U.S. SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form
10-K/A




(Amendment
No. 1)




(Mark
      One)x
            
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the fiscal year ended June 30, 2008o
            
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the transition period
      from                      to







Commission
File No. 000-25839




Implant
Sciences Corporation


(Name of
small business issuer in its charter)




Massachusetts
              (State
      or other jurisdiction of
              incorporation
      or organization)
            04-2837126
              (I.R.S.
      Employer Identification No.)107
      Audubon Road, Wakefield, Massachusetts
              (Address
      of principal executive offices)
            01880
              (Zip
      Code)







Issuer’s
telephone number (781)
246-0700




Securities
registered under Section 12(b) of the Exchange Act:




Title
      of each class
              Common
      Stock, $0.10 par value per share
            Name
      of each exchange on which registered
              American
      Stock Exchange


€




Securities
registered pursuant to Section 12(g) of the Act: None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.Yes q  No x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.Yes q  No x




Indicate
by check mark whether the registrant (1) 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 q




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.q




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company in Rule 12b-2 of the Act
(Check one):




q  Large
Accelerated
Filer                                                                                                           q  Accelerated
Filer




q  Non-accelerated
Filer                                                                                                                     x  Smaller
reporting company




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes q  No x




As of
October 6, 2008, 14,135,737 shares of the registrant’s Common Stock were
outstanding.  As of December 31, 2007, the aggregate market value of
the registrant’s Common Stock held by non-affiliates of the registrant (without
admitting that any person whose shares are not included in such calculation is
an affiliate) was $8,008,000 based on the last sale price as reported by the
American Stock Exchange on such date.

















EXPLANATORY
PARAGRAPH






This
Amendment No. 1 on Form 10-K/A (this “Amendment”) amends our Annual Report on
Form 10-K for the fiscal year ended June 30, 2008, originally filed on October
14, 2008 (the “Original Filing”).  We are filing this Amendment to (i)
correct a typographical error in the Risk Factor disclosed in Item 1A of Part I
under the caption “We are
engaged in litigation with Evans Analytical Group LLC, the buyer of our Accurel
Systems subsidiary.  If we are unsuccessful in defending the claims
made by Evans, our business, assets and results of operations could be
materially adversely affected.,” and (ii)include the information
required by Part III and not included in the Original Filing as we will not file
our definitive proxy statement within 120 days of our fiscal year ended June 30,
2008.  In addition, in connection with the filing of this Amendment
and pursuant to Rules 12b-15 and 13a-14 under the Exchange Act, we are including
with this Amendment a currently dated certification.  Except as
described above, no other changes have been made to the Original
Filing.  The Original Filing continues to speak as of the date of the
Original Filing, and we have not updated the disclosures contained therein to
reflect any events which occurred at a date subsequent to the filing of the
Original Filing.




-2-







PART
      I






Item
      1A.
            Risk
      Factors






We
are engaged in litigation with Evans Analytical Group LLC, the buyer of our
Accurel Systems subsidiary.  If we are unsuccessful in defending the
claims made by Evans, our business, assets and results of operations could be
materially adversely affected.






In May
2007, we entered into an asset purchase agreement to sell substantially all of
the assets of our Accurel Systems subsidiary to Evans for approximately
$12,705,000, including $1,000,000 held by an escrow agent as security for
certain representations and warranties.  In February 2008, Evans filed
suit requesting rescission of the asset purchase agreement, plus damages, based
on claims of misrepresentation and fraud.  In March 2008, Evans filed
a claims notice with the escrow agent prohibiting release of any portion of the
escrow to us pending resolution of the lawsuit.  More recently, Evans
has filed motions that, if granted by the court, could result in attachments
against substantial portions of our assets prior to any final judgment on the
merits of Evans’ claims. If these motions are granted by the court, we may be
prevented from using our cash to operate our business.  We are
vigorously defending ourselves against Evans’ claims.  No assurance
can be given, however, that we will be successful in our defense against Evans’
claims, or that Evans’ motions to attach our assets will not be
granted.  The grant of these motions, or any substantial final
judgment in favor of Evans would have a material adverse effect on our business,
assets and results of operations, and could require us to file for protection
under bankruptcy laws.  Moreover, we believe that our litigation with
Evans has made it extremely difficult to raise capital we need to operate our
business.


















-3-


PART
III





Item 10.
            Directors,
      Executive Officers and Corporate
Governance




Implant
Sciences’ Board of Directors is currently comprised of five
directors.  The directors and executive officers, their ages and
positions at Implant Sciences, as well as certain biographical information of
these individuals, are set forth below.  The ages of the individuals
are provided as of September 30, 2008.


Name
              
              Age
              
              PositionPhillip
      C. Thomas
              
              59
              
              President,
      Chief Executive Officer and ChairmanGlenn
      D. Bolduc
              
              56
              
              Vice
      President & Chief Financial OfficerStephen
      N. Bunker
              
              65
              
              Vice
      President and Chief ScientistDiane
      J. Ryan
              
              48
              
              Vice
      President of AdministrationWalter
      J. Wriggins
              
              64
              
              Vice
      President and General Manger Core SystemsDavid
      Eisenhaure
              
              62
              
              DirectorJoseph
      Levangie
              
              63
              
              DirectorMichael
      Szycher
              
              69
              
              DirectorMichael
      Turmelle
              
              49
              
              Director


There are
no family relationships between any director, executive officer, or person
nominated or chosen to become a director or executive officer.




