
              accordance
              with accounting principles generally accepted in the United States.
              The
              preparation of these financial statements requires us to make estimates
              and
              judgments that affect the reported amounts of assets, liabilities,
              revenues and
              expenses, and related disclosure of contingent assets and liabilities.
              On an
              on-going basis, we evaluate our estimates, including those related
              to bad debts,
              product returns, inventories, investments, intangible assets and warranty
              obligations. We base our estimates on historical experience and on
              various other
              assumptions that are believed to be reasonable under the circumstances,
              the
              results of which form the basis for making judgments about the carrying
              values
              of assets and liabilities that are not readily apparent from other
              sources. In
              the past, actual results have not been materially different from our
              estimates.
              However, results may differ from these estimates under different assumptions
              or
              conditions. We adopted SFAS No. 142 and, accordingly, goodwill and
              other
              intangible assets with indefinite lives are no longer amortized, but
              rather such
              assets are subject to annual impairment reviews or more frequently,
              if events or
              circumstances indicate that they may be impaired There has been no
              change to our
              critical accounting policies during the quarter ending March 31,
              2005.
  26
  **Item
                        3.**
                    **Controls
                        and Procedures**
   Based
              on
              an evaluation of our disclosure controls and procedures (as defined
              in Rules
              13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934),
              the chief
              executive officer and chief financial officer have concluded that our
              disclosure
              controls and procedures as of the end of the three month period ended
              March 31,
              2005, are designed to provide reasonable assurance of achieving their
              objectives
              and have concluded that the controls are effective at that reasonable
              assurance
              level.
 Based upon the Controls Evaluation, including an assessment of the
                weaknesses
                identified, our CEO and CFO have concluded that, as of the end of
                the period
                covered by this Quarterly Report, our Disclosure Controls are effective
                and that
                our Internal Controls are effective to provide reasonable assurance
                that our
                financial statements are fairly presented in conformity with generally
                accepted
                accounting principles
  In
                addition, the company has made changes in its internal controls as
                a result of
                the reportable condition. These changes include our commitment to
                put in place
                the appropriate resources to support our financial close processes.
                As part of
                this commitment and to mitigate the weakness, we have contracted
                with an
                experienced independent accountant to assist with the financial close
                process
                until we identify a permanent hire for the finance department. We
                have completed
                the interview process and an offer of employment has been made to
                and accepted
                by an experienced accountant, who will begin with company in January
                2005.
 27
 PART
                II:
                OTHER INFORMATION
 
 Item
                            1.
                        Legal
                            Proceedings
 Not
                            Applicable
 Item
                          2.
                      Unregistered
                          Salesof
                          Equity
 
 During
                the three months ended March 31, 2005, Laurus redeemed 25,762 shares
                of Series C
                into 38,165 shares of the Company’s common stock at conversion price of $6.75
                per share and redeemed approximately $3,000 of accrued dividends
                into 376 shares
                of the Company’s common stock. The conversion of accrued dividends into common
                stock resulted in additional dividends of approximately $1,000 during
                the three
                months ended March 31, 2005, in excess of 5% stated value.
  During
                the three months ended March 31, 2005, as a result of the successful
                completion
                of a Series A financing by CorNova, the Company issued an additional
                76,687
                shares of common to CorNova equaling twenty-five percent (25%) of
                the gross
                proceeds of the Series A Financing.
  Item
                              3.
                          DefaultsUpon
                              Senior
                              Securities
 Not
                            Applicable
 Item
                            4.
                        Submission
                            of Matters to a Vote of
                            Security-Holders
 Not
                            Applicable
 Item
                          5.
                      OtherInformation
 
 **Certifications
                        Under Sarbanes-Oxley Act**
 Our
                        chief executive officer and chief financial officer have
                        furnished to the
                        SEC the certification with respect to this Report that is
                        required by
                        Section 906 of the Sarbanes-Oxley Act of
                        2002.
  Item
                6. List of Exhibitsand Reports on Form 8-K
  (a)
                          The
                              following exhibits, required by Item 601 of Regulation
                              S-B, are filed as
                              part of this Quarterly Report on Form 10-QSB/A. Exhibit
                              numbers, where
                              applicable, in the left hand column correspond to those
                              of Item 601 of
                              Regulation S-B.
 
 **Exhibit
                          No.**
                      **Description**31.1
                      Certification
                          of Chief Executive Officer pursuant to Section 302 Sarbanes-Oxley
                          Act of
                          200231.2
                      Certification
                          of Chief Financial Officer pursuant to Section 302 Sarbanes-Oxley
                          Act of
                          200232.1
                      Certification
                          of the Chief Executive Officer Pursuant to 18 U.S.C. 1350,
                          as adopted
                          Pursuant to Section 906 of the Sarbanes-Oxley Act of
                          2002.32.2
                      Certification
                          of the Chief Financial Officer Pursuant to 18 U.S.C. 1350,
                          as adopted
                          Pursuant to Section 906 of the Sarbanes-Oxley Act of
                          2002.
 
 (b)
                      Current
                          Report on Form 8-K dated March 9, 2005 regarding the completion
                          of a
                          private placement .
 (c)
                      Current
                          Report on Form 8-K dated March 11, 2005 regarding the acquisition
                          of
                          Accurel Systems
 (d)
                      Current
                          Report on Form 8-K dated March 29, 2005 regarding theDevelopment,
                          Distribution and Manufacturing Agreementwith Rapiscan Systems
 28
   SIGNATURES
 
 Pursuant
              to the requirements of the Securities and Exchange Act of 1934, the
              registrant
              has duly caused this report to be signed on its behalf by the undersigned
              thereunto duly authorized.
   Implant
                        Sciences CorporationDate:
                        June 29, 2005
                    
                    /s/
                        Anthony J. ArminiAnthony
                        J. ArminiPresident
                        and CEODate:
                        June 29, 2005
                    
                    /s/
                        Diane J. RyanDiane
                        J. RyanChief
                        Financial Officer
   29