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

                                   FORM 10-KSB


[X]       Annual  report  pursuant  to  section  13  or  15(d) of the Securities
          Exchange Act of 1934.  FOR THE FISCAL YEAR ENDING JUNE 30, 2001. Or

[ ]       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
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(State  or  other  jurisdiction                         (IRS  Employer
of incorporation or organization)                       Identification  number)

107  Audubon  Road,  #5  Wakefield,  MA                 01880
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(Address of Principal Executive Offices)                (Zip  Code)


                                  781-246-0700
                                  ------------
              (Registrant's Telephone Number, Including Area Code)


Securities registered pursuant to Section 12(b) of the Act:



TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------                 -----------------------------------------
Common Stock, $.10 par value      American Stock Exchange, Boston Stock Exchange
   Warrants                       American Stock Exchange, Boston Stock Exchange



     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
                               ---                ---

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

     State  issuer's  revenues  for  its  most  recent  fiscal  year: $4,368,000

     The  aggregate  market  value of the voting stock held by non-affiliates of
the registrant was approximately $17,800,000 as of August 15, 2001 (based on the
closing  price  for  such  stock  as  of  August  15,  2001).

     Indicate  the  number of shares outstanding of each of the issuer's classes
of  common  stock:


               Class                       Outstanding at June 30, 2001
    Common Stock, $.10 par value                    5,889,770


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<PAGE>
                       DOCUMENTS INCORPORATED BY REFERENCE
Portions  of  the  Registrant's  Definitive  Proxy Statement for its 2001 Annual
Meeting  of  Stockholders, expected to be filed with the Securities and Exchange
Commission  on  or  before  October 28, 2001, are incorporated by reference into
Items  9,  10,  11  and  12  of  this  Annual  Report  on  Form  10-KSB.

                                     PART 1


ITEM  1.     OUR  BUSINESS

     In  addition  to  historical information, this Annual Report on Form 10-KSB
contains forward looking statements within the meaning of the Private Securities
Litigation  Reform  Act  of  1995.  The words "believe," "expect," "anticipate,"
"project,"  "estimate,"  "forecast,"  and  similar  expressions,  among  others,
identify 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.   Factors
that  might  cause  such  a  difference  include,  but are not limited to, those
discussed  in the sections entitled "Business", "Risk Factors", and "Managements
Discussion  and  Analysis  of  Financial  Condition  and Results of Operations."
Readers  are  cautioned  not  to  place  undue reliance on these forward-looking
statements,  which  reflect  management's  opinions only as of the date thereof.
The  Company  undertakes no obligation to revise or publicly release the results
of  any  revision of these forward-looking statements.  Readers should carefully
review  the  risk  factors described in the Annual Report and in other documents
that  the  Company  files  from  time  to  time with the Securities and Exchange
Commission.

     Implant  Sciences  Corporation (the "Company"), incorporated in August 1984
has,  over  the  past  seventeen  years,  developed  core technologies using ion
implantation  and  thin  film  coatings  for medical device applications and has
proprietary  processes  and  equipment  for the manufacture of medical radiation
theraputic  devices.  We are applying this technology to manufacture radioactive
prostate  seeds  using  a  dry fabrication process which we believe will be more
cost-effective  and  less  hazardous  than  conventional  processes  which  use
radioactive  wet  chemistry.  Our  I-Plant  seeds  will be made radioactive in a
nuclear  reactor  prior  to  shipment  to  customers.  We  believe  that  the
opportunities  for  radioactive  prostate  seeds  will  continue  to  grow as an
attractive  alternative  to other methods of treatment. The Company has received
Food and Drug Administration 510(k) clearance to market its I-PlantTM Iodine-125
radioactive  seed  for the treatment of prostate cancer. On February 2, 2000 the
Company signed a distribution agreement with MED-TEC Inc. for the exclusive U.S.
distribution  of  our  I-Plant Iodine-125 seed. In the interventional cardiology
field,  we are developing internally, as well as with the support of Phase I and
Phase II government grants, coronary brachytherapy devices for the prevention of
restenosis (reclosure of the artery) after balloon angioplasty. We believe these
implants,  radioactive  seeds  used  for  the  treatment  of prostate cancer and
coronary  brachytherapy devices used for the prevention of restenosis (reclosure
of  the  artery)  after balloon angioplasty, will have a significant competitive
advantage  over  currently  existing  devices.

     We are currently developing our proprietary thin film coating technology in
order  to  apply  it  to  radiopaque  (visible  by  x-ray)  coatings  on stents,
guidewires,  catheters  and  other  devices  used  in  interventional cardiology
procedures.  In  addition,  we are applying our ion implantation technologies to
modify  surfaces  to  reduce  polyethylene  wear  generation in orthopedic joint
implants,  manufactured  by  the  Howmedica/Osteonics  Division  of  Stryker
Corporation and Biomet Incorporated. We also supply ion implantation services to
numerous semiconductor manufacturers, research laboratories and universities. We
currently  have  seventeen  issued United States patents and seven United States
patents  pending  covering  our  technologies  and  processes. We also have four
international  patent  applications  pending.

     Although  there  are  a  wide  range  of  commercial  applications  for our
proprietary  technologies,  we  have  chosen  to  focus  on  the  medical device
industry.  Within  the  medical  device  industry,  we  are concentrating on the
prostate  cancer,  interventional  cardiology  and  orthopedic  segments.


                                        2
<PAGE>
TECHNOLOGIES

     General.  We  use  two  core  technologies,  ion implantation and thin film
coatings,  to  provide  enhanced  surfaces  to  various  medical  implants  and
semiconductor  products. With respect to each core technology, we have developed
proprietary processes and equipment for the purpose of improving or altering the
surfaces  of  medical  implants  and  semiconductor  wafers.

     Ion  implantation  and thin film coatings are techniques first developed in
the  1970's to improve the functional surface properties of metals, ceramics and
polymers, such as friction, wear, wettability and hardness. Ion implantation was
initially  developed  as  a  means  to dope semiconductors in the fabrication of
integrated  circuits.  The  accuracy,  cleanliness  and  controllability of this
process  has  made  it  the  standard  for  semiconductor  manufacturing.  Ion
implantation  is  generally  preferred  over  other surface modification methods
because  it does not delaminate, does not require high temperatures and does not
deform  or  alter  the  dimensions  of  the  treated  surface.

     Thin  film coatings were initially developed to interconnect transistors on
semiconductor  chips.  Thin films modify surfaces by layering a desired metal or
ceramic  coating  on the substrate material. Common thin film coating techniques
include  chemical  vapor  deposition  and  physical  vapor  deposition.

     Ion Implantation. Ion implantation is a process by which ions (electrically
charged  atoms) are accelerated to high velocity in a vacuum and directed toward
a substrate or target material. The atoms become embedded just below the surface
of  the  material  producing  an  alloy  composed of the atoms and the substrate
material  in  the near-surface region of the target material. This surface alloy
may  have new mechanical, electrical, chemical, optical and other properties. We
believe  our  proprietary  technology,  including  high  current ion sources and
specialized  component  holding  fixtures, provides higher ion implant doses and
higher beam power and yields superior surface characteristics at lower cost than
commercially  available  equipment.

     Ion  implantation  can  be  used to embed single isotopes of radioactive or
non-radioactive elements into components. We are using our proprietary equipment
to  manufacture  radioactive  seed implants for the treatment of prostate cancer
and  other  carcinomas which can be manufactured without expensive cyclotrons or
linear accelerators and without hazardous radioactive wet chemistry, the methods
currently  employed  by existing suppliers. We have seventeen patents issued and
seven  patents pending on our processes. We also believe we can cost-effectively
implant  ions  of  therapeutic  radioisotopes  including  phosphorous-32,
palladium-103  or  ytterbium-90  into  a device such as a coronary stent used to
reduce  restenosis  following  balloon  angioplasty.

     Thin  Film  Coating.  A  thin  film  coating is grown upon a substrate in a
vacuum  by  the  gradual  deposition  of atoms on the substrate. Our proprietary
unbalanced  magnetron  sputtering process results in coatings that are extremely
dense  and  free of voids, yielding good contrast and sharp edges under x-ray or
fluoroscopic examination. These coatings usually consist of gold or platinum for
radiopaque  applications.  Our  proprietary  manufacturing  process  allows  for
efficient  utilization  of  precious  metals and for cost effective recovery and
recycling  of  these  precious  metals. We are also developing processes to coat
stents,  guidewires  and  catheters used in interventional cardiology procedures
with  substances,  usually gold or platinum, that allow those stents, guidewires
and  catheters  to  be  visible  under  x-ray observation during a procedure. We
believe  other techniques for applying thin film coatings are less desirable for
medical device applications because of their inability to apply a dense coating,
while  continuing  to  be  flexible  and  adhering  to  the  substrate.

CURRENT  AND  FUTURE  PRODUCTS

Prostate  Cancer  Seeds

     General.  The  alternatives  generally presented to patients diagnosed with
early  stage  prostate  cancer  are  surgical  removal  of the prostate (radical
prostatectomy)  or  external  beam  radiation.  Both  techniques frequently have
significant side effects including impotence and incontinence. Brachytherapy has
been an increasingly popular treatment technique whereby radioactive seeds (each
of  which  is  approximately  half  the size of a grain of rice) are permanently
implanted  into  the  prostate.  This  technique  allows  the delivery of highly
concentrated  yet  confined  doses  of  radiation  directly  to  the  prostate.


                                        3
<PAGE>
Surrounding  healthy  tissues  and  organs  are  spared  significant  radiation
exposure.  Advances  in  transrectal  ultrasound  and  catscan imaging equipment
provide  detailed  and precise measurements of prostate size and shape, for seed
distribution  and  placement.

     Prostate  Seeds.  We  have  developed,  and  been granted two United States
patents  covering  radioactive  seeds,  implants  and  methods  of manufacturing
radioactive  seed  implants  by  a proprietary process. The Company has received
Food and Drug Administration 510(k) clearance to market its I-PlantTM Iodine-125
radioactive  seed  for  the  treatment  of prostate cancer. These seeds are used
primarily  in the treatment of prostate cancer. A twelve-year study conducted by
the  Northwest  Hospital,  Seattle,  Washington (the "Northwest Hospital Study")
shows  that this treatment has a twelve-year disease-free survival rate equal to
surgical  removal  of  the  prostate  and  may  be superior to other early stage
treatments, with a substantial reduction in the negative side effects, impotence
and incontinence, frequently associated with surgery and external beam radiation
treatment.  The  National  Cancer  Institute  and  American  Cancer Society have
reported  that  sexual  potency after implantation of radioactive seeds has been
86%  to  92%,  which compares with rates of 10% to 40% for radical prostectomies
and  40%  to  60%  for  external  beam radiation therapy. Our production method,
involving  a  proprietary  dry fabrication process, does not use radioactive wet
chemistry.  On  July  28,  1999  we  received  our  Radioactive  Sealed  Source
Registration  Certificate,  a  Nuclear Regulatory Commission ("NRC") requirement
administered  by  the Commonwealth of Massachusetts as a NRC Agreement State. On
February  2,  2000 we signed a distribution agreement with MED-TEC, Inc. for the
exclusive  U.S.  distribution  of  our  I-Plant  Iodine-125  seed.

     Manufacturing. Management believes that the Company's manufacturing process
results  in lower capital equipment and manufacturing assembly costs and is less
hazardous  than  the  manufacturing  processes  used  by  our competitors. Other
radioactive  prostate  seed  manufacturers  use radioactive wet chemistry during
seed  assembly  for iodine-125 products. The Company's dry process, for which it
has  patents  issued and pending, uses a dry fabrication process, and we believe
it  requires  fewer  personnel and yields faster throughput. Following seed core
assembly  we send our seed cores to a nuclear reactor for activation. Using this
dry  fabrication  process, seed cores can be fabricated and inventoried in large
quantities  and  activated  only  when  ordered.  Due  to the short half-life of
iodine-125  (60  days),  the competition must assemble and ship seeds on a tight
schedule  so  they  can  be  implanted  into  the  patient  at  the  appropriate
radioactive  strength.

     Sales. On February 2, 2000 we signed a distribution agreement with MED-TEC,
Inc.  for  the  exclusive  U.S. distribution of our I-Plant Iodine-125 seed. The
Company's  two  major  customers,  the  Howmedica/Osteonics Division of Stryker,
Corporation  and Biomet, Incorporated, accounted for 34% of revenues in the year
ended June 30, 2001 and 44%, for the comparable prior year period. MED-TEC Inc.,
the  Company's  exclusive  distributor  of  prostate  seeds accounted for 17% of
revenues  for  the  year  ended  June  30,  2001.

Interventional  Cardiology  Devices

     General.  In  cooperation  with  certain  device manufacturers and with the
support  of  government  research contracts and grants, we are in the process of
developing  a  number  of  devices  to  be  used  in  interventional  cardiology
procedures. Among these devices are temporary coronary brachytherapy systems and
coronary stents that are used to reduce restenosis following balloon angioplasty
and  stents,  guidewires  and  catheters containing radiopaque markers. Coronary
stents  are  made  of  metals which are not radiopaque and in many cases must be
coated  with  dense precious metals for increased visibility that is critical to
their  guiding,  positioning,  manipulation  and  placement.