Phillip C. Thomashas served
as the Company’s Chief Executive Officer since September 2007, having joined the
company in March 2007 as Chief Operating Officer.  Prior to joining
Implant Sciences he served for eight years as CEO of DOBI Medical
Systems.  He has also served as the Founder and CEO of Medication
Delivery Devices Inc., a drug delivery company and as President of Mitek
Systems, Inc. a NASDAQ high tech company which specialized in high security data
products sold to the federal government.  Previously, he was the
Director of the Federal Systems Division of Data General, Inc. and prior to that
as a Product Line Manager at Wang Laboratories.  Mr. Thomas received
his undergraduate degree from Brigham Young University.




Glenn D. Bolduchas served as
the Company’s Chief Financial Officer since July 2008.  Prior to
joining Implant Sciences Mr. Bolduc served as acting CEO and CFO of Horizon’s
Edge Casino Cruises, LLC.  From January 2001 through January 2006 Mr.
Bolduc was the principal of Radius Ventures LLC, a strategic advisory
firm.  Prior to Radius Ventures, Mr. Bolduc has held executive
management and financial positions, including CEO and CFO, with several
venture-backed and publicly-held companies in various technology
industries.  Mr. Bolduc received his undergraduate degree in
accounting from Fairleigh Dickinson University and began his accounting career
with PriceWaterhouse.




Diane J. Ryanhas served as
the Company’s Vice President of Administration since July
2008.  Previously, Ms. Ryan was Vice President of Finance and Chief
Financial Officer since May 2003.  Ms. Ryan has been employed with
Implant Sciences Corporation since March 1989.  From March 2003 to May
2003, she was the Corporate Controller of the Company.  Ms. Ryan
graduated from Salem State College with a B.S. in Business Administration and a
minor in management.




Dr. Stephen N. Bunker, who
retired from the Company in October 2008, served as the Company’s Vice President
and Chief Scientist since 1987.  Dr. Bunker was also a Director of the
Company from 1988 through 2007.  Prior to joining the Company, from
1972 to 1987, Dr. Bunker was a Chief Scientist at Spire
Corporation.  From 1971 to 1972, Dr. Bunker was an Engineer at
McDonnell Douglas Corporation.  Dr. Bunker received his Ph.D. in
nuclear physics from the University of California, Los Angeles in
1969.  Dr. Bunker is the author of sixteen patents with four more
pending in the field of ion beam technology.




Walter J. Wrigginshas served
as the Company’s Vice President and General Manager of Core Systems, since
October 2004.  Prior to his career at Core Systems, Mr. Wriggins had
over 22 years experience in semiconductor industry.  His career began
as a materials scientist in the GE aircraft engine group, from which he
transitioned to a sales and marketing career at various semiconductor companies
throughout the country.  These companies, at which he held senior
management positions, include: Axcelis (formally Eaton Corporation), Applied
Materials, Varian


-4-
  Thin
Films, and Ion Implant Services.  Mr. Wriggins received a B.A. in
Applied Science, and a B.S. in Material Science and Engineering from Lehigh
University and an MBA from Boston University.




David Eisenhaure has served
on the Company’s board of directors since November 2002. He has been the
President, Chief Executive Officer and Chairman of the Board of SatCon
Technology Corporation since 1985. From 1974 until 1985, Mr. Eisenhaure was
associated with the Charles Stark Draper Laboratory, Incorporated and with its
predecessor, the Massachusetts Institute of Technology's Instrumentation
Laboratory, from 1967 to 1974. Dr. Eisenhaure also holds an academic position at
M.I.T., as a lecturer in the Department of Mechanical Engineering. Mr.
Eisenhaure serves on the board of directors of Mechanical Technology
Incorporated and Beacon Power. He holds a S.B., S.M. and an Engineer's Degree in
Mechanical Engineering from M.I.T.




Joseph Levangie has been the
Chief Executive Officer of JEL & Associates since 1980.  Mr.
Levangie has held many executive positions including Chief Financial Officer of
Greenman Technologies, Inc., Chief Operating & Financial Officer of
Colorgen, Inc., Vice President, Corporate Development and Chief Financial
Officer of Spire Corporation and Executive Vice President of The Solar Energy
& Energy Conservation Bank. Mr. Levangie holds a S.B. from the Massachusetts
Institute of Technology and a M.B.A from the Harvard Graduate School of Business
Administration.




Dr. Michael Szycher joined
the Company’s Board of Directors in December 1999. He has been President and
Chief Executive Officer and Chairman of CardioTech International, Inc., a
publicly traded manufacturer of medical devices and biocompatible polymers from
1996 until August 2006.  From 1988 to 1996, Dr. Szycher was Chairman
and Chief Technology Officer of Polymedica Industries. Dr. Szycher is a
recognized authority on polyurethanes and blood compatible polymers. He is the
editor of six books on various subjects in blood compatible materials and
devices and the author of eighty original research articles.




Michael Turmelle has served
on the Company’s board of directors since December 2005.  He is
currently the Chief Financial Officer of Premium Power
Corporation.  From 1987 until October of 2006 Mr. Turmelle worked for
SatCon Technology Corporation holding several positions including Chief
Financial Officer from 1991 until 2000 and Chief Operating Officer from 2000 to
2005.  Prior to SatCon, Mr. Turmelle worked for HADCO
Corporation.  Mr. Turmelle holds a B.A. degree in Economics from
Amherst College.




