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, 2002. 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
----------------------------------------      ----------------------------------
(State or other jurisdiction                  (IRS Employer
of  incorporation  or  organization)          Identification number)

107 Audubon  Road,  #5  Wakefield,  MA        01880
----------------------------------------      ----------------------------------
(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: $6,621,000

     The  aggregate  market  value of the voting stock held by non-affiliates of
the registrant was approximately $20,289,000 as of August 30, 2002 (based on the
closing  price  for  such  stock  as  of  August  30,  2002).

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

                   Class                    Outstanding at August 31, 2002
        Common Stock, $.10 par value                 6,216,080


                                        1
<PAGE>
                                     PART 1

                   SPECIAL NOTE ON FORWARD LOOKING STATEMENTS

     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.  We
undertake  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 we
file  from  time  to  time  with  the  Securities  and  Exchange  Commission.

ITEM  1.     OUR  BUSINESS

     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
therapeutic  devices.  This  technology  has  been applied to the manufacture of
radioactive  prostate  seeds using a dry fabrication process which we believe is
more  cost-effective  and  less  hazardous than conventional processes which use
radioactive  wet chemistry.  Our I-Plant seeds are 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.  Research  and  development  on  the  radioactive
prostate  seed  commenced in approximately June 1998.  We received Food and Drug
Administration  510(k)  clearance to market our I-PlantTM Iodine-125 radioactive
seed  for  the treatment of prostate cancer in May 1999.  On February 2, 2000 we
signed a distribution agreement with MED-TEC Iowa, Inc. ("MED-TEC Inc.") for the
exclusive  U.S. distribution of our I-Plant Iodine-125 seed.  From approximately
May  1999  through  August  2000,  we  expended  resources  in the building of a
production  facility to manufacture and sell the radioactive prostate seeds.  We
recognized  our  first  sales of radioactive prostate seeds in the first half of
fiscal  2001.  The  transition  from research and development on the radioactive
prostate  seeds to FDA approval and commercialization of this product represents
a  critical stage in our growth from a provider of ion implantation services for
semiconductor  and  orthopedic  applications  to  a  manufacturer  and seller of
product  in  the  form  of  radioactive  prostate  seeds.

     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  twenty  issued  United  States  patents and seven United States
patents  pending  covering  our  technologies  and  processes.  We also have two
international  patent  applications  pending.


                                        2
<PAGE>
     Since  May  1999,  we  have  been  performing  research  to develop a trace
explosives  detector, which could be used to detect hidden bombs in airports and
other  public  places.  This  technology  is  yet another application of our ion
source  technology.  In  November 2001, we developed a portable prototype and in
December  2001  we demonstrated it to an independent third party. Following this
demonstration,  management  decided  to pursue the technology and to prepare for
submission a research and development agreement by June 2002. At present, we are
developing  both  portable  and  bench-top  systems  for  use  in  airports  and
Department  of  Defense facilities. Prototype units have been transported to the
Department  of  Defense  and  Department  of  Transportation  facilities  for
demonstration  and  evaluation.  See  "Current  and  Future  Products."

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, wetability 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  have  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 United States
patents  and  seven  United  States  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.


                                        3
<PAGE>
     Trace Explosives Detection. We have developed a prototype instrument, which
can detect the vapor from trace amounts of explosive compounds including plastic
explosives such as RDX, the compound commonly found in C4 explosives. The system
works  by  ionizing  explosive  molecules  in  air  using  a laser beam and then
detecting  the  ionized  molecules  of  the  explosive  using  ion  mobility
spectrometry.  The  prototype  instrument has successfully detected molecules of
five  different  types of explosives at the parts per trillion concentrations in
the  air.  We  believe  this  technology  will  provide  commercial systems with
improved  sensitivity  and  capabilities  than  equipment  presently  available.

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.
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. We have received Food and
Drug  Administration  510(k)  clearance  to  market  our  I-PlantTM  Iodine-125
radioactive  seed  for  the  treatment  of prostate cancer. These seeds are used
primarily  in  the  treatment  of  prostate  cancer.  Our 510k clearance permits
treatment  of  any  localized  tumors  treatable  by  temporary  or  permanent
brachytherapy. A twelve-year study conducted by the Northwest Hospital, Seattle,
Washington  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
requirement  administered  by  the  Commonwealth  of  Massachusetts as a Nuclear
Regulatory  Commission  Agreement  State.  On  February  2,  2000  we  signed  a
distribution  agreement  with MED-TEC 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.  Our  dry  process, for which we have
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 (approximately 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. We maintain multiple source vendors for our raw materials
supplies  in  the construction of our radioactive prostate seeds including Trace
Sciences  International,  Isoflex  USA,  Inc.,  Specialty Glass Products, United
Silica  Products,  Uniform Tube Corporation, and Fraen Machining Corporation. In
addition, we maintain multiple nuclear reactor sources capable of activating the
radioactive  prostate  seeds,  including  Studsvik  Nuclear  Corporation and NRG
Petten.


                                        4
<PAGE>
     Sales. On February 2, 2000 we signed a distribution agreement with MED-TEC.
Under this agreement, MED-TEC has agreed to act as our exclusive distributor for
our  Iodine-125  radioactive  seed  for  the treatment of prostate cancer in the
United  States,  the District of Columbia, and Puerto Rico. This agreement has a
three-year term and may be extended for a further two years by MED-TEC by giving
us  120  days  written notice. The price paid by MED-TEC for our seeds will vary
depending  upon  market conditions. Either party may terminate this agreement on
120 days written notice upon a material breach by the other party. The agreement
may  also be terminated by either party if it is deprived of the benefits of the
agreement  as  a  result  of  force  majeure for a period of more than 120 days.
MED-TEC's  sales of prostate seeds accounted for 43% and 17% of revenues for the
year  ended  June  30,  2002  and  2001,  respectively.