Temporary  Coronary  Brachytherapy  Systems

     With  the  support  of  a  government  research  grant,  we  have  begun an
initiative on a catheter-based brachytherapy system device for the prevention of
restenosis,  reclosure  of  the  artery,  following  balloon  angioplasty.  The
catheter  is  being  designed  to  deliver  localized radiation to the patient's
artery,  using  iodine-125,  a  soft  gamma  ray emitter mounted on the tip of a
delivery  catheter.  Using  our patented core technology for the I-Plant seed we
are  developing  a  proprietary  process  to  produce  radioactive  sources  of
sufficient  strength  to be used in the vascular system.  We expect that the use
of  this soft gamma ray isotope within the catheterization laboratory will allow


                                        4
<PAGE>
the  physician  and  staff  to remain at the patients side during the treatment,
which  is  currently not an option with other gamma ray emitters.  We anticipate
that  this  soft gamma ray should also make the procedure more acceptable to the
interventional  cardiologist,  compared  to  other systems currently in clinical
development.

     Radioactive  Stents.  In  fiscal  1998,  we  were  awarded a grant from the
National  Institutes  of  Health  ("NIH")  for  the  first  phase  of a possible
two-phase  program  to further develop radioactive stents on a commercial basis.
In  September  1999  we were notified by the NIH that we were awarded a $750,000
phase  two  grant, based on our successful phase I grant, to further develop our
radioactive  stents.

     Radiopaque  Coatings.  We  have  developed proprietary methods for applying
radiopaque  coatings  onto  a  variety  of  medical  devices manufactured by our
customers  in  order  to  increase  the  visibility  of  such  devices  during
interventional  cardiology  and  other  catheter-based  procedures.  These
biocompatible  coatings  are  deposited using a proprietary unbalanced magnetron
sputtered  coating process. The resulting coating is extremely dense and free of
voids  yielding  good  contrast  and  sharp  edges  under  x-ray or fluoroscopic
examination. We use this process to coat stents, guidewires and catheters. For a
fractional  increase  in the manufacturing cost of a stent, the Company believes
its  coatings  can provide significant added value and enhanced performance. The
Company's  thin  film  coatings  are  being  evaluated  by certain customers for
stents,  guidewires  and  catheters.

Orthopedic  Total  Joint  Replacements

     General.  We  provide  surface  engineering  technology to manufacturers of
orthopedic  hip  and knee total joint replacements. The majority of existing hip
and  knee  joint  replacements  are  made  of a cobalt chromium ("CoCr") femoral
component  that  articulates  against  a  polyethylene component. While offering
excellent  biocompatibility  and  superior wear resistance over prior alloys and
designs  and  potentially  longer  average  life than prior alloys, CoCr devices
still  suffer  from  particle  generation  where  the  metal  and  polyethylene
components  articulate  against  each  other.  This particle generation has been
identified  as  a primary cause of implant loosening due to osteolysis requiring
repeat  surgery.

     Orthopedics.  We  implant  CoCr  components  of  total  joint  replacements
manufactured  by  our customers with nitrogen ions. Nitrogen ion implantation of
these components reduces polyethylene wear by modifying the native oxide present
in  CoCr  alloys. Laboratory tests and clinical studies have shown that nitrogen
ion-implanted  CoCr  components  offer  superior  performance  over  untreated
components,  significantly reducing wear and slowing the incidence of osteolysis
which  ultimately  leads  to  revision  surgery.

     Manufacturing.  We  believe  we now operate one of the highest beam-current
ion  implanters used in the medical field. This equipment has higher through-put
and  lower  cost than equipment with a lower beam-current. For the Company's new
second  generation  orthopedic  coating,  this  equipment  can provide a ceramic
coating  with  superior  characteristics due to its patented "blended interface"
process.

     Sales.  We  currently  implant  CoCr components of total joint replacements
made  by  our  customers  with  nitrogen  ions  and  are  developing ceramic ion
implantation  techniques for total joint replacements. We receive untreated CoCr
total joint replacements from our customers and implant them at our facility. We
then  invoice  and ship the implanted total joint replacements to our customers.

     Markets. Osteoarthritis is a natural result of the aging process and is the
predominant cause of the need for joint replacement. We believe that longer life
expectancy  as well as the growth in the number of people over age 50 will cause
the  demand  for  total joint replacement to increase. According to the American
Academy  of Orthopedic Surgeons, the hip and knee total joint replacement market
was  estimated  to  be 1,100,000 units in 2000 in the United States. The Company
treats  approximately  50,000 units each year using its ion implantation process
for  the  Howmedica/Osteonics  Division  of  Stryker  Corporation  and  Biomet,
Incorporated. Our research has shown that our ceramic coatings can decrease wear
debris  generation  by  two-thirds,  which we believe will reduce osteolysis and
thereby  reduce  the  need  for  revision  surgery.

Semiconductor  Ion  Implantation

     We  supply  ion  implantation  services  to  numerous  semiconductor
manufacturers,  research  laboratories,  and  research  universities.  Ion


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<PAGE>
implantation of electronic dopants into silicon, the process by which silicon is
turned  into  a  semiconductor,  is  an  integral part of the integrated circuit
fabrication process. While many of our customers have their own ion implantation
equipment,  they  often  use our services and specialized expertise for research
and  new  product  development  because  they  do  not  want  to  interfere with
production  or  because  they  are  unable  to  perform the services themselves.

     To  serve  this  market, we offer the ion implantation of over 60 of the 92
natural  elements  for  our  customers'  research  programs. We offer all of the
necessary  dopants  for  silicon  as  well  as for new materials such as gallium
arsenide,  silicon  carbide,  indium  phosphide  and  other  advanced  compound
semiconductors.  We  also  perform  high  dose  ion-implantation  of silicon and
germanium  to  improve  the  crystallinity  and  to  modify  the  semiconductor
properties  of  these  materials.

MARKETING  AND  SALES

     Our  marketing  and  sales methods vary according to the characteristics of
each  of  our  main  business areas. Foreign sales have comprised less than five
percent  of  our  total  revenues. Sales and marketing to the medical device and
semiconductor  markets are directed by the Company's Vice President of Marketing
and  Sales  who is assisted by product managers or sales representatives in each
area.  U.S. sales of the I-Plant iodine-125 radioactive seed is done through our
distribution  partner  MED-TEC  Inc.  and  sales in the other medical device and
semiconductor areas are handled by three full time salespeople, product managers
or  customer  service.  The  solicitation  and proposal process for research and
development  contracts  and grants are conducted by the Company's President, its
Chief  Scientist,  and  its  scientific  staff.

Medical  Sales  and  Marketing

     We  have  partnered  with  MED-TEC, Inc. to market and sell our radioactive
prostate  seeds  within  the  United  States.  We  plan  to partner with another
organization  for sales and marketing in Europe.  We plan to market our coronary
devices  directly  to  cardiovascular  manufacturers  who  will in turn sell the
products  to  hospitals.

     In  the  business  of  ion  implantation  for  total joint replacements, we
concentrate on identifying and serving leading manufacturers. Where possible, we
attempt  to  become the sole provider of devices or surface engineering services
to  each such manufacturer. Our marketing and sales efforts require considerable
direct  contact  and  typically  involve  a process of customer education in the
merits  of  our  technology.  We  accomplish  this by first researching customer
needs,  delivering  scientific papers at orthopedic and biomaterial conferences,
and  through  presentations  at  customer  sites.  Our  internal  research  and
government  research  grants  are an integral part of the marketing process. Our
patent  portfolio  is  also  very  important  in  this  process.

     To  promote  sales  of  our radiopaque coatings, we attend trade shows, use
press  releases,  and  our website at www.implantsciences.com. Once a customer's
                                      -----------------------
interest  is  established,  the  sales  process  proceeds  with  an  initial
demonstration  project  funded  by the customer. A set of developmental runs are
then  performed  to  determine  project  feasibility  and  to roughly optimize a
parameter set for deposition. After testing of samples generated and considering
cost  estimates  for  production  quantities,  the  customer may authorize us to
proceed  to  pilot  production.

     In  pilot  production,  typically,  several hundred units are produced in a
manner equivalent to the envisioned full production method. Pilot production may
be  done  on  an  existing  piece  of  equipment  with  customer/device specific
fixturing, or a prototype machine depending on the complexity of the process and
device.  Samples  made  in pilot production are fabricated into complete devices
and used by the customer for further testing, clinical studies, FDA submissions,
and  marketing  and  sales  efforts.

Semiconductor  Sales  and  Marketing

     Since  semiconductor  ion  implantation  is  a  standard  process  in  all
integrated circuit fabrication, customers usually know what they want and little
education  is necessary. Our services are promoted and sold through trade shows,
advertising in trade magazines, direct mailings, press releases, and our website
at  www.implantscisences.com.  Most sales are between $600 and $2,500 per order,
    ------------------------
take  less  than  one  day  to  complete,  and  the entire sales effort is often
conducted  by  telephone.  Most  of  our  sales  in this area are for outsourced
customer-specified  ion  implantation  services  which  the  customer's  own ion
implantation  department  is  unable  or  unwilling  to  perform.


                                        6
<PAGE>
Government  Contracts

     Research  and  development  contracts  from the U.S. government must be won
through  a  competitive  proposal process which undergoes peer review. We are in
frequent  contact  with  the  National  Institutes  of Health, the Department of
Defense, the Department of Energy and other agencies at technical conferences to
stay  informed  of  the government's needs. We believe our management and senior
scientific  staff have earned a strong reputation with these and other agencies.
To  date we have been awarded research and development contracts by the National
Institute of Health, the Department of Defense, the National Science Foundation,
and  the  National  Aeronautics  and  Space  Administration  ("NASA").

RESEARCH  AND  DEVELOPMENT

     Our  technical  staff  of  consists  of  eleven  scientists  and engineers,
including  six  with  Ph.D.  degrees,  and  five  with  Bachelor Degrees or with
expertise  in physical sciences and engineering. All of our existing and planned
products  rely  on  proprietary  technologies  developed  in  our  research  and
development  laboratories.  Our  research  and  development  efforts  may  be
self-funded,  funded by corporate partners or by awards under the Small Business
Innovative  Research  ("SBIR") program. We have obtained over $6 million in U.S.
government  grants  and  contracts  over  the  past  10  years.

     We  spent  approximately  $2,975,000  and  $2,300,000  on  research  and
development  in  the  fiscal  years  ended June 30, 2001 and 2000, respectively.
Approximately  $747,000 and $788,000 of research and development activities were
borne  directly  by  customers  in  2001  and  2000,  respectively.

PATENTS  AND  PROPRIETARY  TECHNOLOGY

     It  is  our  policy  is to protect our proprietary position by, among other
methods, filing United States and foreign patent applications. We currently have
seventeen  issued  United  States  patents  and  seven  United  States  patent
applications  pending.  We  also  have  four  international  patent applications
pending.

     We  have  exclusive  rights inter-alia under patents covering the following
technologies:  (i)  methods  of  rendering  coronary  stents radioactive, (ii) a
radioactive,  radiopaque stent device, (iii) methods of growing ceramic coatings
on  orthopedic  implants,  (iv)  methods  of  generating  ion  beams  and (v) an
iodine-125  radioactive prostate seed. In addition, we also have patents pending
on  (i)  a  palladium-103 radioactive prostate seed, (ii) vascular brachytherapy
devices,  and  iii)  drug  eluting  stents.

     We  intend  to  seek  further  patents on our technologies, if appropriate.
However,  there  can  be  no  assurance  that  patents will issue for any of our
pending  or future applications or that any claim allowed from such applications
will  be of sufficient scope or strength, or be issued in all countries where we
sell  our  products  and  services,  to  provide  meaningful  protection  or any
commercial  advantage  to  us.

GOVERNMENT  REGULATION  AND  ENVIRONMENTAL  MATTERS

     Medical  devices  incorporating  our  technologies,  such  as  radioactive
prostate  seeds  and  interventional  cardiology  devices,  are  subject  to FDA
regulation.  The  burden  of  securing  FDA clearance or approval for these core
business  medical  devices rests with the Company's medical device manufacturers
or  licensees.  The  Company  has  received  Food and Drug Administration 510(k)
clearance  to market its I-PlantTM Iodine-125 radioactive seed for the treatment
of  prostate  cancer.

     Supplemental  or  full  pre-market  approval  ("PMA")  reviews  require  a
significantly  longer  period.  A  PMA  will  be required for our interventional
cardiology  devices.  Thus,  significantly  more  time  will  be  required  to
commercialize  applications  subjected  to  PMA  review.  We  believe  our
interventional  cardiology  devices  will  not  be available for commercial sale
before  2003. Furthermore, sales of medical devices outside the U.S. are subject
to  international regulatory requirements that vary from country to country. The
time  required  to  obtain clearance or approval for sale internationally may be
longer  or  shorter  than  that  required  for  FDA  approval.