Section
16(a) Beneficial Ownership Reporting Compliance




Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers,
directors and persons who beneficially own more than 10% of a registered class
of our securities to file reports of ownership and changes in ownership with the
SEC.  Based solely on a review of copies of such forms submitted to
Implant Sciences, we believe that all persons subject to the requirements of
Section 16(a) filed such reports on a timely basis in fiscal 2007.




Code
of Conduct and Ethics




The
Company has adopted a code of ethics that applies to its chief executive officer
and chief financial officer.  The code of ethics is posted on the
Company’s website at www.implantsciences.com.  The Company intends to
include on its website any amendments to, or waivers from, a provision of its
code of ethics that applies to the Company’s chief executive officer and chief
financial officer that relates to any element of the code of ethics definition
enumerated in Item 406 of Regulation S-K.




Stockholder
Communications with the Board of Directors




Pursuant
to procedures set forth in our bylaws, our nominating committee will consider
stockholder nominations for directors if we receive timely written notice, in
proper form, of the intent to make a nomination at a meeting of
stockholders.  To be timely, the notice must be received within the
time frame identified in our bylaws, discussed below.  To be in proper
form, the notice must, among other matters, include each nominee’s written
consent to serve as a director if elected, a description of all arrangements or
understandings between the nominating stockholder and each nominee and
information about the nominating stockholder and each nominee.  These
requirements are detailed in our amended and restated bylaws, which were
attached as an exhibit to our Report on Form 8-K filed on December 18,
2007.  A copy of our bylaws will be provided upon written
request.




Stockholder
proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) for inclusion in the Company’s proxy
materials for its 2009 Annual Meeting of


-5-
 
  Stockholders
must be received by the Clerk of the Company at the principal offices of the
Company no later than September 1, 2009.  The Company has received no
stockholder nominations or proposals for the 2008 Annual
Meeting.




Our
bylaws require advance notice of any proposal by a stockholder intended to be
presented at an annual meeting that is not included in our notice of annual
meeting and proxy statement because it was not timely submitted under the
preceding paragraph, or made by or at the direction of any member of the board
of directors, including any proposal for the nomination for election as a
director.




The Board
will give appropriate attention to written communications that are submitted by
stockholders, and will respond if and as appropriate.  Stockholders
who wish to send communications on any topic to the Board should address such
communications to Board of Directors c/o Vice President and Chief Financial
Officer, Implant Sciences Corporation, 107 Audubon Road, Wakefield, MA
01880.




Audit
Committee




The Audit
Committee was established in accordance with Section 3(a)(58)(A) of the Exchange
Act.  The Board has designated from among its members Mr. Joseph
Levangie, Mr. Michael Turmelle and Dr. Michael Szycher as the members of
the Audit Committee.  The primary functions of the Audit Committee are
to represent and assist the Board of Directors with the oversight
of:




·
            appointing,
      approving the compensation of, and assessing the independence of the
      Company’s independent auditors;




·
            overseeing
      the work of the Company’s independent auditors, including through the
      receipt and consideration of certain reports from the independent
      auditors;




·
            reviewing
      and discussing with management and the independent auditors the Company’s
      annual and quarterly financial statements and related
      disclosures;




·
            coordinating
      the Board of Director’s oversight of the Company’s internal control over
      financial reporting, disclosure controls and procedures and code of
      conduct and ethics;




·
            establishing
      procedures for the receipt and retention of accounting related complaints
      and concerns;




·
            meeting
      independently with the Company’s internal auditing staff, independent
      auditors and management; and




·
            preparing
      the audit committee report required by SEC rules (which is included on
      pages 8 and 9 of this proxy
statement).




The Board
of Directors has determined that Mr. Levangie is an “audit committee financial
expert” as defined in Item 407(d)(5)(ii) of Regulation S-K and is independent
under Section 121A and 121B of the NYSE Alternext US Listing
Guide.  Mr. Levangie also acts as the Chairman of the Audit
Committee.




During
the fiscal year ended June 30, 2008, the Audit Committee met five (5)
times.  The responsibilities of the Audit Committee are set forth in
its written charter, which is posted on the Company’s website at
www.implantsciences.com under the “Investor Relations – Corporate Governance”
section.




Compensation
Committee




The
Compensation Committee consists of Messrs. Michael Turmelle,  David
Eisenhaure and Joseph Levangie.  Mr. Turmelle serves as chairman
of the Compensation Committee.  The Compensation Committee is
responsible for implementing the Company's compensation philosophies and
objectives, establishing remuneration levels for executive officers of the
Company and implementing the Company's incentive programs, including the
Company's equity compensation plans.  The Board of Directors has
determined that each of the members of the Compensation Committee is an
“independent” director within the meaning of the Amex listing standards and
meets the independence requirements of Section 162(m) of the Internal Revenue
Code, as amended.  During the fiscal year ended June 30, 2008, the
Compensation Committee met four (4) times.




Compensation
is paid to the Company's executive officers in both fixed and discretionary
amounts which are established by the Board of Directors based on existing
contractual agreements and the determinations of the


-6-
 
  Compensation
Committee.  Pursuant to its charter, the responsibilities of the
Compensation Committee are (i) to assist the Board of Directors in discharging
its responsibilities in respect of compensation of the Company's senior
executive officers; (ii) review and analyze the appropriateness and adequacy of
the Company’s annual, periodic or long-term incentive compensation programs and
other benefit plans and administer those compensation programs and benefit
plans; and (iii) review and recommend compensation for directors, consultants
and advisors.  Except for the delegation of authority to the Chief
Executive Officer to grant certain de minimus equity compensation awards to
non-executive employees of the Company, the Compensation Committee has not
delegated any of its responsibilities to any other person.