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-PlantTM 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
the  physician  and  staff to remain at the patient's 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  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 National Institutes of Health that we
were  awarded  a $750,000 Phase II 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, we believe our
coatings  can provide significant added value and enhanced performance. Our 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 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, cobalt chromium 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  cobalt  chromium  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 cobalt chromium alloys. Laboratory tests and clinical
studies  have shown that nitrogen ion-implanted cobalt chromium components offer
superior  performance over untreated components, significantly reducing wear and
slowing  the incidence of osteolysis which ultimately leads to revision surgery.


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<PAGE>
     Manufacturing.  We  believe  we now operate one of the highest beam-current
ion  implanters  used in the medical field. This equipment has higher throughput
and  lower  cost  than  equipment  with  a  lower  beam-current.  For  our  new
second-generation  orthopedic  coating,  this  equipment  can  provide a ceramic
coating  with  superior  characteristics due to its patented "blended interface"
process.  We  maintain multiple source vendors for our gas supplies, the primary
raw  material  used  in  the ion implantation process in providing this service,
including  Praxair  and  Wesco.

     Sales.  We  currently  implant  cobalt  chromium  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
cobalt  chromium 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. We maintain two major customers, the Howmedica/Osteonics Division
of Stryker, Corporation and Biomet, Incorporated, which when combined, accounted
for  26%  and  34%  of  revenues  in  the  year  ended  June  30, 2002 and 2001,
respectively.

     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  622,00  units  in  2001  in  the United States. We treat
approximately  50,000 units each year using our 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
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. We maintain multiple source vendors for our gas
supplies,  the  primary  raw  material  used  in the ion implantation process in
providing  this  service,  including  Praxair  and  Matheson  Tri-Gas.

Trace  Explosives  Detection  Equipment.

     We are developing several explosive detection systems that could be used in
airports,  public  and government buildings, and sporting event facilities.  The
systems use our proprietary technology, which includes the use of laser beams in
combination  with  ion  mobility  spectrometry,  to electronically detect minute
quantities  of  explosive  vapor  molecules  in  the  air.

     This  project  has been ongoing since approximately May 1999. It involved a
certain  amount  of  one of our employee's time and certain outside contractors.
Total  costs  of  this project have been approximately $271,000 in the aggregate
over the project period. This project was undertaken in response to the interest
in  ion  beam phenomena by our research personnel who are constantly researching
new  applications  for  this  technology. The development of new applications is
typically  funded  through government grants or internal funding. Originally, we
funded a research and development program for the electronic detection system to
produce  enough  data  to write grant proposals for the Department of Defense to
detect  unexploded  bombs  and  mines.


                                        6
<PAGE>
     The  Department  of  Transportation  has  stated  that the U.S. could spend
between  $1.9  billion  and  $2.5 billion on equipment for the detection of bulk
amounts  and  trace amounts of explosives. However, we do not know how much will
be  allocated  to  each  of  trace  and  bulk equipment or how much allocated to
equipment  for the detection of trace amounts of explosives will be allocated to
devices  like  ours.

     In  June 2000, we developed our first generation device, which demonstrated
sensitivity to the explosive TNT. In June 2001, we developed a second-generation
prototype with increased sensitivity and selectivity. This device can detect and
specify  an  increasing  number of compounds within various explosive materials.
The  explosives that have been tested to date are TNT, RDX, PETN, EGDN, and DNT.
RDX  is  the  primary  component  of C3 and C4 explosives, such as Datasheet and
Semtex,  as  well  as certain types of black powder explosives. We believe these
explosives  represent the majority of the explosives presently used in terrorist
activities. After the attack on the World Trade Center occurred on September 11,
2001,  management  made  the  decision  to  continue the internal funding of the
project  rather  than await funding through government grants. In December 2001,
we  successfully  demonstrated our working prototype of the electronic detection
system  to  several  third  parties.  Our  electronic  detection system has been
subjected  to  controlled  testing  by third parties and successfully detected a
sample  of  C4.  As a result of the successful demonstration, we believed it was
appropriate  to  further  pursue  the  commercial  development of our electronic
detection system device. We are developing a pre-production electronic detection
system that we believe will be completed prior to the end of calendar year 2002.
This  pre-production  electronic  detection  system  will  form  the  basis of a
commercial  unit  and  we  will  submit  it  to  the  Transportation  Security
Administration  for  evaluation.