     In  addition to FDA regulation, certain of our activities are regulated by,
and  require  approvals  from,  other  federal  and state agencies. For example,
aspects  of  our operations require the approval of the Massachusetts Department
of  Public  Health and registration with the Department of Labor and Industries.
On  July  28,  1999  we  received  our  Radioactive  Sealed  Source Registration
Certificate, a Nuclear Regulatory Commission ("NRC") requirement administered by
the  Commonwealth  of  Massachusetts  as a NRC Agreement State. Furthermore, the


                                        7
<PAGE>
Company's use, management, transportation, and disposal of certain chemicals and
wastes are subject to regulation by several federal and state agencies depending
on  the  nature  of  the chemical or waste material. Certain toxic chemicals and
products  containing toxic chemicals may require special reporting to the United
States  Environmental  Protection  Agency  and/or its state counterparts. We not
aware  of any specific environmental liabilities that we could incur. Our future
operations  may  require  additional  approvals  from  federal  and/or  state
environmental  agencies.

COMPETITION

     In  radioactive  products,  such  as  prostate  seed  implants, radioactive
brachytherapy  devices  and  coronary  stents, we expect to compete with Nycomed
Amersham plc, Theragenics Corp., North American Scientific, Inc., Imagyn Medical
Technologies,  Syncor  International  Corp.,  Uromed  Corporation,  UroCor, Inc,
Novoste  Corporation  and  Radiance  Medical  Systems,  Inc.  Of  these, Nycomed
Amersham  plc,  Theragenics  Corp.,  North  American Scientific, Inc, and Imagyn
Medical  Technologies  serve  substantially the entire radioactive prostate seed
market.  In  addition,  our  proposed  radioactive  brachytherapy  devices  will
compete  with  alternative  technologies such as Novoste Corporation's Beta-Cath
system,  Johnson  and  Johnson  and Radiance Medical Systems, Inc.'s radioactive
tipped  guidewires  and  radioactive  filled  balloons.  The number and types of
procedures being performed on the prostate are increasingly drawing new entrants
into  the  market. We believe that competition, and, in turn, pricing pressures,
may  increase.  Many  of  our  competitors have substantially greater financial,
technical  and  marketing  resources  than  we  do.

     Many  medical device manufacturers have developed or are engaged in efforts
to  develop  internal  surface  modification  technologies  for use on their own
products.  Most  companies  that  market  surface  modification  to  the outside
marketplace  are  divisions  of  organizations  with  businesses  in addition to
surface  modification.  Overall,  we  believe  the  worldwide market for surface
modification  technologies applicable to medical devices is very fragmented with
no  competitor  having  more  than  a 10% market share. Many of our existing and
potential  competitors  (including medical device manufacturers pursuing coating
solutions through their own research and development efforts) have substantially
greater  financial,  technical  and  marketing  resources  than  we  do.

     With  respect  to  ion  implantation  of  orthopedic implants, we primarily
compete  with  Spire  Corporation.  Competition  within  the  orthopedic implant
industry  is  primarily  conducted  on  the basis of service and product design.
Price  competition  has  abated  somewhat  in  the  case  of first time and more
youthful  patients where higher-cost and more durable reconstructive devices are
preferred.  We  attempt  to  differentiate  ourselves  from  our  competition by
providing  what  we  believes  are  high  value-added  solutions  to  surface
modification. We believe that the primary factors customers consider in choosing
a  particular  surface  modification  technology  are  performance,  ease  of
manufacturing,  ability  to  produce  multiple properties from a single process,
compliance with manufacturing regulations, customer service pricing, turn around
time,  and  the ability to work with a variety of materials. We believe that our
process  competes  favorably  with respect to these factors. We believe that the
cost and time required to acquire equipment and technical engineering talent, as
well  as to obtain the necessary regulatory approvals, significantly reduces the
likelihood of a manufacturer changing the coating process it uses after a device
has  been  approved  for  marketing.

     Our  primary  competition  in  the semiconductor industry consists of three
companies:  Ion  Implant  Services,  The Implant Center, and Core Systems. These
companies  are all located in Silicon Valley, California and primarily serve the
silicon  wafer  production needs of semiconductor factories in their local area,
although  Ion  Implant  Corporation  does  research  and  development  implants
nationwide.  We primarily serve east coast factories with silicon production and
research  and  development  laboratories  worldwide.

     Many  of  our  competitors  and  potential  competitors  have substantially
greater  capital  resources  than  we  do  and  also  have greater resources and
expertise  in  the  areas  of  research  and  development,  obtaining regulatory
approvals,  manufacturing  and  marketing.  There  can  be no assurance that our
competitors  and potential competitors will not succeed in developing, marketing
and  distributing  technologies  and products that are more effective than those
developed  and  marketed  by us or that would render our technology and products
obsolete  or noncompetitive. Additionally, there is no assurance that we will be
able  to  compete effectively against such competitors and potential competitors
in  terms  of  manufacturing,  marketing  and  sales.


                                        8
<PAGE>
PRODUCT  LIABILITY  AND  INSURANCE

     Our business entails the risk of product liability claims. Although we have
not  experienced any product liability claims to date, there can be no assurance
that  such claims will not be asserted or that we will have sufficient resources
to  satisfy  any  liability resulting from such claims. We have acquired product
liability  insurance coverage.  There can be no assurance that product liability
claims  will not exceed such insurance coverage limits, that such insurance will
continue  to  be available on commercially reasonable terms or at all, or that a
product  liability  claim  would  not  materially adversely affect the business,
financial  condition  or  our  results  of  operations.

EMPLOYEES

     As  of June 30, 2001, we had 55 full time employees. We believe we maintain
good  relations  with  our employees.  None of our employees is represented by a
union  or  covered  by  a  collective  bargaining  agreement.

ITEM  2.     PROPERTIES

     We  operate  out  of  a  39,300  square  foot leased facility in Wakefield,
Massachusetts.  The  facility is located approximately 15 miles north of Boston.
The  leases expire in March 2002 and March 2003 and one has an option to extend.
This  facility  houses  all  of  our research and development, manufacturing and
administrative  offices.

ITEM  3.     LEGAL  PROCEEDINGS

     From  time  to  time,  the  Company  is  subject  to  various claims, legal
proceedings  and  investigations  covering a wide range of matters that arise in
the  ordinary  course  of  its  business  activities.  Each  of these matters is
subject  to  various  uncertainties.  On  the  basis  of  information  presently
available, the Company is not currently aware of any legal proceedings or claims
that  the Company believes are likely to have a material effect on the Company's
financial  position  or  results  of  operations.

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

     No  matters  were submitted to a vote of security holders during the fourth
quarter  of  fiscal  year  ended  June  30,  2001.


                                        9
<PAGE>
                                     PART II


ITEM  5.     MARKET  FOR  REGISTRANT'S  COMMON  EQUITY  AND  RELATED STOCKHOLDER
MATTERS

MARKET  PRICE

     As  of June 30, 2001 the Company's Common Stock, $.10 par value, was traded
on  the  American  Stock  Exchange  under the symbol IMX and on the Boston Stock
Exchange  under  the  symbol IMX. On September 10, 1999 the Company was accepted
for  listing  and began trading on the American Stock Exchange. At that time the
listing  on the Nasdaq SmallCap Market was dropped. The following sets forth the
range  of  high  and  low closing sales prices on the American Stock Exchange or
Nasdaq  SmallCap  Market  during  the  fiscal  year.

                                         HIGH     LOW
                                        -------  ------
      FISCAL YEAR ENDED JUNE 30, 2000:

      Quarter ended September 30        $ 7.875  $3.625
      Quarter ended December 31           7.375   4.250
      Quarter ended March 31             11.875   6.500
      Quarter ended June 30              10.375   8.375

      FISCAL YEAR ENDED JUNE 30, 2001:

      Quarter ended September 30        $ 9.875  $7.563
      Quarter ended December 31           8.250   6.375
      Quarter ended March 31              8.800   6.800
      Quarter ended June 30              10.200   7.750

NUMBER  OF  STOCKHOLDERS

     As  of August 31, 2001, there were approximately 757 shareholders of record
of  the  Company's  Common  Stock,  including  multiple  beneficial  holders  at
depositories, banks and brokers included as a single holder in the single street
name  of  each  respective  depository,  bank  or  broker.

DIVIDENDS

     We  have  never declared or paid any cash dividends on our Common Stock. We
currently  anticipate  that we will retain all future earnings for the expansion
and  operation  of  our business, and do not anticipate paying cash dividends in
the  foreseeable  future.  Our  revolving  credit  line, term loan and equipment
purchase  facilities with our principle lender prohibit the payment of dividends
other  than  common  stock  dividends.

SALES  OF  UNREGISTERED  SECURITIES

     None.


                                       10
<PAGE>
ITEM  6.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

RESULTS  OF  OPERATIONS

Year  Ended  June  30,  2001  vs.  June  30,  2000

     Revenues.  Total  revenues for the year ended June 30, 2001 were $4,368,000
as  compared  to $3,973,000 for the comparable prior year period, an increase of
$395,000  or  10%.  The  Company realized $365,000 in revenues in the prior year
period  on a product that was discontinued before the commencement of the fiscal
year  ended June 30, 2001.  Net of the effect of this prior year equipment sale,
the  Company's  core product and contract research sales increased to $4,368,000
for  the  year ended June 30, 2001 from $3,608,000 for the comparable prior year
period,  an increase of $760,000 or 21%.  The increase is attributable primarily
to revenue recognized from the new I-Plant seed which the company began shipping
in  the second quarter of fiscal 2001.  I-Plant prostate seed sales for the year
ended June 30, 2001 were approximately $714,000.  Over the nine (9) month period
ended  June 30, 2001, the I-Plant prostate seed sales have grown at a compounded
average rate of 29% per month.  In addition to the marked increase and growth in
I-Plant  seed  sales  since  commercial  introduction,  the  Company  has  also
recognized  an  approximate  7%  increase  in medical coating revenues, realized
primarily  from  two  new  customers,  and  a 47% increase in our semiconductors
business.  These  gains were offset by a 31% decrease in government contract and
grant  revenue.

     The  Company's  two  major  customers,  the Howmedica/Osteonics Division of
Stryker,  Corporation  and Biomet, Incorporated, accounted for 34% of revenue in
the  year  ended  June  30,  2001 and 44%, for the comparable prior year period.
MED-TEC  Inc.,  the  Company's exclusive distributor of prostate seeds accounted
for  17%  of revenues for the year ended June 30, 2001. The Company's government
contract  and  grant  revenue accounted for 17% and 27% of revenue for the years
ended  June  30,  2001  and  2000,  respectively.

     Cost  of  Product  and  Contract  Research  Revenues.  Cost  of product and
contract  research  revenues  for the year ended June 30, 2001 was $4,247,000 as
compared  to  $2,749,000  for  the  comparable prior year period, an increase of
$1,498,000 or 54%. As a percentage of revenues, the cost of product and contract
research  revenues increased to 97% for the year ended June 30, 2001 as compared
to  69% for the comparable prior year period. This increase in cost is primarily
attributable  to  the  increase  in  government  contract  and  grant  spending,
additional personnel and expenses for commercial sale of the I-Plant radioactive
prostate  seed,  and  increased  depreciation expense due to the addition of new
manufacturing  equipment.

     Research  and  Development.  Research  and development expense for the year
ended  June 30, 2001 was $1,500,000 as compared to $1,345,000 for the comparable
prior  year period, an increase of $155,000 or 12%. This increase is primarily a
result  of  the  significant  costs incurred in the first half of fiscal 2001 in
connection  with  the  I-Plant  seed  development. The costs associated with the
development of the I-Plant seed have ceased as a result of the commercialization
of  the  I-Plant  seed.

     Selling,  General  and  Administrative. Selling, general and administrative
expenses  for  the  year  ended  June  30,  2001  were $2,319,000 as compared to
$2,188,000  for the comparable prior year period, an increase of $131,000 or 6%.
Included  in  selling,  general  and  administrative  costs,  was  approximately
$259,000  related  to  stock  based  compensation.  These costs reflect non-cash
charges  that were not included in the prior year's costs. Accordingly, selling,
general  and  administrative  costs,  net  of  the  charges  for  stock  based
compensation,  decreased  to  $2,029,000  for  the  year  ended June 30, 2001, a
decrease of $159,000 or 7% as compared to the comparable prior year period. This
decrease reflects the Company's cost containment measures implemented during the
second  half  of  fiscal  2001.

     Other  Income  and Expenses, Net. Other income, net for the year ended June
30,  2001  was  $118,000  as  compared to $217,000 for the comparable prior year
period,  a  decrease  of $99,000 or 46%. The decrease is primarily a result of a
$133,000  decrease  in  interest  income  on available cash balances offset by a
$31,000  decrease  in  interest  payments  on  outstanding  debt.