Item 11.
            Executive
      Compensation




Summary
Compensation Table




The
following table provides information concerning compensation for services
rendered to the Company in all capacities for the fiscal years ended June, 2008
and 2007 by our Chief Executive Officer, Chief Financial Officer, other most
highly compensated executive officers and a former executive officer whose total
compensation exceeded $100,000 in fiscal 2008.


Name
      and Principal Position
              Fiscal
      Year
              
              Salary
                ($)
              
              
              Bonus
                ($)
              
              
              Option
      Awards
                ($)
      (1)
              
              
              All
      Other Compensation
                ($)
      (2)
              
              
              Total
                ($)Named
      Executive OfficersPhillip
      C. Thomas
              2008
              
              $
              257,885
              
              
              $
              50,000
              
              
              $
              232,400
              
              
              $
              58,444
              
              
              
              (4
              )
              
              $
              598,729President,
      Chief Executive Officer and Chairman
              2007
              
              $
              57,692
              
              
              $
              -
              
              
              $
              177,600
              
              
              $
              2,489
              
              
              
              
              
              
              $
              237,781Diane
      J. Ryan (3)
              2008
              
              $
              148,786
              
              
              $
              24,000
              
              
              $
              59,750
              
              
              $
              1,244
              
              
              
              
              
              
              $
              233,780Vice
      President of Administration
              2007
              
              $
              145,116
              
              
              $
              18,750
              
              
              $
              72,950
              
              
              $
              1,220
              
              
              
              
              
              
              $
              238,036Walter
      J. Wriggins
              2008
              
              $
              147,020
              
              
              $
              10,000
              
              
              $
              -
              
              
              $
              8,476
              
              
              
              
              
              
              $
              165,496Vice
      President and General Manager, Core Systems
              2007
              
              $
              140,000
              
              
              $
              20,000
              
              
              $
              28,500
              
              
              $
              4,450
              
              
              
              
              
              
              $
              192,950Former
      Executive OfficerAnthony
      J. Armini (5)
              2008
              
              $
              250,693
              
              
              $
              -
              
              
              $
              104,000
              
              
              $
              33,088
              
              
              
              (6
              )
              
              $
              387,781President,
      Chief Executive Officer and Chairman
              2007
              
              $
              242,790
              
              
              $
              -
              
              
              $
              -
              
              
              $
              22,628
              
              
              
              (6
              )
              
              $
              265,418


(1)
            The
      amount reported in this column for the Named Executive Officer represents
      the dollar amount recognized for financial statement reporting purposes in
      fiscal 2008, determined in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 123R, “Share-Based
      Compensation.”  See Note 2 of Notes to Consolidated
      Financial Statements set forth in our Annual Report on Form 10-K for
      fiscal year 2008 for the assumptions used in determining the value of such
      awards.




(2)
            All
      other compensation includes, but is not limited to, premiums paid by the
      Company for disability and group term life insurance for all named
      executive officers and a former executive
  officer.




(3)
            On
      July 31, 2008, Ms. Ryan resigned her position as Chief Financial Officer
      and was appointed Vice President of Administration.  The
      Company’s Board of Directors named Mr. Glenn D. Bolduc as Chief Financial
      Officer.  The Company entered into a three-year employment
      agreement with Mr. Bolduc pursuant to which Mr. Bolduc receives a base
      salary of $200,000, as further described below in the Employment
      Agreements; Change in Control and Severance Provisions
      section.




-7-




(4)
            All
      other compensation of Mr. Thomas for the year ended June 30, 2008 is
      composed of $1,244 in premiums paid by the Company for disability and
      group term insurance and vehicle allowance of $7,200.  In
      addition, Mr. Thomas received a moving allowance of $50,000 during the
      year ended June 30, 2008.




(5)
            On
      September 27, 2007, the Company entered into a Transition Agreement with
      Dr. Armini, the Company’s former President and Chief Executive Officer,
      with a term of 24 months.  Under this Transition Agreement Dr.
      Armini resigned from his positions and assumed the position of Scientific
      Advisor.  Dr. Armini remained the Chairman of the Board of
      Directors until the December 2007 annual meeting of shareholders, at which
      time he left the Board.  During the transition period, the
      Company will compensate Dr. Armini at the annual rate of
      $250,000.




(6)
            All
      other compensation of Dr. Armini is composed of i) $1,037 and $1,113 in
      premiums paid by the Company for disability and group term insurance, and
      401k plan benefits paid by us on behalf of the former executive
      officer, and ii) vehicle allowance of $7,051 and $8,993, for the
      years ended June 30, 2008 and 2007, respectively.  Dr. Armini
      also received a pay-out of accrued vacation in the amount of $25,000
      pursuant to a transition agreement during the year ended June 30, 2008;
      and a payment of $12,522 for other communications and travel related
      allowances.




Employment
Agreements; Change in Control and Severance Provisions




Terms
of Employment Agreement with Named Executive Officers




The
Company entered into employment agreements (the “Employment Agreement”) with (i)
Phillip C. Thomas on December 12, 2007 (the “Thomas Agreement”), (ii) Diane J.
Ryan on March 18, 2008 (the “Ryan Agreement”), and (iii) Glenn D. Bolduc on July
31, 2008 (the “Bolduc Agreement”).