     The electronic detection system detects microscopic quantities of explosive
molecules  in  the  air.  The  device does not use X-rays and does not produce a
danger to personnel operating the device or scanned by the device. The device is
a  sensor  that  receives  signals  that  are  already  in  the environment. Two
companies  market  trace  electronic detection systems (Ion Track Instruments, a
subsidiary  of  General Electric, and Smiths Plc, a U.K. publicly held company).
Both  of  these  competitors  use  Ion Mobility Spectrometry in their respective
devices  for  the  detection  and  classification  of  explosive  molecules.
Additionally,  both of these competitors use Nickel-63, a radioactive source, to
ionize  the  explosive  vapors.  Our  electronic  detection system also uses Ion
Mobility  Spectrometry  technology  to detect and classify explosives molecules,
however,  our  electronic  detection  system  uses  a  laser  beam to ionize the
explosive molecules. The laser yields greater sensitivity than Nickel-63 and has
the  potential  to  detect  explosives without physically rubbing or swiping the
outside  of  a  container  or luggage. Currently, the trace electronic detection
systems  require  the  operator  to  physically  rub or swipe the articles to be
tested.  The  swab or cloth is then placed into the electronic detection system,
heated  to  evaporate  some  of  the explosive particles, and then directs these
vapors  into  the  Ion  Mobility  Spectrometry  device. Our electronic detection
system  uses  a  sensor  that  does  not  require physical contact to screen the
article  to  detect  trace  residues  and  detects the explosives from the vapor
alone.  Since  our device does not use a radioactive source, management believes
it  is  safer  than trace explosives residue detection systems currently in use.

     We  believe  our  explosives detection system is roughly 833 to 4,500 times
more  sensitive  than  an  explosives-sniffing dog.  This belief is based on the
assumption  that  an explosives-sniffing dog is as sensitive to explosives as it
is  to  narcotics.

     We  have  tested  for false positives and false negatives by using numerous
non-explosive  organic  vapors. The electronic detection system properly did not
register  the  existence of non-explosives. The accepted testing methodology for
false  positives  requires  testing  on  a  commercially  available  electronic
detection  system  and  is  usually  performed  in  the  context  of  a specific
application,  such  as baggage screening, personnel screening, locating bombs in
buildings,  and  cargo  or auto screening. The official false positive and false
negative  testing  must  be  done by an independent third party agency, however,
such  independent  testing  has  not  yet  been  performed.

     Management believes the material competitive disadvantage of our electronic
detection system is the cost. We believe that our device will be 30% to 40% more
expensive  than  Ion  Mobility  Spectrometry based electronic detection systems,
which  are  approximately  $40,000 to $50,000 per unit. However, we believe that
the  efficiency of our electronic detection system and the resultant improvement
in  throughput  of  the  quantity of carry-on articles and personnel that can be
screened  will  provide  a  cost  justification.


                                        7
<PAGE>
     Consistent with our policy to protect our proprietary technologies, we have
submitted  three preliminary patent applications to the United States Patent and
Trademark  Office.  These  patent  applications  will  cover  specific  design
configurations  that  are  responsible  for  our  improved  vapor  detection
sensitivity.

     We  are  developing several versions of the systems to serve these markets.
We  are  developing a table-top unit, which can be used to screen passengers and
carry-on  baggage  in  airports. We are also developing a portable system, which
can  be  used  to  replace  bomb-sniffing dogs to clear buildings, aircrafts, or
ships  where  hidden  bombs are believed to exist. We plan to first market these
systems  to  U.S.  government  agencies  for  use  in  airports  and  government
buildings.  We have signed a Cooperative Research and Development Agreement with
an  agency of the Department of Transportation which will permit the Company and
the  government  to exchange critical test data and for the Company to deliver a
certain  number  of  units  to  the Department of Transportation for independent
evaluation  and  field  testing.

     The electronic detection system does not change our current operational and
spending  focus.  Our  operations and spending continue to focus on the sales of
our semiconductor, medical coatings and prostate seed products. Additionally, we
continue  to  fund  research  and  development  through  government  grants  in
accordance  with  the provisions of the respective grant awards. We will require
additional  funding  in  order  to  advance  the  commercial  development of the
electronic  detection system. We will attempt to obtain such financing by: (i) a
government  grant,  (ii)  the  exercise  of the redeemable common stock purchase
warrants, or (iii) private financing. However, there can be no assurance that we
will  be  successful  in  our  attempts  to  raise  such  additional  financing.

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 our Vice President of Marketing and Sales
who is assisted by product managers or sales representatives in each area.  U.S.
sales  of  the  I-PlantTM  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 our President, our Chief
Scientist,  and  our  scientific  staff.

Medical  Sales  and  Marketing

     We  have partnered with MED-TEC to market and sell our radioactive prostate
seeds within the United States.  We have partnered with another organization for
sales and marketing in the U.K.  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.


                                        8
<PAGE>
     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.

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,
the  National  Aeronautics  and  Space  Administration,  and  the  Environmental
Protection  Agency.

RESEARCH  AND  DEVELOPMENT

     Our  technical  staff  consists  of  thirteen  scientists  and  engineers,
including  seven  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  program  of the U.S. Government.  Under the Small Business
Innovative  Research  program,  we retain the right to patent anything developed
pursuant  to  the  program,  however,  the  US Government retains a royalty free
license  to  use  the  technology.  We  have  obtained  over  $6 million in U.S.
government  grants  and  contracts  over  the  past 10 years.  Each research and
development  agreement  with  our corporate partners defines the rights to these
agreements.  Since  September 2000, no corporate partner has funded research and
development  programs.

     We  spent  approximately  $2,311,000  and  $2,975,000  on  research  and
development  in  the  fiscal  years  ended June 30, 2002 and 2001, respectively.
Approximately  $770,000 and $747,000 of research and development activities were
borne  directly  by  customers  in  2002  and  2001,  respectively.

     One  of  our research and development programs that we completely funded is
the  development  of  our trace explosives detection systems. Since May 1999, we
have  spent  approximately  $271,000  on  this  program.