                                       11
<PAGE>
     Net  Loss.  Net  loss  for  the  year ended June 30, 2001 was $3,580,000 as
compared  to  $2,488,000  for  the  comparable prior year period, an increase of
$1,092,000  or  44%.  This  increase  is  attributable,  in  part,  to the costs
associated with the production start-up associated with the commercialization of
the  I-Plant  seed,  noncash  charges for stock based compensation, and research
associated  with  the development of the I-Plant seed. The basic and diluted net
loss  per  share for the year ended June 30, 2001 was $.62 per share as compared
to  $.46  per share for the comparable prior year period, an increase of $.16 or
35%.

LIQUIDITY  AND  CAPITAL  RESOURCES

     The accompanying financial statements have been presented on the assumption
that  the  Company  is  a  going  concern, which contemplates the realization of
assets  and  the  satisfaction  of liabilities in the normal course of business.
During  fiscal  2000 and 2001, the Company incurred significant operating losses
and  utilized  significant  amounts  of cash to fund operations.  The Company is
reaching  a  critical  stage  in its growth as it transforms from a research and
development  company  to a commercial company with complete sales, marketing and
production  capabilities.  The  Company  received  Food  and Drug Administration
510(k)  clearance  to  market  its I-PlantTM Iodine-125 radioactive seed for the
treatment  of  prostate  cancer.  On  February  2,  2000,  the  Company signed a
distribution  agreement with MED-TEC Inc. for the exclusive U.S. distribution of
our I-Plant Iodine-125 seed.  During this time the Company increased its overall
operating  expenses  and overhead to be positioned to further increase its sales
and  production  capabilities.

     During  the  second  half  of  2001,  the  Company  implemented a number of
programs  to  reduce  its  consumption  of  cash,  including  operating  expense
reductions.  Management of the Company has outlined a plan of appropriate action
steps to attempt to ensure that the Company has adequate sources of cash to meet
its  working  capital needs and research and development activities for at least
the next twelve months. In May 2001, management of the Company received approval
from  the  Board of directors to implement this action plan. The key elements of
the  plan  are  as  follows:

          -    Further  operating  expense  reductions  to  eliminate  certain
               expenditures  that  are  not  essential  to  achieving  critical
               business  objectives  at this time (e.g., discretionary spending,
               further  development  efforts);

          -    Pursuit  of strategic financing alternatives including additional
               financing  through the form of a $500,000 working capital line of
               credit  with  a  related  party;

          -    Replaced  certain  members  of senior management with consultants
               experienced in a manufacturing environment focused on operational
               efficiencies.  These consultants also come at a much reduced cost
               that  will  save the Company approximately $150,000 in salary and
               benefits

          -    Introduced  its  new  radioactive  prostate  seed  product;

          -    Executed  a key contract with a hospital in the Southeast US that
               could  have  the  affect  of  increasing  the  Company's  planned
               prostate  seed  sales  for  Fiscal  2002;  and

          -    Discontinued nonessential research and development efforts, other
               than  grants  and  contracts,  that will reduce significantly the
               costs  incurred  during  fiscal  2001.

     As a result of implementing the above actions, management believes that its
existing  cash  resources and cash from operations will meet working capital and
research  and  development  requirements over the next twelve months and improve
operating  results.  However,  unanticipated  decreases  in  operating revenues,
delays  in government funding of grants, increases in expenses or further delays
in  product  development  may  adversely  impact the Company's cash position and
require  further  cost  reductions.  No  assurance can be given that the Company
will  be  able  to  operate  profitably  on  a  consistent  basis.

     As  of  June  30,  2001 the Company had approximately $1,232,000 (including
$167,000  of  restricted  cash)  in  cash  in  the  form  of cash and short-term
investments.  The  Company  has an equipment purchase facility with a commercial
bank,  under  which  approximately  $412,000  was  outstanding at June 30, 2001.

     During  the  year  ended  June  30, 2001, operating activities used cash of
approximately  $2,801,000.  Net  cash  used  by  operating  activities primarily
reflects the $3,580,000 net loss, a $248,000 increase in inventories, a $290,000


                                       12
<PAGE>
decrease  in accounts payable, and a $86,000 decrease in accrued expenses. These
uses  of  cash  were  offset  by  $280,000  provided  by an increase in accounts
receivable  and  depreciation  and  amortization  of  $653,000.

     During  the  year  ended  June  30, 2001, investing activities used cash of
approximately  $1,023,000.  Net  cash  used  by  investing  activities  included
$977,000  in  purchases  of  property  and  equipment.

     During  the  year  ended  June  30,  2001,  financing  activities  provided
approximately  $218,000  in  cash.  Net  cash  provided  by financing activities
primarily  includes  proceeds  from  the  exercise  of  stock  options offset by
payments  on  the  Company's equipment term loan. Additionally, in May 2001, the
Company  repurchased  23,000  shares of the Company's common stock from a former
officer  at a cost of $207,000, the fair market value of the common stock on the
date  of  the  transaction.

     The  Company  financed its operations utilizing a Revolving Credit Facility
("Credit  Facility")  and  an  Equipment  Term  Loan  ("Term Loan") under a Loan
Agreement  with  its  bank.  The Revolving Credit Facility are unsecured and the
Equipment  Term  Loan  is  cross-collateralized  and  cross-defaulted.  The Loan
Agreement  has  a  first  lien  on  substantially  all  of the Company's assets.

     On  September  30, 2000, the Company's Credit Facility expired. The Company
chose  not  to  renew  the Credit Facility and is currently seeking a new credit
facility on terms more favorable to the Company. There were no borrowings on the
Credit  Facility during the year ended June 30, 2001 and no balances outstanding
as  of  June  30,  2001.

     The  Company  has a term loan facilities of $1,500,000 at June 30, 2000, of
which  it  had  utilized  $750,000.  Interest is payable monthly at 1% above the
banks  base  rate  commencing February 1998 (8.8% weighted average interest rate
for  fiscal  2001).  As  of June 30, 2001, the balance outstanding was $412,000.

     The  Company's  Loan  Agreement  requires  compliance  with  two  financial
covenants including minimum levels of net worth and net loss limits. At June 30,
2001,  the  Company's net loss covenant was greater than the required amount. On
September  28, 2001, the Company and a director and officer of the Company fully
collateralized  the  Term Loan with $167,000 and $200,000 of cash, respectively,
and  executed  pledge  agreements  with respect to the collateral. The Company's
bank  has  waived  its  rights  under  the  Loan  Agreement with respect to this
financial  covenant  at  June  30,  2001  through  and  including June 30, 2002.

     On  October  10,  2001,  the Company entered into a $500,000 Line of Credit
Facility  ("Line of Credit") with CardioTech International, Inc. ("CardioTech"),
a  related  party  (See Note 10). The Line of Credit provides for funding at the
discretion  of  the  Company  and is subject to a security agreement providing a
second  lien  on  substantially  all of the Company's assets. The Line of Credit
bears  interest  at  the  prime  rate  (5.5% as of October 10, 2001) plus 2% and
expires  October  12,  2002. All amounts due under the Line of Credit are due on
October  12,  2002.

     The  Company  will  require  substantial  funds  for  further  research and
development,  future  pre-clinical  and  clinical  trials, regulatory approvals,
continued  expansion  of  commercial-scale  manufacturing  capabilities, and the
marketing of its products. The Company's capital requirements depend on numerous
factors,  including  but  not  limited  to,  the  progress  of  its research and
development  programs;  the  progress  of pre-clinical and clinical testing; the
time  and  costs involved in obtaining regulatory approvals; the cost of filing,
prosecuting, defending and enforcing any intellectual property rights; competing
technological  and  market developments; changes in the Company's development of
commercialization  activities  and  arrangements; and the purchase of additional
facilities  and  capital  equipment.

     As  of  June  30,  2001,  the  Company  was  conducting its operations with
approximately  $1,232,000  in  cash  and cash equivalents (including $167,000 of
restricted cash). The Company estimates such amounts combined with its cash flow
from  operations  and  borrowing  arrangements  will  be  sufficient to fund its
working  capital  and  research  and  development  activities in the next twelve
months.  Future  expenditures  for  product  development, especially relating to
outside  testing and clinical trials, are discretionary and, accordingly, can be
adjusted,  as can certain selling, general and administrative expenses, based on
the  availability  of  cash.


                                       13
<PAGE>
ITEM  7.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA


     The  Company's  Financial  Statements  and  Related  Report  of Independent
Auditors  are  presented in the following pages.  The Financial Statements filed
in  this  Item  7  are  as  follows:

     The  Company's  Financial  Statements  and  Related  Report  of Independent
Auditors  are  presented in the following pages.  The Financial Statements filed
in  this  Item  7  are  as  follows:


                                                                            Page
                                                                            ----
     Report of Independent Auditors                                           19
     Balance Sheet as of June 30, 2001                                        20
     Statements of Operations for the Years Ended June 30, 2000 and 2001      21
     Statements  of  Changes  in  Stockholders'  Equity  for  the Years
       Ended  June  30,  2000  and  2001                                      22
     Statements of Cash Flows for the Years Ended June 30, 2000 and 2001      23
     Notes to Financial Statements                                       24 - 34

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

     There  were  no  disagreements  on  accounting  principles  or practices or
financial  statement  disclosure  between the Company and its accountants during
the  fiscal  year  ended  June  30,  2001.


                                    PART III

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

     The  information  required  by  this item will be set forth in the sections
entitled  "Management"  and  "Section 16(a) Beneficial Ownership, Reporting, and
Compliance"  in the Proxy Statement for the Annual Meeting of Stockholders to be
held  on  or  about  December  14,  2001 and to be filed with the Securities and
Exchange  Commission not later than October 28, 2001, and is incorporated herein
by  this  reference.

ITEM  10.     EXECUTIVE  COMPENSATION

     The  information  required by this item will be set forth under the section
entitled  "Executive Compensation" in the Proxy Statement for the Annual Meeting
of  Stockholders  to  be held on or about December 14, 2001 and to be filed with
the  Securities  and Exchange Commission not later than October 28, 2001, and is
incorporated  herein  by  this  reference.

ITEM  11.     SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required  by  this item will be set forth in the sections
entitled  "Share  Ownership"  in  the  Proxy Statement for the Annual Meeting of
Stockholders  to  be held on or about December 14, 2001 and to be filed with the
Securities  and  Exchange  Commission  not  later  than October 28, 2001, and is
incorporated  herein  by  this  reference.

ITEM  12.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     The  information  required  by  this  item will be set forth in the section
entitled "Certain Relationships and Related Transactions" in the Proxy Statement
for  the Annual Meeting of Stockholders to be held on or about December 14, 2001
and  to  be  filed  with  the  Securities and Exchange Commission not later than
October  28,  2001,  and  is  incorporated  herein  by  this  reference.


                                       14
<PAGE>
                                     PART IV

ITEM  13.     EXHIBIT  INDEX

The  following  are  filed  as  part  of  this  report.

     (a)  The  following  are  filed  as  part  of  this  Form  10-KSB:

          (1)       Financial  Statements:  For  a  list of financial statements
                    which  are  filed  as  part of this Form 10-KSB, See Page 11
          (2)       Exhibits

          Exhibit  Number:

          *3.2      By-Laws  of  the  Company

          *3.3      Articles of Amendment to the Articles of Organization of the
                    Company,  dated  June  9,  1999
          *3.4      Restated Articles of Organization of the Company, dated June
                    9.  1999
          **4.1     Specimen  certificate  for the Common Stock of the Company
          **4.2     Specimen  certificate  for  the Redeemable Warrants of the
                    Company
          ***4.3    Specimen  certificate  for  the  Units  of  the  Company
          **10.1    Employment  Agreement  with  Anthony  J.  Armini,  dated
                    September  26,  1998
          **10.2    Employment  Agreement  with  Stephen  N.  Bunker,  dated
                    September  26,  1998
          *10.3     Employment  Offer  Letter  to Darlene Deptula-Hicks, dated
                    June  15,  1998
          *10.4     Employment Offer Letter to Alan Lucas, dated March 20, 1998
          *10.5     Amendment  to Employment Offer Letter to Alan Lucas, dated
                    September  24,  1998
          *10.6     Form  of  Employee  Agreement  on  Ideas,  Inventions, and
                    Confidential  Information  used  between  1993  and  1995
          *10.7     Form  of  Employee  Agreement  on  Ideas,  Inventions, and
                    Confidential  Information  used  in  1993
          *10.8     Form  of  Employee  Agreement  on  Ideas,  Inventions, and
                    Confidential  Information  used  between  1997  and  1998
          *10.9     Loan Agreement between the Company and US Trust, dated May
                    1,  1996
          *10.10    $100,000 Commercial Promissory Note signed by the Company
                    in  favor  of  US  Trust,  dated  May  1,  1996
          *10.11    $300,000 Commercial Promissory Note signed by the Company
                    in  favor  of  US  Trust,  dated  May  1,  1996
          *10.12    Guaranty  of  Loan  Agreement  between the Company and US
                    Trust,  by  Anthony  J.  Armini,  dated  May  1,  1996
          *10.13    Security Agreement between the Company and US Trust, dated
                    May  1,  1996
          *10.14    Lessor's Subordination and Consent between the Company and
                    Teacher's  Insurance  and  Annuity  Association  of America,
                    dated  May  1,  1996
          *10.15    First Amendment to Loan Agreement between the Company and
                    US  Trust,  dated  July  24,  1997
          *10.16    $300,000 Commercial Promissory Note signed by the Company
                    in  favor  of  US  Trust,  dated  July  24,  1997
          *10.17    $94,444.40  Commercial  Promissory  Note  signed  by  the
                    Company  in  favor  of  US  Trust,  dated  August  12,  1997
          *10.18    Second Amendment to Loan Agreement between the Company and
                    US  Trust,  dated  January  16,  1998
          *10.19    $750,000 Commercial Promissory Note signed by the Company
                    in  favor  of  US  Trust,  dated  January  16,  1998