On
December 12, 2007, the Company entered into an employment agreement with Mr.
Phillip Thomas, the Company’s President and Chief Executive Officer, having an
initial term of three years, an annual base salary of $275,000, an annual
incentive bonus program and a car allowance.  In conjunction with this
agreement, Mr. Thomas has been issued an option for 280,000 shares of common
stock at an exercise price of $1.15 per share, of which 93,333 vested
immediately, and the remaining 186,667 vest over 24 months.  These
options were valued using the Black Scholes method and the following
assumptions:  volatility 82%, risk free interest rate of 3.67% and
expected life of six years.  In addition, Mr. Thomas may participate
in the Company’s employee fringe benefit plans or programs generally available
to employees of comparable status and position.  The Company may
terminate his employment for any material breach of his employment agreement at
any time.  In the event the Company terminates Mr. Thomas’ employment
without cause, the Company will pay him 12 months salary on a regular payroll
basis.  Under his employment agreement, Mr. Thomas is subject to
restrictive covenants, including confidentiality provisions and a one year
non-compete and non-solicitation provision.




On March
18, 2008, the Company entered into an employment agreement with Ms. Diane Ryan,
the Company’s then Chief Financial Officer, having an initial term of three
years, an annual base salary of $155,000, and an annual incentive bonus
program.  In conjunction with this agreement, Ms. Ryan has been issued
an option for 50,000 shares of common stock at an exercise price of $1.10 per
share, of which 16,667 vested immediately, and the remaining 33,333 vest over 24
months.  These options were valued using the Black Scholes method and
the following assumptions:  volatility 80%, risk free interest rate of
3.21% and expected term of 8.5 years.  In addition, Ms. Ryan may
participate in the Company’s employee fringe benefit plans or programs generally
available to employees of comparable status and position.  The Company
may terminate her employment for any material breach of her employment agreement
at any time.  In the event the Company terminates Ms. Ryan’s
employment without cause, the Company will pay her 12 months salary on a regular
payroll basis.  Under her employment agreement, Ms. Ryan is subject to
restrictive covenants, including confidentiality provisions and a one year
non-compete and non-solicitation provision.




On July
31, 2008, the Company entered into an employment agreement with Mr. Glenn
Bolduc, the Company’s Chief Financial Officer, having an initial term of three
years, an annual base salary of $200,000, and an annual cash incentive bonus
program and long-term incentives in the form of incentive stock options to
purchase shares of the Company’s common stock.  Mr. Bolduc joined the
Company on July 7, 2008.  In conjunction with this agreement, Mr.
Bolduc has been issued an option for 140,000 shares of common stock at an
exercise price of $0.91 per share, which vests annually in equal installments of
46,666, commencing on the first anniversary date.  These options were
valued using the Black Scholes method and the following
assumptions:  volatility 90.2%, risk free interest rate of 3.30% and
expected term of 6.0 years.  In addition, Mr. Bolduc may participate
in the Company’s employee fringe


-8-
 
  benefit
plans or programs generally available to employees of comparable status and
position.  The Company may terminate his employment for any material
breach of his employment agreement at any time.  In the event the
Company terminates Mr. Bolduc’s employment without cause, the Company will pay
him 12 months salary on a regular payroll basis.  Under his employment
agreement, Mr. Bolduc is subject to restrictive covenants, including
confidentiality provisions and a one year non-compete and non-solicitation
provision.




Terms
of Transition Agreement with Former Executive Officer




On
September 27, 2007, the Company entered into a Transition Agreement with Dr.
Anthony J. Armini, the Company’s former President and Chief Executive Officer,
with a term of 24 months.  Under this Transition Agreement Dr. Armini
resigned from his positions and assumed the position of Scientific
Advisor.  Dr. Armini remained the Chairman of the Board of Directors
until the December 2007 annual meeting of shareholders, at which time he left
the Board.  During the transition period, the Company will compensate
Dr. Armini at the annual rate of $250,000.  At June 30, 2008, the
Company recorded a $339,000 charge in selling, general and administrative
expenses representing the unpaid portion of wages, taxes and health and life
insurance benefits owed to Dr. Armini under the terms of the Transition
Agreement.  In addition, Dr. Armini may participate in the Company’s
medical and dental insurance programs.  The Company may terminate this
Transition Agreement only for cause and Dr. Armini may terminate the Transition
Agreement for any reason, with each party giving the other written
notice.  In conjunction with this agreement, Dr. Armini has been
issued a stock option for 200,000 shares of common stock at an exercise price of
$2.09 per share, of which 25,000 shares vested immediately, and the remaining
175,000 shares vest at a rate of 25,000 per quarter over the term of the
Transition Agreement.  These options were valued using the Black
Scholes method and the following assumptions:  volatility 55%, risk
free interest rate of 4.01% and expected life of 1.75 years.




Employment
Agreement Definitions




Good Reason.“Good
Reason” shall mean, without named executive’s written consent, (a) the
assignment to named executive of duties inconsistent in any material respect
with the named executive’s duties; (b) a material reduction in Base Salary or
other benefits (other than a reduction or change in benefits generally
applicable to all executive employees of the Company); or (c) relocation to an
office more than fifty miles outside the Company’s current location in the
greater Boston area.  Notwithstanding the occurrence of any of the
aforementioned events, no event or condition shall be deemed to constitute Good
Reason unless (i) named executive reports the event or condition which the named
executive believes to be Good Reason to the CEO or to the Board of Directors, in
writing, within 45 days of such event or condition occurring and (ii) within 30
days after the named executive provides such written notice of Good Reason, the
Company has failed to fully correct such Good Reason and to make the named
executive whole for any such losses.