PATENTS  AND  PROPRIETARY  TECHNOLOGY

     It  is  our  policy  to  protect  our  proprietary position by, among other
methods, filing United States and foreign patent applications. We currently have
twenty  (20)  issued  United  States  patents  and ten (10) United States patent
applications  pending.  We  also  have  two  international  patent  applications
pending.  Of the twenty (20) patents issued, four (4) are of material importance
to  us  and  are in the field of brachytherapy.  These four (4) material patents
expire  in  the  years  2017  through  2019.

     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.


                                        9
<PAGE>
     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.

     We  also  rely  on  unpatented  proprietary  technology,  trade secrets and
know-how  and  we do not know if others will independently develop substantially
equivalent  proprietary  information,  techniques  or  processes,  that  such
technology or know-how will not be disclosed or that we can meaningfully protect
our rights to such unpatented proprietary technology, trade secrets or know-how.
Although  we  have entered into non-disclosure agreements with our employees and
consultants,  we  cannot  be  sure  such  non-disclosure agreements will provide
adequate  protection  for  our  trade  secrets  or  other  proprietary know-how.

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  our  medical  device  manufacturers  or
licensees.  We  have  received  Food and Drug Administration 510(k) clearance to
market  our  I-PlantTM Iodine-125 radioactive seed for the treatment of prostate
cancer.

     In the 510(k) clearance procedure, a company must show that its new product
is "substantially equivalent" to a medical device that is currently approved for
use.  This  process  requires an application to the FDA for 510(k) clearance. If
the  FDA  determines  that  a  product  is in fact substantially equivalent to a
product  that has already been approved for use, the FDA grants 510(k) clearance
for the sale of the new product. This process is quicker and less expensive than
obtaining approval for an entirely new product. We obtained 510(k) clearance for
our  I-PlantTM  prostate  seed  product  in  May  1999.

     Supplemental  or  full  pre-market approval reviews require a significantly
longer  period.  A  pre-market  approval will be required for our interventional
cardiology  devices.  The pre-market approval process begins with an animal test
that  leads to the preparation of an Investigational Device Exemption granted by
the  FDA.  The Investigational Device Exemption allows the company to do a small
clinical  trial.  If successful, a larger, multi-institutional clinical trial is
performed.  The  results  of  both  clinical  trials  are  then summarized in an
application  to  the  FDA  for  approval  to  market  the  product.

     We  currently  have only one device under development that will require the
pre-market  approval  process.  This  proposed  device  is  a  polymer  covered
drug-eluting  stent.  This  device  is  now being tested within the animal trial
stage  of  the  process.  An application for an Investigational Device Exemption
will not be processed and submitted until completion of the animal trial and the
evaluation  of  the  success and viability of moving this proposed device to the
Investigational  Device  Exemption  stage.

     Significantly  more  time  will  be  required to commercialize applications
subjected  to pre-market approval calendar 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.

     Our  medical  device  manufacturing facility operates under the FDA Quality
Control  Regulations.  Our  facility,  located  in Wakefield, Massachusetts, was
registered  with  the  FDA in July 2000 prior to the introduction and commercial
sales  of  our radioactive prostate seed product. Our facility is subject to the
FDA's  inspection  at any time. To date, the FDA has not inspected the facility.
During  an  FDA  inspection,  however,  the  FDA  has  the  authority  to demand
corrective  actions  for  any  deficiencies  in  adherence  to  Quality  Control
Regulations,  order  product  recalls,  and  the cessation of operations and can
require that a factory cease operations until it is brought into compliance with
these  regulations.  We  employ  a  senior  quality control specialist to ensure
adherence  to  FDA  Quality  Control  Regulations.

     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.


                                       10
<PAGE>
     In  order  to ship our radioactive prostate seed product from our facility,
we  are  required  to  obtain  a radioactive sealed source registration from the
Massachusetts  Department  of  Health,  Labor  and  Industries. We obtained this
certificate prior to the commencement of the commercial sales of our radioactive
prostate  seed  product  in  the  first  half  of  fiscal 2001. This certificate
requires  no  maintenance  or  renewal  as long as the design of the radioactive
prostate  seed is not changed. The Massachusetts Department of Health, Labor and
Industries  can,  however,  terminate  this  certification  in  the  event of an
accident  that  would  require  a  redesign  of the product. On July 28, 1999 we
received  our  Radioactive  Sealed  Source  Registration  Certificate, a Nuclear
Regulatory  Commission  requirement,  administered  by  the  Commonwealth  of
Massachusetts  as  a  Nuclear  Regulatory  Commission  Agreement  State.

     The  State  Radiation Control Program issued to us a license to manufacture
and  distribute  our  radioactive  prostate  seed  product.  The State Radiation
Control  Program  performs  annual  inspections  of  our  facility.  Since  the
commencement of commercial sales of our radioactive prostate seed product in the
first half of fiscal 2001, the State Radiation Control Program has performed two
(2)  inspections  of  the facility and identified no violations or deficiencies.

     Furthermore,  our  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  require  special
reporting  to the United States Environmental Protection Agency and/or its state
counterparts. We are 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.

     We  have  no  regulatory approval for our explosives detection system as we
have  not submitted anything for approval. Furthermore, we cannot guarantee that
we  will  submit  our  explosives  detection  system  for  regulatory  approval.

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, turnaround
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.


                                       11
<PAGE>
     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.