                                       15
<PAGE>
          *10.20    Promissory  Note  signed by Anthony J. Armini in favor of
                    the  Company,  dated  September  26,  1998
          *10.21    Shareholders Agreement between NAR Holding Corporation and
                    Anthony  J.  Armini,  dated  July  15,  1987
          *10.22    Lease  between  the  Company  and  Teachers Insurance and
                    Annuity  Association  of  America,  dated September 29, 1995
          *10.23    First  Amendment to Lease and Expansion Agreement between
                    the Company and Teachers Insuranc and Annuity Association of
                    America,  dated  July  29,  1998
          *10.24    Standard  Cooperative  Research and Development Agreement
                    between the Company and the Naval Research Laboratory, dated
                    January  21,  1997
          *10.25    Cooperative  Agreement between the Company and the United
                    States  of  America  US  Army  Tank-Automotive and Armaments
                    Command  Armament  Research,  Development  and  Engineering
                    Center,  dated  September  30,  19971
          *10.26    Vendor  Agreement  Memorandum  between  the  Company  and
                    Osteonics,  dated  February  2,  19981
          *10.27    Sample Purchase Order between the Company and MicroSpring
                    Company,  Inc.,  dated  October  24,  19961
          *10.28    Asset  Purchase  Agreement  between the Company and Falex
                    Corporation,  dated  November  17,  19951
          *10.29    Settlement between the Company and Erik Akhund, dated July
                    1,  1998
          *10.30    1992  Stock  Option  Plan
          *10.31    Form of Stock Option Agreement under the 1992 Stock Option
                    Plan
          *10.32    1998  Incentive  and  Nonqualified  Stock  Option  Plan
          **10.33   Form  of Incentive Stock Option under the 1998 Incentive
                    and  Nonqualified  Stock  Option  Plan
          **10.34   Form  of  Nonqualified  Stock  Option  under  the  1998
                    Incentive  and  Nonqualified  Stock  Option  Plan
          **10.35   Form  of  Nonqualified  Stock  Option  for  Non-Employee
                    Directors  under  the  1998 Incentive and Nonqualified Stock
                    Option  Plan
          *10.36    Form  of  Lock-Up  Agreement
          **10.37   Agreement Appointing Transfer Agent and Registrar between
                    the  Company  and  American Securities and Transfer & Trust,
                    Inc.,  dated  October  19,  1998
          **10.38   Certification  of  Corporate Secretary dated October 19,
                    1998  concerning  Agreement  Appointing  Transfer  Agent and
                    Registrar  between  the  Company  and  American  Securities
                    Transfer  &  Trust,  Inc.
          **10.39   Research  and  Development Agreement between the Company
                    and  Guidant  Corporation,  dated  May  20,  1998
          **10.40   Letter  Agreement  between  the  Company  and  Guidant
                    Corporation,  dated  September  29,  19981
          ***10.41  Form  of  Medical  Advisory  Board  Agreement
          ***10.42  Form  of Loan Agreement, dated January 7, 1999, between
                    the  Company  and  the  following employees in the following
                    amounts: Donald J. Dench ($12,500), Diane J. Ryan ($12,500),
                    Mark  and Kathleen Gadarowski ($12,500), Gregory Huntington,
                    Sr.  ($12,500),  Leonard  DeMild  ($25,000),  Michael Nelson
                    ($12,500),  Richard  Sahagian  ($12,500),  Darryl Huntington
                    ($12,500),  Dennis  Gadarowski  ($12,500)  and  David Santos
                    ($12,500)
          ***10.43  Terms and Conditions from Sample Purchase Order between
                    the  Company  and  Biomet,  Incorporated
          ****10.44 Unit  and  Warrant  Agreement  between the Company and
                    American  Securities  Transfer & Trust, Inc., dated April 9,
                    1999
          *10.45    Agreement  between  the  Company  and U.S. Army Space and
                    Missile  Defense  Command,  dated  May  27,  1999


                                       16
<PAGE>
          10.46     Second  Amendment  to  Lease  and  Extension  Agreement,
                    previously  filed  in Form 10QSB for quarter ending December
                    31,  1999,  filed  on February 14, 2000, and is incorporated
                    herein  by  reference.
          10.47     Sublease  Agreement,  previously  filed  in Form 10QSB for
                    quarter  ending  December  31,  1999,  filed on February 14,
                    2000,  and  is  incorporated  herein  by  reference.
          10.48     Consent  to  Sublease  Agreement, previously filed in Form
                    10QSB  for  quarter  ending  December  31,  1999,  filed  on
                    February  14, 2000, and is incorporated herein by reference.
          10.52     Distribution  Agreement,  dated  January  26, 2000, by and
                    between  Implant Sciences Corporation and Medtec Iowa, Inc.,
                    previously  filed in Form 10QSB for quarter ending March 31,
                    2000,  filed  on May 15, 2000, and is incorporated herein by
                    reference.(1)
          10.53     Stock  Purchase  Agreement,  dated  March  2, 2000, by and
                    between  Implant Sciences Corporation and Medtec Iowa, Inc.,
                    previously  filed in Form 10QSB for quarter ending March 31,
                    2000,  filed  on May 15, 2000, and is incorporated herein by
                    reference.
          10.54     Research  and Development Agreement, dated March 13, 2000,
                    by  and  between Implant Sciences Corporation and Cardiotech
                    International,  previously  filed  in Form 10QSB for quarter
                    ending  March  31,  2000,  filed  on  May  15,  2000, and is
                    incorporated  herein  by  reference.
          10.55     Amendment  to  Distributorship  Agreement  between Med-Tec
                    Iowa,  Inc.,  and  Implant  Sciences  Corporation  dated  26
                    January  2000,  previously  filed  in Form 10QSB for quarter
                    ending  March  31,  2001,  filed  on  May  9,  2001,  and is
                    incorporated  herein  by  reference.
          10.56     Line of Credit Letter Agreement, dated October 10, 2001, by
                    and  between  Implant  Sciences  Corporation  and Cardiotech
                    International  Inc.
          10.57     $500,000  Line of Credit Term Grid Note, dated October 10,
                    2001,  by  and  between  Implant  Sciences  Corporation  and
                    Cardiotech  International  Inc.
          10.58     Security Agreement, dated October 10, 2001, by and between
                    Implant  Sciences  Corporation  and Cardiotech International
                    Inc.
          10.59     Guaranty  of  Line  of  Credit  between  Implant  Sciences
                    Corporation  and Cardiotech International Inc. by Anthony J.
                    Armini,  dated  October  10,  2001.
          10.60     Subordination  and  Intercreditor Agreement by and between
                    Cardiotech  International  Inc. and Anthony J. Armini,, Mark
                    Gadarowski,  Dennis  Gadarowski, Richard Sahagian, and Daryl
                    Huntington,  dated  October  10,  2001.
          10.61     Consent of Citizens Bank to Line of Credit Agreement by and
                    between  Implant  Sciences  Corporation  and  Cardiotech
                    International,  Inc.,  dated  October  10,  2001
          10.62     Modification  Agreement  by  and  between Implant Sciences
                    Corporation  and  Citizens  Bank  of  Massachusetts,  dated
                    October  11,  2001.
          10.63     Deposit  Pledge  Agreement by and between Implant Sciences
                    Corporation  and  Citizens  Bank  of  Massachusetts,  dated
                    October  11,  2001.
          10.64     Deposit Pledge Agreement by and between Stephen Bunker and
                    Citizens  Bank  of  Massachusetts,  dated  October 11, 2001.
          10.65     Limited  Guaranty  of  Commercial  Promissory Note between
                    Implant  Sciences  Corporation  and  Citizens  Bank  of
                    Massachusetts  by  Stephen  Bunker,  dated October 11, 2001.
          10.66     Deposit  Account  Control Agreement by and between Implant
                    Sciences  Corporation  and  Citizens  Bank of Massachusetts,
                    dated  October  11,  2001.
          10.67     Deposit  Account  Control Agreement by and between Stephen
                    Bunker and Citizens Bank of Massachusetts, dated October 11,
                    2001.
          *21.1     Subsidiaries  of  the  Company
          23.1      Consent  of  Independent  Auditors
          *23.2     Consent  of  Foley,  Hoag  &  Eliot  LLP


                                       17
<PAGE>
          *24.1     Power  of  Attorney

                  * Previously  filed in the Registration Statement on Form SB-2
                    (Registration  No.  333-64499)  filed on September 29, 1998,
                    and  is  incorporated  herein  by  reference.
                 ** Previously  filed  in  Amendment  No.  1 to the Registration
                    Statement,  filed  on December 21, 1998, and is incorporated
                    herein  by  reference.
                *** Previously  filed  in  Amendment  No.  2 to the Registration
                    Statement,  filed  on February 11, 1999, and is incorporated
                    herein  by  reference.
               **** Previously  filed  in  Amendment  No.  3 to the Registration
                    Statement,  filed  on  April  30,  1999, and is incorporated
                    herein  by  reference.
                  1 Filed  under  application  for  confidential  treatment.

(b)     Reports  on  Form  8-K:

                    Current  Report  on form 8-K, dated May 15, 2001 as filed on
                    May  18,  2001,  reporting  the  resignation  of  Mr. Robert
                    Hoisington  as  a  director  of  the  Company.


                                       18
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

The  Board  of  Directors  and  Stockholders
Implant  Sciences  Corporation


We  have  audited the accompanying balance sheet of Implant Sciences Corporation
as  of  June  30,  2001  and the related statements of operations, stockholders'
equity  and  cash  flows  for each of the two years in the period ended June 30,
2001.  These  financial  statements  are  the  responsibility  of  the Company's
management.  Our  responsibility  is  to  express  an opinion on these financial
statements  based  on  our  audits.

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

In  our  opinion,  the financial statements referred to above present fairly, in
all material respects, the financial position of Implant Sciences Corporation at
June  30, 2001, and the results of its operations and its cash flows for each of
the  two  years in the period ended June 30, 2001, in conformity with accounting
principles  generally  accepted  in  the  United  States.


                                   /s/  ERNST  &  YOUNG  LLP


Boston,  Massachusetts
September  7,  2001,  except
for the fifth paragraph of Note 8,
as  which  the  date  is
October  12,  2001


                                       19
<PAGE>
<TABLE>
<CAPTION>
                                IMPLANT SCIENCES CORPORATION
                                        BALANCE SHEET


                                                                                  JUNE 30,
                                                                                    2001
                                                                                ------------
<S>                                                                             <C>
ASSETS

Current assets:
  Cash and cash equivalents (includes $167,000 of restricted cash)              $ 1,232,000
  Accounts receivable, less allowance of $40,000                                    706,000
  Inventories                                                                       349,000
  Deferred income taxes                                                              62,000
  Prepaid expenses                                                                   36,000
                                                                                ------------
    Total current assets                                                          2,385,000

Property and equipment, net                                                       3,514,000
Investment in Epsilon Medical, Inc.                                                  42,000
Other assets, net                                                                   141,000
                                                                                ------------

  Total assets                                                                  $ 6,082,000
                                                                                ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                              $   322,000
  Accrued expenses                                                                  786,000
  Current portion of long-term debt                                                 176,000
  Current portion of obligations under capital lease                                  6,000
                                                                                ------------
    Total current liabilities                                                     1,290,000
                                                                                ------------

Long-term liabilities:
  Long-term debt, net of current portion                                            236,000
  Non current obligations under capital lease                                         5,000
  Deferred income taxes                                                              29,000
                                                                                ------------
                                                                                    270,000
                                                                                ------------
    Total liabilities                                                             1,560,000
                                                                                ------------

Stockholders' equity:
  Common stock, $0.10 par value; 20,000,000 shares authorized; 5,912,770
    shares issued; 5,889,770 shares outstanding                                     591,000
  Additional paid-in capital                                                     10,930,000
  Accumulated deficit                                                            (6,604,000)
  Notes receivable from employees                                                  (188,000)
                                                                                ------------
                                                                                  4,729,000
Less: treasury stock, 23,000 shares at cost                                        (207,000)
                                                                                ------------
    Total stockholders' equity                                                    4,522,000
                                                                                ------------