Cause.  “Cause”
shall mean any of the following:




·
            conviction
      or entry of nolo contender to any felony or a crime involving moral
      turpitude, fraud or embezzlement of Company
  property;




·
            dishonesty,
      gross negligence or gross misconduct that s materially injurious to the
      Company or material breach of his or her duties, which has not been cured
      by named executive within 10 days (or longer period as is reasonably
      required to cure such breach, negligence or misconduct) after she shall
      have received written notice from the Company stating with reasonable
      specificity the nature of such breach;
and




·
            in
      the case of Mr. Bolduc’s employment agreement, illegal use or abuse of
      drugs, alcohol, or other related substances that is materially injurious
      to the Company.




-9-


Potential
Payments Upon Termination or Change in Control




The
following table describes the estimated incremental compensation upon (i)
termination by the Company of the Named Executive Officers without Cause, or
(ii) termination for Good Reason by the Named Executive Officer.  The
estimated incremental compensation assumes the triggering event had occurred on
June 30, 2008.  Benefits generally available to all employees are not
included in the table.  The actual amount of compensation can only be
determined at the time of termination or change in control.


Named
      Executive Officer
              
              Base
      Salary Continuation
              
              
              COBRA
      Premiums (1)
              
              
              Life
      Insurance Premiums (2)Phillip
      C. Thomas
              
              $
              275,000
              
              
              $
              10,145
              
              
              $
              2,112Glenn
      D. Bolduc
              
              
              200,000
              
              
              
              15,319
              
              
              
              2,112Diane
      J. Ryan
              
              
              155,000
              
              
              
              15,319
              
              
              
              2,547


(1)
            Represents
      estimated out-of-pocket COBRA health insurance premium expenses incurred
      by the Named Executive Officers over the 12 month period following
      termination to be reimbursed by the
Company.




(2)
            Represents
      estimated life insurance premiums to be paid by the Company on behalf of
      the Named Executive Officers after termination.  The Company
      shall continue in full force and effect, at its expense, the life
      insurance benefits provided in the Employment Agreement for a period of 12
      months after termination of the Named Executive Officer’s employment or
      until the Named Executive Officer becomes employed, whichever occurs
      first.




-10-


Outstanding
Equity Awards at 2008 Fiscal Year-End




The
following table provides information regarding outstanding stock options held by
each Named Executive Officer as of the fiscal year ended June 30,
2008.


Named
      Executive Officers
              
              Number
      of Securities Underlying Unexercised Options Exercisable
              
              
              Number
      of Securities Underlying Unexercised Options Unexercisable
              
              
              Option
      Exercise Price ($)
              
              Option
                Expiration
                DatePhillip
      C. Thomas
              
              
              40,800
              
              
              
              79,200
              
              
              $
              2.12
              
              3/12/201793,333
              
              
              
              186,667
              
              
              $
              1.15
              
              12/12/2017134,133
              
              
              
              265,867Diane
      J. Ryan
              
              
              5,000
              
              
              
              -
              
              
              $
              10.90
              
              4/4/201220,000
              
              
              
              -
              
              
              $
              4.23
              
              11/11/20124,000
              
              
              
              -
              
              
              $
              2.10
              
              3/4/201321,800
              
              
              
              -
              
              
              $
              3.16
              
              5/21/201350,000
              
              
              
              -
              
              
              $
              6.33
              
              8/22/201330,000
              
              
              
              -
              
              
              $
              9.15
              
              7/28/201430,000
              
              
              
              -
              
              
              $
              3.80
              
              11/1/201550,000
              
              
              
              -
              
              
              $
              4.09
              
              12/13/20156,800
              
              
              
              13,200
              
              
              $
              2.40
              
              8/31/20168,500
              
              
              
              16,500
              
              
              $
              2.05
              
              3/5/2017-
              
              
              
              25,000
              
              
              $
              0.87
              
              1/14/201816,667
              
              
              
              33,333
              
              
              $
              1.10
              
              3/18/2018242,767
              
              
              
              88,033Stephen
      N. Bunker
              
              
              50,000
              
              
              
              -
              
              
              $
              6.33
              
              8/22/201350,000
              
              
              
              -
              
              
              $
              4.09
              
              12/13/2015-
              
              
              
              100,000
              
              
              $
              0.80
              
              12/31/2017100,000
              
              
              
              100,000Walter
      J. Wriggins
              
              
              50,000
              
              
              
              -
              
              
              $
              9.92
              
              10/15/201420,000
              
              
              
              -
              
              
              $
              3.58
              
              4/22/201530,000
              
              
              
              -
              
              
              $
              3.89
              
              10/31/20158,500
              
              
              
              16,500
              
              
              $
              1.64
              
              6/29/2017108,500
              
              
              
              16,500585,400
              
              
              
              470,400


-11-


The
following table provides information regarding outstanding stock options held by
the Former Executive Officer as of the fiscal year ended June 30,
2008.


Named
      Executive Officers
              
              Number
      of Securities Underlying Unexercised Options Exercisable
              
              Number
      of Securities Underlying Unexercised Options Unexercisable
              
              Option
      Exercise Price ($)
              Option
                Expiration
                DateAnthony
      J. Armini
              
              
              100,000
              
              
              
              100,000
              
              
              $
              2.09
              
              9/28/2009


2008
Option Exercises and Stock Vested




During
the year ended June 30, 2008, there were no exercises of option awards by any of
the Named Executive Officers.