     In the trace explosives detection industry, Ion Track Instruments Corp. and
the Barringer Division of Smiths Plc. are our two primary competitors. These two
companies  also  use  ion mobility spectrometry, however, they use a radioactive
Nickel-63 source to ionize the explosive molecules. This technology differs from
our  technology  because  we  use  an  ultraviolet laser to ionize the vapor. We
believe  our  technology  provides  our  device  with  greater  capabilities.

     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.

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, 2002, we had 80 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  42,722  square  foot leased facility in Wakefield,
Massachusetts.  The  facility is located approximately 15 miles north of Boston.
We  have  a lease for 25,422 square feet of the aggregate space which expires in
May 2007 and a sublease for 17,300 square feet which expires in March 2003, with
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, we are 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, we are not
currently aware of any legal proceedings or claims that we believe are likely to
have  a  material  effect  on  our  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, 2002.


                                       12
<PAGE>
                                     PART II



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

MARKET  PRICE

     As of June 30, 2002 the our 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 we were 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, 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

     FISCAL YEAR ENDED JUNE 30, 2002:

     Quarter ended September 30        $ 9.600  $ 7.200
     Quarter ended December 31          14.900    7.550
     Quarter ended March 31             13.520    9.690
     Quarter ended June 30              13.700   10.710

NUMBER  OF  STOCKHOLDERS

     As  of August 31, 2002, there were approximately 757 shareholders of record
of  our  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

     On  October  7,  2002,  we  issued 250,000 shares of Series A 7% Cumulative
Convertible  Preferred Stock having a stated value of $10 per share, pursuant to
a  Securities  Purchase  Agreement  executed  on October 7, 2002 with the Laurus
Master  Fund,  Ltd.  We received $2,500,000 in gross proceeds, less a management
fee  and  placement agent fee of approximately $300,000, and related transaction
costs  estimated  to  be  an  additional  $100,000. The terms of the Series A 7%
Cumulative  Convertible  Preferred  Stock  provide for repayment in cash or with
shares of common stock beginning three months subsequent to the execution of the
Securities  Purchase  Agreement.  If  the market price, determined as the lowest
closing price for the eleven-day period prior to a conversion date, is less than
$5.70,  then  for  repayment  purposes,  the  common stock will be valued at the
greater  of  83%  of the average market price of the three lowest closing prices
during  the  30 trading days immediately preceding the conversion date or $2.02.
Otherwise,  the fixed conversion price is $5.19. We also issued to Laurus Master
Fund, Ltd., a warrant to purchase 55,000 shares of our common stock at $6.23 per
share.  The  Securities Purchase Agreement also provides for a security interest
in  substantially  all  of  our  assets.


                                       13
<PAGE>
     This  private  placement  was  exempt from registration pursuant to Section
4(2)  of  the  Securities  Act  of  1933,  as  amended.

ITEM  6.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

RESULTS  OF  OPERATIONS

Year Ended June 30, 2002 vs. June 30, 2001

     Revenues.  Total  revenues for the year ended June 30, 2002 were $6,621,000
as  compared  to $4,368,000 for the comparable prior year period, an increase of
$2,253,000  or 52%. The increase is attributable primarily to revenue recognized
from  the  new  I-Plant seed which we began shipping in the first half of fiscal
2001.  I-Plant  prostate  seed  sales  for  the  year  ended  June 30, 2002 were
$2,850,000  as  compared  to  $714,000  for the comparable prior year period, an
increase of $2,136,000 or 299%. In addition to the marked increase and growth in
I-Plant  seed  sales  since  commercial introduction, we have also recognized an
approximate  14%  increase  in medical coating revenues, realized primarily from
increased growth in revenues generated from our principal customer in orthopedic
implants, and a 15% increase in our semiconductors business. The 15% increase in
the  semiconductor  business  is  a  result of the addition of new customers who
require  outsourced  ion  implantation  services  for  research  and development
activities. We also realized a nominal increase of 3% in government contract and
grant  revenue.

     Two  of  our  major customers, the Howmedica/Osteonics Division of Stryker,
Corporation  and  Biomet, Incorporated, accounted for 26% of revenue in the year
ended  June 30, 2002 and 34%, for the comparable prior year period. Our sales to
these  customers  decreased as a percentage of total revenues as a result of the
affect  of  the  overall increase in total revenues resulting from growth in our
prostate  seed  sales.  MED-TEC,  our  exclusive  distributor  of prostate seeds
accounted  for  43% of revenues for the year ended June 30, 2002 and 16% for the
comparable  prior  year  period.  Our  government  contract  and  grant  revenue
accounted for 12% and 17% of revenue for the years ended June 30, 2002 and 2001,
respectively. Our grant revenues, principally Small Business Innovative Research
programs,  fluctuate  due  to: (a) our desire to obtain external funding for our
research  and  development  efforts; (b) the availability of government funding;
and  (c)  the  time  required to obtain approval of a grant application. We have
been successful in obtaining Small Business Innovative Research grants in fiscal
2002  and 2001. We expect to continue to seek continuation or replacement of its
existing  Small  Business  Innovative  Research  grants  in  fiscal  2003.