    Total liabilities and stockholders' equity                                  $ 6,082,000
                                                                                ============
</TABLE>

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


                                       20
<PAGE>
<TABLE>
<CAPTION>
                            IMPLANT SCIENCES CORPORATION
                              STATEMENTS OF OPERATIONS

                                                            YEARS ENDED JUNE 30,
                                                         --------------------------
                                                             2000          2001
                                                         ------------  ------------
<S>                                                      <C>           <C>
Revenues:
  Product and contract research revenues:
    Medical                                              $ 3,082,000   $ 3,596,000
    Semiconductor                                            526,000       772,000
  Equipment                                                  365,000             -
                                                         ------------  ------------
    Total revenues                                         3,973,000     4,368,000
                                                         ------------  ------------

Costs and expenses:
  Cost of product and contract research revenues           2,749,000     4,247,000
  Cost of equipment revenue                                  396,000             -
  Research and development                                 1,345,000     1,500,000
  Selling, general and administrative, including
    $320,000 of stock-based compensation                   2,188,000     2,319,000
                                                         ------------  ------------
      Total costs and expenses                             6,678,000     8,066,000
                                                         ------------  ------------

Loss from operations                                      (2,705,000)   (3,698,000)
                                                         ------------  ------------

Other income (expense):
  Interest income                                            300,000       167,000
  Interest expense                                           (78,000)      (47,000)
  Other                                                        1,000             -
  Equity in loss of Epsilon Medical, Inc.                     (6,000)       (2,000)
                                                         ------------  ------------
    Other income                                             217,000       118,000
                                                         ------------  ------------

Net loss                                                 $(2,488,000)  $(3,580,000)
                                                         ============  ============

Net loss per common share - basic and diluted            $     (0.46)  $     (0.62)
                                                         ============  ============

Shares used in computing net loss per common share -
  basic and diluted                                        5,368,557     5,817,212
                                                         ============  ============
</TABLE>

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


                                       21
<PAGE>
<TABLE>
<CAPTION>
                                                IMPLANT SCIENCES CORPORATION
                                        STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                          Common  Stock                                                   Notes     Treasury
                                       -------------------   Additional                                 Receivable   Stock
                                       Number of              Paid-In      Deferred       Accumulated      from     --------
                                        Shares     Amount     Capital     Compensation      Deficit      Employees   Shares
                                       ---------  --------  -----------  --------------  -------------  -----------  ------
<S>                                    <C>        <C>       <C>          <C>             <C>            <C>          <C>

Balance at June 30, 1999               5,069,320  $507,000  $ 6,517,000  $    (121,000)  $   (536,000)  $ (275,000)       -

Issuance of common stock pursuant to
  exercise of stock options              138,000    14,000      721,000
Issuance of common stock pursuant to
  private placement                      500,000    50,000    2,929,000
Issuance of common stock pursuant to
  employee stock purchase plan               762         -        4,000
Amortization of deferred compensation                                           60,000
Net loss                                                                                   (2,488,000)
                                       ---------  --------  -----------  --------------  -------------  -----------  ------

Balance at June 30, 2000               5,708,082   571,000   10,171,000        (61,000)    (3,024,000)    (275,000)       -

Issuance of common stock pursuant to
  exercise of stock options              195,797    20,000      491,000
Issuance of common stock pursuant to
   exercise of warrants                    7,288         -            -
Issuance of common stock pursuant to
   employee stock purchase plan            1,603         -        9,000
Stock-based compensation                                        259,000
Amortization of deferred compensation                                           61,000
Repayment of notes receivable
  from employees                                                                                            87,000
Repurchase of common stock                                                                                           23,000
Net loss                                                                                   (3,580,000)
                                       ---------  --------  -----------  --------------  -------------  -----------  ------

Balance at June 30, 2001               5,912,770  $591,000  $10,930,000  $           -   $ (6,604,000)  $ (188,000)  23,000
                                       =========  ========  ===========  ==============  =============  ===========  ======


                                        Treasury
                                          Stock        Total
                                       ----------  Stockholders'
                                         Amount       Equity
                                       ----------  ------------

<S>                                    <C>         <C>
Balance at June 30, 1999               $       -   $ 6,092,000

Issuance of common stock pursuant to
  exercise of stock options                            735,000
Issuance of common stock pursuant to
  private placement                                  2,979,000
Issuance of common stock pursuant to
  employee stock purchase plan                           4,000
Amortization of deferred compensation                   60,000
Net loss                                            (2,488,000)
                                       ----------  ------------

Balance at June 30, 2000                       -     7,382,000

Issuance of common stock pursuant to
  exercise of stock options                            511,000
Issuance of common stock pursuant to
   exercise of warrants                                      -
Issuance of common stock pursuant to
   employee stock purchase plan                          9,000
Stock-based compensation                               259,000
Amortization of deferred compensation                   61,000
Repayment of notes receivable
  from employees                                        87,000
Repurchase of common stock              (207,000)     (207,000)
Net loss                                            (3,580,000)
                                       ----------  ------------

Balance at June 30, 2001               $(207,000)  $ 4,522,000
                                       ==========  ============
</TABLE>

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


                                       22
<PAGE>
<TABLE>
<CAPTION>
                             IMPLANT SCIENCES CORPORATION
                               STATEMENT OF CASH FLOWS

                                 YEARS ENDED JUNE 30,
                                 --------------------

                                                               2000          2001
                                                           ------------  ------------
<S>                                                        <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                 $(2,488,000)  $(3,580,000)
  Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:
    Depreciation and amortization                              270,000       653,000
    Amortization of deferred compensation                       61,000        61,000
    Non-cash stock compensation expense                              -       259,000
    Equity in loss of Epsilon Medical, Inc.                      6,000         2,000
    Impairment of patents                                            -        80,000
    Write-off of patent costs                                   15,000             -
    Write-off loan financing fees                                    -        11,000
    Changes in operating assets and liabilities:
      Accounts receivable                                     (546,000)      280,000
      Inventories                                              267,000      (248,000)
      Prepaid income taxes                                       9,000             -
      Prepaid expenses                                         (33,000)       18,000
      Notes receivable                                         (25,000)        3,000
      Other noncurrent assets                                  (15,000)        5,000
      Accounts payable                                         512,000      (290,000)
      Accrued expenses                                        (424,000)      (86,000)
                                                           ------------  ------------
        Net cash used in operating activities               (2,391,000)   (2,832,000)
                                                           ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Investment in Epsilon Medical, Inc.                          (50,000)            -
  Purchase of property and equipment                        (2,174,000)     (977,000)
  Capitalized patent costs                                     (45,000)      (46,000)
                                                           ------------  ------------
    Net cash used in investing activities                   (2,269,000)   (1,023,000)
                                                           ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from common stock issuance                        3,718,000       607,000
  Repurchase of common stock                                         -      (207,000)
  Repayments of long-term debt                                (218,000)     (182,000)
  Repayments of revolving credit line                         (155,000)            -
                                                           ------------  ------------
    Net cash provided by  financing activities               3,345,000       218,000
                                                           ------------  ------------

  Net decrease in cash and cas equivalents                  (1,315,000)   (3,606,000)
  Cash and cash equivalents, beginning                       6,153,000     4,838,000
                                                           ------------  ------------
  Cash and cash equivalents, ending                        $ 4,838,000   $ 1,232,000
                                                           ============  ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Interest paid                                            $    78,000   $    47,000
  Obligations under capital lease                               17,000        11,000
</TABLE>

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


                                       23
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

1.   DESCRIPTION  OF  BUSINESS

          Implant  Sciences  Corporation (the Company) develops products for the
     medical  device  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 interventional cardiology devices and temporary coronary
     brachytherapy  systems  for  the prevention of restenosis (reclosure of the
     artery  after  balloon  angioplasty). In addition, the Company modifies the
     surface characteristics of orthopedic joint implants to reduce polyethylene
     wear  and  thereby  increasing  the  life  of  the implant and provides ion
     implantation  of  electronic  dopants  for  the  semiconductor  industry.

          The  accompanying  financial  statements  have  been  presented on the
     assumption  that  the  Company  is  a going concern, which contemplates the
     realization  of  assets  and  the satisfaction of liabilities in the normal
     course  of  business.  During  fiscal  2000  and 2001, the Company incurred
     significant  operating  losses  and utilized significant amounts of cash to
     fund  operations. The Company is reaching a critical stage in its growth as
     it  transforms  from  a  research  and  development company to a commercial
     company  with  complete  sales,  marketing and production capabilities. The
     Company  received  Food  and Drug Administration 510(k) clearance to market
     its  I-PlantTM  Iodine-125  radioactive  seed for the treatment of prostate
     cancer.  On  February  2, 2000, the Company signed a distribution agreement
     with  MED-TEC  Inc.  for  the  exclusive  U.S.  distribution of our I-Plant
     Iodine-125  seed.  During  this  time  the  Company  increased  its overall
     operating  expenses  and  overhead to be positioned to further increase its
     sales  and  production  capabilities.

          During  the  second  half of 2001, the Company implemented a number of
     programs  to  reduce  its  consumption of cash, including operating expense
     reductions.  Management  of  the Company has outlined a plan of appropriate
     action  steps to attempt to ensure that the Company has adequate sources of
     cash to meet its working capital needs for at least the next twelve months.
     In  May 2001, management of the Company received approval from the Board of
     directors  to  implement this action plan. The key elements of the plan are
     as  follows:

          -    Further  operating  expense  reductions  to  eliminate  certain
               expenditures  that  are  not  essential  to  achieving  critical
               business  objectives  at this time (e.g., discretionary spending,
               further  development  efforts);

          -    Pursuit  of strategic financing alternatives including additional
               financing  through the form of a $500,000 working capital line of
               credit  with  a  related  party;

          -    Replaced  certain  members  of senior management with consultants
               experienced in a manufacturing environment focused on operational
               efficiencies.  These consultants also come at a much reduced cost
               that  will  save the Company approximately $150,000 in salary and
               benefits

          -    Introduced  its  new  radioactive  prostate  seed  product;

          -    Executed  a key contract with a hospital in the Southeast US that
               could  have  the  affect  of  increasing  the  Company's  planned
               prostate  seed  sales  for  Fiscal  2002;  and

          -    Discontinued nonessential research and development efforts, other
               than  grants  and  contracts,  that will reduce significantly the
               costs  incurred  during  fiscal  2001.

          As  a  result  of  implementing the above actions, management believes
     that its existing cash resources and cash from operations will meet working
     capital  and  research  and  development  requirements over the next twelve
     months  and  improve operating results. However, unanticipated decreases in
     operating  revenues,  delays  in government funding of grants, increases in
     expenses  or further delays in product development may adversely impact the
     Company's  cash  position and require further cost reductions. No assurance
     can  be  given  that  the  Company  will be able to operate profitably on a
     consistent  basis.


                                       24
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

2.   SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

     Cash  and  Cash  Equivalents

          The  Company considers any security with a maturity of 90 days or less
     at  the  time  of  investment  to be cash equivalents. Pursuant to a pledge
     agreement  with  the Company's bank, the Company has restricted $167,000 of
     cash  to  collateralize  a  loan  with  the  bank  (See  Note  8).

     Short-term  Investments

          The  Company classifies any security, including marketable securities,
     with  a  maturity  of  greater  than  90  days  as  short-term investments.

     Inventories

          Inventory  consists  of  raw  materials,  work-in process and finished
     goods  and are stated at the lower of cost (first in, first out) or market.

     Property  and  Equipment  and  Capital  Lease

          Equipment  and leasehold improvements are stated at cost. Equipment is
     depreciated  using the straight-line method over the estimated useful lives
     of  the  assets,  ranging  from five to seven years. Capitalized leases and
     leasehold  improvements  are amortized based upon the lesser of the term of
     the  lease  or the useful life of the asset and such expense is included in
     depreciation  expense. Expenditures for repairs and maintenance are charged
     to  expense  as  incurred.

     Warranty  Costs

          The  Company  accrues warranty costs in the period the related revenue
     is  recognized.  Warranty  costs  are  not  material  to operating results.

     Income  Taxes

          The liability method is used to account for income taxes. Deferred tax
     assets  and  liabilities  are  determined  based on differences between the
     financial  reporting and income tax basis of assets and liabilities as well
     as  net  operating loss and tax credit carryforwards and are measured using
     the  enacted tax rates and laws that will be in effect when the differences
     reverse.  Deferred  tax  assets  may be reduced by a valuation allowance to
     reflect  the  uncertainty  associated  with  their  ultimate  realization.

     Patent  Costs

          The costs to obtain patents are capitalized. The Company amortizes the
     costs  of  patents ratably over the shorter of their useful or leagal life.
     As  of June 30, 2001 there were 17 patents issued. Accumulated amortization
     at  June  30,  2001  was  approximately  $52,000.