Directors’
Compensation




The
following table sets forth the annual compensation of the Company’s non-employee
directors for fiscal 2008, which consisted of annual cash retainers, including
amounts associated with serving as Chairman of the Board and the chair and
member of Board committees, and equity awards in the form of options pursuant to
the 1998 Stock Option Plan, the 2000 Incentive and Non-Qualified Stock Option
Plan, and the 2004 Stock Option Plan.  Employee directors do not
receive any separate compensation for their service on the
Board.


Name
              
              Fees
      Earned or Paid in Cash
                ($)
              
              
              Option
      Awards
                ($)
      (1)
              
              
              Total
                ($)David
      Eisenhaure
              
              $
              13,500
              
              
              $
              8,300
              
              
              $
              21,800Joseph
      Levangie
              
              
              7,500
              
              
              
              8,300
              
              
              
              15,800Michael
      Szycher
              
              
              13,500
              
              
              
              8,300
              
              
              
              21,800Michael
      Turmelle
              
              
              14,250
              
              
              
              8,300
              
              
              
              22,550


(1)
            The
      amount reported in this column for the non-employee director represents
      the dollar amount recognized for financial statement reporting purposes in
      fiscal 2008, determined in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 123R, “Share-Based
      Compensation.”  See Note 2 of Notes to Consolidated
      Financial Statements set forth in the Company’s Annual Report on Form 10-K
      for fiscal year 2008 for the assumptions used in determining the value of
      such awards.




Item 12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters




Information
related to securities authorized for issuance under equity compensation plans as
of the end of fiscal 2008 is included in Item 5 of Part II of the Company’s
Annual Report of Form 10-K for the year ended June 30, 2008.




The
following table sets forth the beneficial ownership of shares of our common
stock, as of September 30, 2008, of (i) each person known by us to beneficially
own five percent (5%) or more of such shares; (ii) each of our directors and
executive officers named in the Summary Compensation Table; and (iii) all of our
current executive officers, directors, and significant employees as a
group.  Except as otherwise indicated, all shares are beneficially
owned, and the persons named as owners hold investment and voting
power.




Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934.  Under this rule, certain shares may be deemed
to be beneficially owned by more than one person, if, for


-12-
 
  example,
persons share the power to vote or the power to dispose of the
shares.  In addition, shares are deemed to be beneficially owned by a
person if the person has the right to acquire shares, for example, upon exercise
of an option or warrant, within sixty (60) days of September 30,
2008.  In computing the percentage ownership of any person, the amount
of shares is deemed to include the amount of shares beneficially owned by such
person, and only such person, by reason of such acquisition
rights.  As a result, the percentage of outstanding shares of any
person as shown in the following table does not necessarily reflect the person’s
actual voting power at any particular date.


Name
      and Address of Beneficial Owner (1)
              
              Amount
      and Nature of Beneficial Ownership
              
              
              Percentage
      of Class (2)Executive
      Officers and DirectorsPhillip
      C. Thomas (3)
              
              
              227,467
              
              
              
              1.6
              %Stephen
      N. Bunker (4)
              
              
              701,048
              
              
              
              4.9
              %Diane
      J. Ryan (5)
              
              
              291,252
              
              
              
              2.0
              %Walter
      J. Wriggins (6)
              
              
              137,714
              
              
              
              1.0
              %David
      Eisenhaure (7)
              
              
              76,000
              
              
              
              *Joseph
      Levangie (8)
              
              
              10,000
              
              
              
              *Michael
      Szycher (9)
              
              
              77,000
              
              
              
              *Michael
      Turmelle (10)
              
              
              30,000
              
              
              
              *Other
      5% ShareholdersAnthony
      J. Armini (11)
              
              
              1,308,689
              
              
              
              9.2
              %Robert
      Ferran (12)
              
              
              1,559,600
              
              
              
              11.0
              %All
      executive officers and directors as a group (8 persons)
    (13)
              
              
              1,550,481
              
              
              
              10.3
              %
  *      Less
than 1%




(1)
            Unless
      otherwise indicated, the business address of the stockholders named in the
      table above is Implant Sciences Corporation, 107 Audubon Road, Wakefield,
      MA 01880.




(2)
            Based
      on 14,135,292 outstanding shares as of September 30,
  2008.




(3)
            Includes
      227,467 shares of common stock, which may be purchased within sixty (60)
      days of September 30, 2008 upon the exercise of stock
    options.




(4)
            Includes
      100,000 shares of common stock, which may be purchased within sixty (60)
      days of September 30, 2008 upon the exercise of stock
    options.




(5)
            Includes
      249,367 shares of common stock, which may be purchased within sixty (60)
      days of September 30, 2008 upon the exercise of stock
    options.




(6)
            Includes
      108,500 shares of common stock, which may be purchased within sixty (60)
      days of September 30, 2008 upon the exercise of stock
    options.




(7)
            Includes
      75,000 shares of common stock, which may be purchased within sixty (60)
      days of September 30, 2008 upon the exercise of stock
    options.




(8)
            Includes
      10,000 shares of common stock, which may be purchased within sixty (60)
      days of September 30, 2008 upon the exercise of stock
    options.




(9)
            Includes
      75,000 shares of common stock, which may be purchased within sixty (60)
      days of September 30, 2008 upon the exercise of stock
    options.




(10)
            Includes
      30,000 shares of commons stock, which may be purchased through September
      30, 2008, which is the expiration of the exercisability period, upon the
      exercise of stock options.