     Cost  of  Product  and  Contract  Research  Revenues.  Cost  of product and
contract  research  revenues  for the year ended June 30, 2002 was $5,185,000 as
compared  to  $4,247,000  for  the  comparable prior year period, an increase of
$938,000 or 22%. This increase in cost is primarily attributable to the increase
in  cost  of product sales due to: (a) overall increase in sales volume; and (b)
additional  costs  related  to  the  growth  in radioactive prostate seed sales,
principally  personnel costs and depreciation expense related to new equipmentAs
a  percentage  of  revenues,  the cost of product and contract research revenues
decreased  to  78%  for  the year ended June 30, 2002 as compared to 97% for the
comparable  prior  year period. The decrease in cost as a percentage of revenues
is  primarily  attributable to the overall increase in sales volume, principally
the  growth  in volume of prostate seed sales which have the affect of absorbing
the  fixed costs associated with the production of prostate seeds. During fiscal
2002 and 2001, we utilized Small Business Innovative Research grants as a source
of funding for our research and development efforts. Our obligation with respect
to  these  grants  is  to  perform  the  research  on  a  best-efforts  basis.
Periodically,  we  may  continue our research and development efforts related to
these  projects  at  our  own  expense. During fiscal 2002 and 2001, we incurred
approximately $239,000 and $728,000, respectively, in excess of amounts received
under  the  terms  of  the  Small  Business  Innovative Research grants. We have
classified  such  costs  as  cost  of  product and contract research revenues to
permit  comparability  between  periods.  This cost is considered company-funded
research  and  development.


                                       14
<PAGE>
     Research  and  Development.  Research  and development expense for the year
ended  June 30, 2002 was $1,302,000 as compared to $1,500,000 for the comparable
prior  year  period, a decrease of $198,000 or 13%. This decrease is primarily a
result  of the cessation of the costs incurred in the development of the I-Plant
seed  during  fiscal  2001  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,  2002  were $2,314,000 as compared to
$2,319,000  for  the  comparable prior year period, a decrease of $5,000 or less
than  1%.  Included  in  selling,  general and administrative costs for the year
ended  June  30,  2002  was  approximately  $208,000  related  to  stock  based
compensation  as  compared  to $320,000 for the comparable prior year period. Of
the $320,000 of stock based compensation in fiscal 2001, $259,000 of these costs
reflect  non-cash  charges  that  were  related to a separation agreement with a
former  officer  (See Note 13). Accordingly, selling, general and administrative
costs  for  the  year  ended  June  30, 2002, net of the charges for stock based
compensation, were $2,106,000 as compared to $1,999,000 for the comparable prior
year  period,  an increase of $107,000 or 5%. This nominal increase reflects our
addition  of  certain  administrative  personnel needed to support our continued
growth,  however,  management  continues  to  exercise  strict  cost containment
measures  to  ensure  control  over  our  administrative  spending.

     Other  Income  and  Expenses,  Net.  For  the  year ended June 30, 2002, we
recorded  other  expense,  net  of  $14,000  as compared to other income, net of
$118,000 in the comparable prior year period. The decrease is primarily a result
of  a  lower  available  cash  balance  upon  which to generate interest income.

     Net  Loss.  Net  loss  for  the  year ended June 30, 2002 was $2,194,000 as
compared  to  $3,580,000 for the comparable prior year period, a decrease in net
loss  of  $1,386,000  or  39%.  Included in net loss for the year ended June 30,
2002 is an approximate charge of $208,000 related to stock based compensation as
compared  to $320,000 in the comparable prior year period.  Accordingly, the net
loss  for  the  year ended June 30, 2002, before giving effect to the charge for
stock  based  compensation  is  $1,986,000  as  compared  to  $3,260,000 for the
comparable  prior  year  period.  This reduction in net loss is attributable, in
part,  by  the  marked  increase in total revenues, especially the growth in the
sale  of  the  I-PlantTM  prostate seed, and the maintenance of stable operating
expenses  pursuant  to  our  cost  containment  measures.  Our  earnings  before
interest,  taxes,  depreciation,  amortization  and  stock  based  compensation
("Adjusted  EBITDA")  for  the year ended June 30, 2002 were a negative Adjusted
EBITDA of $1,218,000 as compared to a negative Adjusted EBITDA of $2,725,000 for
the  comparable  prior  year  period,  an  improvement  in  Adjusted  EBITDA  of
$1,510,000  or  55%.  We  calculated  Adjusted  EBITDA  by  adding depreciation,
amortization  and  stock based compensation of $962,000 and $973,000 to the loss
from  operations  of  $2,180,000 and $3,698,000 for the year ended June 30, 2002
and  2001,  respectively.  Adjusted  EBITDA  is  not  comparable  to  earnings
determined  in  accordance  with  generally  accepted  accounting  principles.
Accordingly,  Adjusted  EBITDA  as  determined  by  us  may not be comparable to
similarly  titled  measures  reported  by other companies.  We believe that this
computation  is  useful  in  analyzing operating performance, but should be used
only  in conjunction with results reported in accordance with generally accepted
accounting  principles.  This  improvement in Adjusted EBITDA primarily reflects
the  positive impact of the increasing sales volume of the I-Plant prostate seed
compared  to  our manufacturing fixed cost structure.  The basic and diluted net
loss  per share for the year ended June 30, 2002 was $0.36 per share as compared
to  $0.62 per share for the comparable prior year period, a decrease in net loss
of  $0.26  or  42%.