     Advertising  Costs

          Advertising  costs  are  expensed  as  incurred  in  accordance  with
     Statement  of  Position  93-7,  "Reporting  on  Advertising  Costs" and are
     included  in  selling,  general  and  administrative  expenses. Advertising
     expenses  approximated  $34,000  and  $12,000,  for  fiscal  2000 and 2001,
     respectively.

     Impairment  of  Long-Lived  Assets

          In accordance with the provisions of Statement of Financial Accounting
     Standards  No. 121, "Accounting for the Impairment of Long-Lived Assets and
     for  Long-Lived  Assets  to  be  Disposed  of",  if facts and circumstances
     suggest  that  an impairment may have occurred, the unamortized balances of
     these  assets  are  reviewed.  Facts  and  circumstances  indicative  of an
     impairment may include factors such as significant decrease in demand for a
     product  related to an asset, a history of operating cash flow losses, or a
     projection  or forecast that demonstrates continuing losses associated with
     a  revenue  producing  asset.  In  the year ended June 30, 2001, certain of
     these  assets were determined to be impaired, and the carrying amounts were
     reduced,  as  appropriate. Accordingly, assets with a net carrying value of
     approximately  $80,000  were  impaired  and written-off by the Company. The
     aggregate  charge  is included in the accompanying statements of operations
     as  research  and  development


                                       25
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

     Concentration  of  Credit  Risk

          The  Company  grants  credit  to  its  customers,  primarily  large
     corporations  in  the medical device, semiconductor industries and the U.S.
     government.  The  Company  performs periodic credit evaluations of customer
     financial conditions and generally does not require collateral. Receivables
     are  generally due within thirty days. Credit losses have historically been
     minimal,  which  is consistent with management's expectations. Reserves are
     provided  for  estimated  amounts  of  accounts receivable which may not be
     collected.  Financial  instruments  that potentially subject the Company to
     concentration  of  credit  risk  consist  of  trade  receivables.

          The  Company  has  five  (5)  major  customers  that accounted for the
     following  annual  revenue:


                          YEAR ENDED JUNE 30,
                        ----------------------
                           2000        2001
                        ----------  ----------
             Company A  $1,501,000  $1,418,000
             Company B   1,023,000     747,000
             Company C           -     726,000
             Company D     260,000      64,000
             Company E     365,000           -

          The  accounts  receivable  at June 30, 2000 and 2001 for Company A was
     approximately  $196,000 and $185,000, respectively. Accounts receivable for
     Company  B  at  June  30,  2000  and  2001  was  $408,000  and  $107,000,
     respectively.  The  accounts  receivable at June 30, 2001 for Company C was
     approximately  $156,000.

     Stock  Based  Compensation

          The  Company  accounts  for  its stock based compensation arrangements
     under the provisions of APB Opinion No. 25, "Accounting for Stock Issued to
     Employees",  rather  than  the  alternative  fair  value  accounting method
     provided  for  under FAS 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.

     Use  of  Estimates

          The  preparation  of  these  financial  statements  in conformity with
     generally  accepted  accounting  principles  requires  management  to  make
     estimates  and  assumptions  that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of  the  financial  statements  and  the  reported  amounts of revenues and
     expenses  during  the  reporting  periods.  Some  of  the  more significant
     estimates  include  allowance  for  doubtful  accounts, allowance for sales
     returns,  inventory  valuation,  sub-contractor  expenses  and  warranty
     reserves.  Management's  estimates are based on the facts and circumstances
     available  at the time estimates are made, past historical experience, risk
     of  loss,  general  economic  conditions  and  trends  and  management's
     assessments  of the probable future outcome of these matters. Consequently,
     actual  results  could  differ  from  such  estimates.

     Revenue  Recognition

          The Company recognizes revenue when there is persuasive evidence of an
     arrangement  with  the customer which states a fixed and determinable price
     and terms, delivery of the product has occurred or the service performed in
     accordance  with  the  terms of the sale, and collectibility of the sale is
     reasonably  assured. The Company provides for estimated returns at the time
     of  shipment  based  on  historical  data.

          Contract  revenue  under  cost-sharing  research  and  development
     agreements  is recognized as eligible research and development expenses are
     incurred.  The  Company's obligation with respect to these agreements is to
     perform  the  research  on  a  best-efforts  basis.


                                       26
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

     Shipping  and  Handling  Costs

          Shipping  and  handling  costs,  such  as  freight  to  customers'
     destinations,  are  included  in  cost  of  sales  in  the  statements  of
     operations.  Total  shipping  and handling costs was $39,000 as of June 30,
     2001.  These  costs, when included in the sales price charged for products,
     are  recognized  in  net  sales.

     Research  and  Development  Costs

          All  costs  of  research  and  development  activities are expensed as
     incurred.  The  Company  performs  research  and development for itself and
     under  contracts with others, primarily the U.S. government. Company funded
     research  and  development includes the excess of expenses over revenues on
     its  commercial  research  contracts and, therefore, is included in cost of
     product  and  contract  research  revenues in the accompanying statement of
     operations.

                                                     JUNE 30,
                                              ----------------------
                                                 2000        2001
                                              ----------  ----------
            Company funded                    $1,512,000  $2,228,000
            Customer funded                      788,000     747,000
                                              ----------  ----------

              Total research and development  $2,300,000  $2,975,000
                                              ==========  ==========

          The  Company funded and customer funded research and development costs
     were  as  follows:

     Earnings  per  Share

          Basic  earnings  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. In calculating
     diluted  earnings  per  share,  the  dilutive  effect  of  stock options is
     computed using the average market price for the period. The following table
     sets  forth  the  computation  of  basic  and  diluted  earnings per share:


                                                       JUNE 30,
                                                 2000          2001

            Basic:
              Net loss                      $(2,488,000)  $(3,580,000)
              Weighted shares outstanding     5,368,557     5,817,212
              Net loss per share - basic    $     (0.46)  $     (0.62)

            Diluted:
              Net loss                      $(2,488,000)  $(3,549,000)
              Weighted shares outstanding     5,368,557     5,817,212
              Net loss per share - diluted  $     (0.46)  $     (0.61)

     New  Accounting  Standards

          In  December 1999, the Securities and Exchange Commission issued Staff
     Accounting  Bulletin  101,  (SAB  101),  "Revenue  Recognition in Financial
     Statements."  SAB  101  interprets  the  application  of generally accepted
     accounting  principals  to revenue recognition in financial statements. The
     Company  adopted  SAB  101 in fiscal 2001 and such adoption of SAB 101 does
     not  have  a  material  effect  on  its  financial  position  or results of
     operations.


                                       27
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

3.   INVENTORY

          Inventory at June 30, 2001 consists of the following:

          Raw materials          $    209,000
          Work-in-process              75,000
          Finished goods               65,000
                                  -----------

                                  $   349,000
                                  ===========


4.   PROPERTY  AND  EQUIPMENT

          Property and equipment at June 30, 2001 consists of the following:

          Machinery and equipment                              $     4,471,000
          Computers and software                                       291,000
          Furniture and fixtures                                       149,000
          Motor vehicles                                                15,000
          Leased property under capital leases                          28,000
          Leasehold improvements                                       222,000
                                                                ---------------
                                                                     5,176,000
          Less: accumualted depreciation and amortization           (1,662,000)
                                                                ---------------

                                                                 $    3,514,000
                                                                 ==============

5.   ACCRUED  EXPENSES

          Accrued  expenses  at  June  30,  2001  consists  of  the  following:

          Accrued compensation and benefits            $       314,000
          Subcontractor costs                                  328,000
          Deferred revenue                                      18,000
          Accrued legal, accounting and printing               109,000
          Other                                                 15,000
          Warranty                                               2,000
                                                       ---------------

                                                       $       786,000
                                                       ===============

          Included  in  accrued compensation and benefits as of June 30, 2001 is
     severance  of  $45,000  for  a  former  officer.

6.   INVESTMENT  IN  AFFILIATE

          On October 6, 1999, the Company acquired 38% of the outstanding shares
     of  Epsilon  Medical,  Inc.  for  $50,000.  The  Company accounts for their
     investment  in  Epsilon  Medical,  Inc.  under  the  equity  method and the
     carrying  amount  of  their investment is adjusted to reflect the Company's
     share  of all gains and losses. For the years ended June 30, 2000 and 2001,
     the  Company recognized its share of equity losses in Epsilon Medical, Inc.
     of  approximately  $6,000  and  $2,000,  respectively. Summarized financial
     information  is  not  presented  as  it  is  not  material  to the Company.


                                       28
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

7.   RESEARCH  AND  DEVELOPMENT  ARRANGEMENTS

          The  Company  is  the  recipient  of  several  grants  under  the U.S.
     Government's  Small  Business  Innovative  Research  (SBIR)  Program. These
     grants  are  firm-fixed priced contracts and generally range in length from
     six  to  twenty  four  months.  Revenues  under  such  arrangements  were
     approximately $1,023,000 and $746,000 for the years ended June 30, 2000 and
     2001,  respectively.  Unbilled  accounts  receivable  relating  to  such
     arrangements  was  approximately $250,000 and $111,000 for the fiscal years
     ended  June  30,  2000  and  2001,  respectively.

          The  Company also conducts research and development under cost-sharing
     arrangements  with  its  commercial  customers.  Revenues  under  such
     arrangements  were approximately $30,000 for the fiscal year ended June 30,
     2000.  There  were  no revenues under such arrangements for the fiscal year
     ended  June  30,  2001.

8.   BANK  BORROWINGS

          The  Company  financed  its  operations  utilizing  a Revolving Credit
     Facility ("Credit Facility") and an Equipment Term Loan ("Term Loan") under
     a Loan Agreement with its bank. The Revolving Credit Facility are unsecured
     and  the  Equipment  Term Loan is cross-collateralized and cross-defaulted.
     The  Loan  Agreement has a first lien on substantially all of the Company's
     assets.

          On  September  30,  2000,  the  Company's Credit Facility expired. The
     Company  chose  not to renew the Credit Facility and is currently seeking a
     new  credit  facility on terms more favorable to the Company. There were no
     borrowings  on  the Credit Facility during the year ended June 30, 2001 and
     no  balances  outstanding  as  of  June  30,  2001.

          The Company has a term loan facilities of $1,500,000 at June 30, 2000,
     of  which it had utilized $750,000. Interest is payable monthly at 1% above
     the  banks  base  rate  commencing  February  1998  (8.8%  weighted average
     interest  rate  for  fiscal  2001).  As  of  June  30,  2001,  the  balance
     outstanding  was  $412,000.

          The  Company's  Loan  Agreement requires compliance with two financial
     covenants  including  minimum  levels  of net worth and net loss limits. At
     June  30,  2001,  the  Company's  net  loss  covenant  was greater than the
     required  amount.  On  September  28,  2001, the Company and a director and
     officer of the Company fully collateralized the Term Loan with $167,000 and
     $200,000 of cash, respectively, and executed pledge agreements with respect
     to  the collateral. The Company's bank has waived its rights under the Loan
     Agreement  with respect to this financial covenant at June 30, 2001 through
     and  including  June  30,  2002.

          On  October  10,  2001,  the  Company  entered into a $500,000 Line of
     Credit  Facility  ("Line  of  Credit")  with CardioTech International, Inc.
     ("CardioTech"),  a related party (See Note 10). The Line of Credit provides
     for  funding  at the discretion of the Company and is subject to a security
     agreement  providing  a  second  lien on substantially all of the Company's
     assets.  The  Line  of  Credit bears interest at the prime rate (5.5% as of
     October  10,  2001)  plus  2%  and  expires  October  12, 2002. All amounts
     borrowed  under  the  Line  of  Credit  are  due  on  October  12,  2002.

9.   RELATED  PARTY  TRANSACTION

          Statement  of  Financial  Accounting  Standards 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, is a related party
     with  the  Company  by  virtue  of  its significant business relationships.
     During fiscal 2001, CardioTech's corporate staff provided certain financial
     and  accounting  services  to  the  Company. Amounts of $21,000 are due and
     payable  at  June  30,  2001  related  to  such  services.

          In  March  2000,  the  Company  entered into a $250,000 joint research
     agreement  with  CardioTech  International  to develop a proprietary porous
     polymer  biocompatible  coating  technology as a platform for the Company's
     proprietary  radioactive  brachytherapy technology. During fiscal 2001, the
     Company  paid  $50,000  pursuant  to  the  aforementioned  agreement.

          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


                                       29
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

     Directors of CardioTech is also a director of the Company. The acting Chief
     Financial Officer of the Company is also the acting Chief Financial Officer
     of  CardioTech.

          On  October  10, 2001, CardioTech provided the Company a $500,000 Line
     of  Credit  Facility  (See  Note  8).

          Accounts receivable from related parties as of June 30, 2001 consisted
     of  a  loan  of  $138,000  to  a  principle  shareholder  and loans to five
     employees,  totaling  $55,000  all  of  which  bear  interest  at 6%. These
     transactions  were  reported  as  a  reduction  of  stockholders'  equity.

          In  January  2000, the Company received notice of the award of a joint
     research grant. Funding is provided through a $100,000 Phase I grant by the
     U.S.  Department of Health and Human Services, National Heart, Lung & Blood
     Institute  to  CardioTech  International  and sub-grants to the Company and
     Stanford  University.