(11)
            Includes
      125,000 shares of commons stock, which may be purchased through September
      30, 2008, which is the expiration of the exercisability period, upon the
      exercise of stock options.




-13-




(12)
            Includes 311,920
      shares of commons stock, which are currently held in escrow until April
      10, 2009, pursuant to the terms of the purchase agreement entered into
      between Implant Sciences and Ion Metrics,
Inc.




(13)
            See
      footnotes (3) through (10).




Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence






Transactions
with related parties, including, but not limited to, members of the Board of
Directors, are reviewed and approved by all members of the Board of
Directors.  In the event a transaction with a member of the Board is
contemplated, the Director having a beneficial interest in the transaction is
not allowed to participate in the decision-making and approval
process.  The policies and procedures surrounding the review, approval
or ratification of related party transactions are not in writing, nevertheless,
such reviews, approvals and ratifications of related party transactions are
documented in the minutes of the meetings of the Board of Directors and any such
transactions are committed to writing between the related party and the Company
in an executed engagement agreement.




Independence
of the Board of Directors






The Board
of Directors has adopted director independence guidelines that are consistent
with the definitions of “independence” as set forth in Section 301 of the
Sarbanes-Oxley Act of 2002, Rule 10A-3 under the Securities Exchange Act of 1934
and NYSE Alternext US listing standards.  In accordance with these
guidelines, the Board of Directors has reviewed and considered facts and
circumstances relevant to the independence of each of our directors and director
nominees and has determined that, each of the Company’s non-management directors
qualifies as “independent” under NYSE Alternext US listing
standards.






The Board
of Directors has an Audit Committee, Compensation Committee and
Nominating/Corporate Governance Committee.  The membership of each, as
of September 30, 2008, is indicated in the table below.


Directors
              
              Audit
              
              Compensation
              
              Nominating/
                Corporate
      GovernanceDavid
      Eisenhaure
              
              
              
              X
              
              XJoseph
      Levangie
              
              Chair
              
              X
              
              XMichael
      Szycher
              
              X
              
              
              
              ChairMichael
      Turmelle
              
              X
              
              Chair
              
              X


The Board
of Directors has determined that all of the members of each committee are
independent as defined under the NYSE Alternext US rules, including, in the case
of all members of the Audit Committee, the independence requirements
contemplated by Rule 10A-3 under the Exchange Act.  In addition, all
of the members of the Audit Committee are independent as defined by the NYSE
Alternext US rules that apply to the Company until the date of the Annual
Meeting and otherwise satisfy the NYSE Alternext US eligibility requirements for
Audit Committee membership.




-14-


Item
      14.
            Principal
      Accounting Fees and Services






The following is a summary of the
fees billed to the Company by UHY LLP, our independent registered public
accounting firm, for professional services rendered for the fiscal years ended
June 30, 2008 and 2007.  The Audit Committee considered and discussed
with UHY LLP the provision of non-audit services to the Company and the
compatibility of providing such services with maintaining its independence as
the Company’s auditor.


Fee
      Category
              
              Years
      Ended June 30,(in
      thousands)
              
              2008
              
              
              2007Audit
      fees
              
              $
              359,000
              
              
              $
              196,000Audit-related
      fees
              
              
              11,000
              
              
              
              95,000Tax
      fees
              
              
              -
              
              
              
              -All
      other fees
              
              
              5,000
              
              
              
              23,000Total
      fees
              
              $
              375,000
              
              
              $
              314,000


Audit Fees.This
category consists of fees billed for professional services rendered for the
audit of our annual financial statements and review of financial statements
included in our quarterly reports and other professional services provided in
connection with regulatory filings.




Audit-Related
Fees.This category consists of fees billed for assurance and
related services that related to the performance of the audit or review of our
financial statements and are not otherwise reported under “Audit
Fees”.




Tax Fees.This
category consists of fees billed for professional services for tax compliance,
tax advice and tax planning.  These services include assistance
regarding federal and state tax compliance and acquisitions.




Pre-Approval Policies and
Procedures.  The Audit Committee has the authority to approve
all audit and non-audit services that are to be performed by the Company’s
independent registered public accounting firm.  Generally, the Company
may not engage its independent registered public accounting firm to render audit
or non-audit services unless the service is specifically approved in advance by
the Audit Committee (or a properly delegated subcommittee thereof).




All Other
Fees.  This category consists of fees billed for professional
services other than those fees described above.



















-15-


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.




Dated:
      October 29, 2008
            CardioTech
      International, Inc.By:
            /s/
      Phillip C. ThomasPhillip
      C. Thomas
              Chief
      Executive Officer and President







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




Dated:
      October 29, 2008
            
            /s/
      Phillip C. ThomasPhillip
      C. Thomas
              Chief
      Executive Officer and President
              (Principal
      Executive Officer)Dated:
      October 29, 2008
            
            /s/
      David EisenhaureDavid
      Eisenhaure
              DirectorDated:
      October 29, 2008
            
            /s/
      Joseph LevangieJoseph
      Levangie
              DirectorDated:
      October 29, 2008
            
            /s/
      Michael Szycher, PhDMichael
      Szycher, PhD
              DirectorDated:
      October 29,2008
            
            /s/
      Michael TurmelleMichael
      Turmelle
              DirectorDated:
      October 29, 2008
            
            /s/
      Glenn D. BolducGlenn
      D. Bolduc
              Vice
      President and Chief Financial Officer
              (Principal
      Financial Officer and Principal Accounting Officer)