     On  March  28,  2002, we extended the expiration date from June 23, 2002 to
June 30, 2003, of 1,000,000 warrants issued on June 23, 1999 in conjunction with
our  initial  public  offering.  We  did  not receive any consideration from the
holders  of  the  warrants.  We  have recognized this transaction as a preferred
distribution  based  upon  the  estimated  fair  value  of  the  extension  of
approximately  $530,000. The effect of this transaction had no overall effect on
stockholders'  equity  or  cash,  but increased net loss per share applicable to
common  shareholders  by  $0.09  per  share.  The  basic  and  diluted  net loss
applicable to common shares per share for the year ended June 30, 2002 was $0.45
per share as compared to $0.62 per share for the comparable prior year period, a
decrease  in  net  loss  applicable  to common shares per share of $0.17 or 27%.


                                       15
<PAGE>
LIQUIDITY  AND  CAPITAL  RESOURCES

     As  of  June  30,  2002  we had approximately $1,014,000 in cash, including
$35,000  of  restricted  cash,  in  the form of cash and short-term investments.
During  the  year  ended  June  30,  2002,  operating  activities  used  cash of
approximately  $1,290,000.  Net  cash  used  by  operating  activities primarily
reflects the $2,194,000 net loss, a $210,000 increase in accounts receivable and
a  $103,000  increase  in  inventory;  offset by a $251,000 increase in accounts
payable, stock based compensation of $208,000, and depreciation and amortization
of  $754,000.  During  the  year  ended June 30, 2002, investing activities used
cash  of  approximately  $951,000,  which was primarily attributable to $891,000
used  in the purchases of property and equipment and $60,000 for the purchase of
60,000  shares  of  CardioTech International Inc. common stock.  During the year
ended  June  30, 2002, financing activities provided approximately $2,003,000 in
cash.  Net  cash  provided  by  financing activities primarily includes proceeds
from  the  exercise  of stock options in the approximate amount of $207,000; the
exercise of warrants in the approximate amount of $638,000, the sale of treasury
stock  in the amount of $253,000; and the issuance of $1,500,000 of common stock
through  a  private placement, net of $409,000 of transaction costs and warrants
having  a fair value of $55,000.  Net cash provided by financing was also offset
by  payments  on  our  equipment  term  loan  of  $177,000.

     We  had  a  Revolving  Credit  Facility  ("Credit  Facility")  and  have an
Equipment  Term  Loan  ("Term Loan") pursuant to a Loan Agreement with its bank.
The  Revolving  Credit  Facility  was  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, our Credit Facility expired. We chose not to renew
the  Credit  Facility  and  we have no further borrowing rights or availability.
Additionally,  there  were  no borrowings on the Credit Facility during the year
ended  June  30,  2002  and  we have no balances outstanding with respect to the
expired  Credit  Facility  as  of  June  30,  2002.

     Our  Term  Loan  provided  a  facility  of $1,500,000, of which we utilized
$750,000.  Interest  is  payable  monthly  at  1%  above  the  bank's  base rate
commencing  February  1998  (5.4%  is the weighted average interest rate for the
year  ended  June  30,  2002).  As of June 30, 2002, the balance outstanding was
$235,000  and  no  further  borrowings  are  permitted  on  the  Term  Loan.

     Our  Loan  Agreement  requires  compliance  with  two  financial  covenants
including minimum levels of net worth and net loss limits. At June 30, 2002, our
net  loss  covenant was greater than the required amount. On September 28, 2001,
we  and  Stephen Bunker, one of our directors and officers, fully collateralized
the  Term Loan and executed pledge agreements with respect to the collateral. As
of  June 30, 2002, one of our directors and we collateralized the Term Loan with
$35,000 and $200,000 of cash, respectively. Our bank has waived its rights under
the  Loan  Agreement  with  respect  to this financial covenant at June 30, 2002
through  and  including  June  30,  2003.

     On October 7, 2002, we paid the remaining balance of principal and interest
of  approximately  $192,000  in  connection  with  the  Series  A  7% Cumulative
Convertible  Preferred  Stock  financing  and  terminated  the  Term  Loan.

     On  October  10,  2001,  we 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 our, is subject
to  a  security  agreement  providing  a second lien on substantially all of our
assets,  and  provides  for  a  $15,000 commitment fee which was paid during the
three  month  period  ended March 31, 2002. CardioTech and we mutually agreed to
terminate the Line of Credit on March 29, 2002. There were no borrowings on this
Line  of  Credit from inception through its termination on March 29, 2002. As of
June  30,  2002,  there  were no borrowings outstanding or other obligations due
CardioTech  in  respect  of  the  Line  of  Credit.

     The Company received $1,500,000 in a private placement with an investor and
issued  145,349  Units, each consisting of one share of its common stock and one
common  stock  purchase  warrant.  Two warrants are exercisable for one share of
its  common  stock  at  an  exercise price of $12.00 per share.  Originally, the
exercise  price  of  the  warrants  was  $12.90  per  share.  Per  the financing
agreement,  if  the  registration  statement  is  not  effective  within 90 days
following  the  closing date of the financing the exercise price of the warrants


                                       16
<PAGE>
is  reduced  5%  for  the  first month and 2% for each additional month that the
registration  statement  is  not  effective  for  up  to 24 months following the
closing  date.  Total  consideration  received was $1,500,000, which reflected a
discount  of  20%  from the market price.  This discount reflects the best terms
available  to  the  Company  in  the  private placement market during its second
fiscal  quarter  of  2001.