10.  LEASE  OBLIGATION

          The  Company  has a twenty-two month operating lease for 21,992 square
     feet  of  its manufacturing, research and office space which expires on May
     31,  2002  and  a  three  and one half year sublease for 17,300 square feet
     which  expires  on  March 31, 2003. The Company has an option to extend the
     operating  lease  for  two additional years. Under the terms of the leases,
     the  Company  is  responsible  for their proportionate share of real estate
     taxes  and  operating  expenses  relating  to  this  facility. Total rental
     expense  for the fiscal years ended June 30, 2000 and 2001 was $281,000 and
     $531,000,  respectively.

          Included  in  property  and  equipment  at  June 30, 2001 is equipment
     recorded  under  a  capital  lease  with  a  net  book  value  of  $11,000.
     Amortization  of  assets  under  capital  lease  obligations is included in
     depreciation  expense.

          Future  minimum  rental  payments  required  under  capital leases and
     operating leases with noncancelable terms in excess of one year at June 30,
     2001,  together with the present value of net minimum lease payments are as
     follows:

                                                        CAPITAL   OPERATING
                                                         LEASE      LEASE
                                                        --------  ----------
           Year ending June 30:
           2002                                         $  7,000  $  317,000
           2003                                            6,000     104,000
                                                        --------  ----------
           Net minimum lease payments                     13,000  $  421,000
                                                                  ==========

           Less: finance charges                           2,000
                                                        --------

           Present value of net minimum lease payments  $ 11,000
                                                        ========

11.  INCOME  TAXES

          The  Company's  effective income tax rate as of June 30, differed from
     the  U.S.  federal  statutory  income  tax  rate  as  set  forth  below:

                                                        YEARS ENDED JUNE 30,
                                                      ------------------------
                                                         2000         2001
                                                      ----------  ------------
          Expected federal tax rate                   $(846,000)  $(1,205,000)
          State income taxes, net of federal benefit   (193,000)     (214,000)
          Stock compensation expense                     21,000        21,000
          Tax credits                                         -       (55,000)
          Effect of valuation allowance                 958,000     1,381,000
          Non-deductible expenses and other              61,000        72,000
                                                      ----------  ------------

          Effective tax rate                          $   1,000   $         -
                                                      ==========  ============


                                       30
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

          Significant  components  of  the  Company's deferred tax assets are as
     follows:

          Deferred tax assets:
            Net operating loss and tax credit carryforwards  $ 2,351,000
            Accrued expenses                                      37,000
            Other                                                 67,000
                                                             ------------
          Total deferred tax assets                            2,455,000
            Valuation allowance                               (2,386,000)
                                                             ------------
          Net deferred tax assets                                 69,000
                                                             ------------

          Deferred tax liabilities:
            Tax over book depreciation                           (36,000)
                                                             ------------
          Total deferred tax liabilities                         (36,000)
                                                             ------------

          Net deferred tax asset                             $    33,000
                                                             ============

          At  June  30,  2001  the  Company  has  unused  net  operating  loss
     carryfowards  of  approximately $5,655,000, available to reduce federal and
     state  taxable income, and tax credit carryfowards of $75,000, available to
     offset federal and state taxable income, both of which expire through 2021.
     A  valuation  allowance has been established for a portion of the Company's
     tax assets as their use is dependent on the generation of sufficient future
     taxable  income.

12.  STOCKHOLDERS'  EQUITY

          In September 1998, the Company adopted the 1998 Stock Option Plan (the
     "1998  Plan").  The  1998  Plan  provides  for the grant of incentive stock
     options  and  nonqualified  stock  options to employees and affiliates. The
     exercise  price  of the options equals 100% of the fair market value on the
     date  of  the  grant.  Options expire ten years from the date of the option
     grant  and vest ratably over a three-year period commencing with the second
     year.  A total of 240,000 options were reserved for issuance under the 1998
     Plan.  Upon  adoption  of  the  1998  Plan,  the 1992 Stock Option Plan was
     terminated.  No  new  stock  options  will  be granted under the 1992 Stock
     Option  Plan, which has been superseded by the 1998 Plan. In December 2000,
     the  Company adopted the 2000 Incentive and Non Qualified Stock Option Plan
     (the  "2000 Plan"). The 2000 Plan provides for the grant of incentive stock
     options  and  nonqualified  stock  options to employees and affiliates. The
     exercise  price  of the options equals 100% of the fair market value on the
     date  of  the  grant.  Options expire ten years from the date of the option
     grant  and vest ratably over a three-year period commencing with the second
     year.  A total of 300,000 options were reserved for issuance under the 2000
     Plan.


                                       31
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

          The  following  table presents the activity of the 1992, 1998 and 2000
     Stock  Option  Plans  for  the  years  ended  June  30,  2000,  and  2001:

<TABLE>
<CAPTION>
                                                2001                 2000
                                        ---------------------  -------------------
                                                   WEIGHTED-            WEIGHTED-
                                                    AVERAGE              AVERAGE
                                                    EXERCISE             EXERCISE
                                         SHARES      PRICE     SHARES     PRICE
                                        ---------  ----------  -------  ----------
<S>                                     <C>        <C>         <C>      <C>
Outstanding at beginning of period       435,690   $     2.99  320,190  $     1.85

Granted                                  183,000         7.97  115,500        6.16
Exercised                               (195,797)        2.61        -
Canceled                                  (8,000)        8.41        -
                                        ---------  ----------  -------  ----------

Outstanding at end of period             414,893         5.26  435,690        2.99
                                        =========  ==========  =======  ==========

Options exercisable at end of period     361,581         5.05  326,699        2.12
                                        =========  ==========  =======  ==========

Weighted-average fair value of options
   granted during the year                               3.71                 3.95
                                                   ==========           ==========
</TABLE>

          In  May  2001,  the Company entered into a separation agreement with a
     former  officer,  that  provided for the acceleration of vesting of options
     for  21,736  shares  of the Company's common stock and the repurchase of an
     additional  23,000  shares  of  the  Company's common stock. As of June 30,
     2001,  the  former  officer exercised and sold 32,464 shares and had 14,736
     shares  vested  and exercisable. The Company recognized $259,000 of expense
     related  to  this  agreement.

          The  following  table  presents  weighted  average  price  and  life
     information  about  significant option groups outstanding at June 30, 2001:

<TABLE>
<CAPTION>
                       OPTIONS OUTSTANDING           OPTIONS EXERCISABLE
                ----------------------------------  --------------------
                             WEIGHTED
                             AVERAGE     WEIGHTED              WEIGHTED
     RANGE OF               REMAINING     AVERAGE               AVERAGE
     EXERCISE    NUMBER    CONTRACTUAL   EXERCISE    NUMBER    EXERCISE
      PRICES    OF SHARES   LIFE (YRS)     PRICE    OF SHARES    PRICE
     ---------  ---------  ------------  ---------  ---------  ---------
<S>             <C>        <C>           <C>        <C>        <C>
     $    1.37    126,358          4.69  $    1.37    126,358  $    1.37
          4.00     26,602          6.68       4.00     26,602       4.00
          5.00     53,501          8.33       5.00     28,000       5.00
          6.50     30,000          8.51       6.50     30,000       6.50
          6.63      2,000          8.42       6.63        666       6.63
          6.75      2,000          8.44       6.75      2,000       6.75
          7.00      3,432          7.45       7.00      2,288       7.00
          7.56     75,000          9.07       7.56     65,000       7.56
          7.81      3,000          9.56       7.81          -       7.81
          8.00      5,000          9.40       8.00      4,000       8.00
          8.50     25,000          9.92       8.50     25,000       8.50
          8.53     50,000          9.54       8.53     50,000       8.53
          9.12      8,000          8.97       9.12          -       9.12
          9.50      5,000          8.73       9.50      1,667       9.50
                ---------                           ---------
                  414,893                             361,581
                =========                           =========
</TABLE>


                                       32
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

          The Company has adopted the disclosure provisions only of Statement of
     Financial  Accounting  Standards  No.  123,  Accounting  for  Stock-based
     Compensation  (FAS  123). If the compensation cost for the option plans had
     been  determined  based  on  the fair value at the grant date for grants in
     2000 and 2001, consistent with the provisions of FAS 123, the pro forma net
     loss  per share-diluted for 2000 and 2001, would have decreased by $239,000
     and  $740,000  respectively,  and  $0.49  per  share  and  $0.70 per share,
     respectively.

          The  1998  Employee Stock Purchase Plan ("purchase plan") provides for
     the  issuance  of  141,000  shares  of  common  stock thereunder. Under the
     purchase plan, eligible employees may purchase common shares at a price per
     share  equal  to  85%  of  the lower of the fair market value of the common
     stock  on  the  first  or  last  day  of  two  six  month offering periods.
     Participation  in the offering period is limited to $25,000 in any calendar
     year.

          The  fair  value  of  options and warrants issued at the date of grant
     were  estimated  using  the  Black-Schols model with the following weighted
     average  assumptions:

                                                 OPTIONS GRANTED
                                        ----------------------------
                                            2000           2001
                                        -------------  -------------
              Volatility                          72%            47%
              Expected life (years)                5              5
              Risk free interest rate   6.10% - 6.49%  4.91% - 6.21%
              Dividend yield                       0%             0%

          The  Company has never declared nor paid dividends and does not expect
     to  do  so  in  the  foreseeable  future.

          The  effects  on  2000  and 2001 pro forma net income of expensing the
     estimated fair value of stock options are not necessarily representative of
     the  effects  on  the results of operations for future years as the periods
     presented  include  only  one and two years, respectively, of option grants
     under  the  Company's  plans.

          In  June  1999,  the Company issued 1,000,000 Units, consisting of one
     share  of common stock, and one redeemable common stock purchase warrant 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.
     These  warrants  expire  in  June  2002.  The  Company  also  issued to the
     Representative  of  the  Underwriters,  for  nominal  consideration,  the
     Representative's  Warrants  to  purchase 100,000 shares of common stock and
     100,000  redeemable  warrants  at  an  exercise  price  of  $12.00.  The
     Representative's  Warrants  expire  in  June  2004.  All  of  the Company's
     warrants  remain  outstanding  at  June  30,  2001.

13.  ROYALTY  AGREEMENT

          Under  the  terms of the sale of a former product line, the Company is
     entitled  to  minimum  annual  royalties which aggregate $175,000 over four
     years.  During  2000,  the  Company  recognized  approximately  $25,000  of
     royalties  under  this arrangement. No royalties were recognized under this
     arrangement  in  2001.

14.  401K  PLAN

          The  Company has a defined contribution retirement plan which contains
     a  401(k)  program.  All  employees  who  are  21 years of age and who have
     completed one year of service during which they worked at least 1,000 hours
     are eligible for participation in the plan. The Company makes discretionary
     contributions  to the plan. The Company made cash contributions to the plan
     of  $61,000  and  $73,000  in  2000  and  2001,  respectively.


                                       33
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

15.  LEGAL  PROCEEDINGS

          From  time  to  time,  the Company is subject to various claims, legal
     proceedings  and investigations covering a wide range of matters that arise
     in the ordinary course of its business activities. Each of these matters is
     subject  to  various  uncertainties.  On the basis of information presently
     available,  the  Company is not currently aware of any legal proceedings or
     claims  that  the  Company believes are likely to have a material effect on
     the  Company's  financial  position  or  results  of  operations.


                                       34
<PAGE>
                                   SIGNATURES

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

                                   Implant  Sciences  Corporation

Date:  October  12,  2001          /s/  Anthony  J.  Armini
                                   ---------------------------------------
                                   Anthony  J.  Armini
                                   President,  Chief  Executive  Officer,
                                   Chairman  of  the  Board  of  Directors
                                   (Principal  Executive  Officer)

     In  accordance  with the Exchange Act, this report has been signed below by
the  following  persons on behalf of the registrant and in the capacities and on
the  dates  indicated.


Date:  October  12,  2001          /s/  Anthony  J.  Armini
                                   ---------------------------------------
                                   Anthony  J.  Armini
                                   President,  Chief  Executive  Officer,
                                   Chairman  of  the  Board  of  Directors
                                   (Principal  Executive  Officer)


Date:  October  12,  2001          /s/  David  C.  Volpe
                                   ---------------------------------------
                                   David  C.  Volpe
                                   Acting  Chief  Financial  Officer
                                   (Principal  Financial and Accounting Officer)


 Date:  October  12,  2001         /s/  Stephen N. Bunker
                                   ---------------------------------------
                                   Stephen  N.  Bunker
                                   Vice  President  and  Chief  Scientist,
                                   Director


Date:  October  12,  2001          /s/  Shunkichi  Shimizu
                                   ---------------------------------------
                                   Shunkichi  Shimizu,  Director


Date:  October  12,  2001          /s/  Michael  Szycher
                                   ---------------------------------------
                                   Michael  Szycher,  Director


                                       35
<PAGE>