     In  connection with the transaction, the Company issued additional warrants
to the investor's general counsel to purchase 10,000 shares at an exercise price
of  $12.00  per share and a document preparation fee of $5,000. The Company also
engaged  two  placement agents who received warrants to purchase an aggregate of
12,000  shares  of the Company's common stock at an exercise price of $12.00 per
share  and  a  placement  fee of $105,000. Originally, the exercise price of the
warrants  was  $12.90  per  share.  Per  the  financing  terms agreement, if the
registration  statement  is  not  effective within 90 days following the closing
date  of  the financing the exercise price of the warrants is reduced 5% for the
first  month and 2% for each additional month that the registration statement is
not  effective  for  up  to  24  months following the closing date. All warrants
pursuant  to  this transaction are exercisable at any time prior to December 12,
2006.  Mr. Pasquale Ruggieri, a member of the Company's Board of Directors, also
serves  as  an  investment  banker for one of the placement agents in connection
with  this  transaction.

     The  Company  has  recorded the proceeds from the private placement, net of
the  discount  of  $300,000  and  offering  costs  of  $409,000 paid in cash and
warrants  having  a  fair  value  of  $55,000,  as  a  capital  contribution.

     Between  December 18, 2001 and January 3, 2002, warrants to purchase 70,900
shares  of  our  common  stock  were exercised at an exercise price of $9.00 per
share  and  we  received  gross  proceeds  of  approximately  $638,000.

     We are developing several explosive detection systems that could be used in
airports,  public  and  government buildings, and sporting event facilities. The
systems use our proprietary technology, which includes the use of laser beams in
combination  with  ion  mobility  spectrometry,  to electronically detect minute
quantities  of  explosive  vapor  molecules  in  the  air. This project has been
ongoing  since approximately May 1999. In November 2001, we developed a portable
prototype and in December 2001 we demonstrated it to an independent third party.
Following this demonstration, management decided to pursue the technology and to
prepare  for  submission  a  research and development agreement by June 2002. At
present,  we  are  developing  both  portable  and  bench-top systems for use in
airports  and  Department  of  Defense  facilities.  Prototype  units  have been
transported  to  the  Department  of  Defense  and  Department of Transportation
facilities  for  demonstration  and  evaluation.

     This  project  involved  a  certain  amount  of one our employee's time and
certain  outside  contractors.  This  project  was  undertaken  by  our research
personnel  who  are constantly researching new applications for this technology.
The  development  of  new  applications  is  typically funded through government
grants  or  internal  funding.  Originally,  the  Company  funded a research and
development  program  for the electronic detection system to produce enough data
to  write  grant  proposals  for  the Department of Defense to detect unexploded
bombs  and  mines.

     The  Department  of  Transportation  has  stated  that the U.S. could spend
between  $1.9  billion  and  $2.5 billion on equipment for the detection of bulk
amounts  and  trace amounts of explosives. However, we do not know how much will
be  allocated  to  each  of  trace  and  bulk equipment or how much allocated to
equipment  for the detection of trace amounts of explosives will be allocated to
devices  like  ours.

     In  June 2000, we developed our first generation device, which demonstrated
sensitivity to the explosive TNT. In June 2001, we developed a second generation
prototype with increased sensitivity and selectivity. This device can detect and
specify  an  increasing  number of compounds within various explosive materials.
The  explosives that have been tested to date are TNT, RDX, PETN, EGDN, and DNT.
RDX  is  the  primary  component  of C3 and C4 explosives, such as Datasheet and
Semtex,  as  well  as certain types of black powder explosives. We believe these
explosives  represent the majority of the explosives presently used in terrorist
activities. After the attack on the World Trade Center occurred on September 11,
2001,  management  made  the  decision  to  continue the internal funding of the
project  rather  than await funding through government grants. In December 2001,
we  successfully  demonstrated our working prototype of the electronic detection
system  to  several  third  parties.  Our  electronic  detection system has been


                                       17
<PAGE>
subjected  to  controlled  testing  by third parties and successfully detected a
sample  of  C4.  As a result of the successful demonstration, we believed it was
appropriate  to  further  pursue  the  commercial  development of our electronic
detection system device. We are developing a pre-production electronic detection
system that we believe will be completed prior to the end of calendar year 2002.
This  pre-production  electronic  detection  system  will  form  the  basis of a
commercial  unit  and  we  will  submit  it  to  the  Transportation  Security
Administration  for  evaluation.

     The electronic detection system detects microscopic quantities of explosive
molecules  in  the  air.  The  device does not use X-rays and does not produce a
danger to personnel operating the device or scanned by the device. The device is
a  sensor  that  receives  signals  that  are  already  in  the environment. Two
companies  market  trace  electronic detection systems (Ion Track Instruments, a
subsidiary  of  General Electric, and Smiths Plc, a U.K. publicly held company).
Both  of  these  competitors  use  Ion Mobility Spectrometry in their respective
devices  for  the  detection  and  classification  of  explosive  molecules.
Additionally,  both of these competitors use Nickel-63, a radioactive source, to
ionize  the  explosive  vapors.  Our  electronic  detection system also uses Ion
Mobility  Spectrometry  technology  to detect and classify explosives molecules,
however,  our  electronic  detection  system  uses  a  laser  beam to ionize the
explosive molecules. The laser yields greater sensitivity than Nickel-63 and has
the  potential  to  detect  explosives without physically rubbing or swiping the
outside  of  a  container  or luggage. Currently, the trace electronic detection
systems  require  the  operator  to  physically  rub or swipe the articles to be
tested.  The  swab  or  cloth  is  then placed into electronic detection system,
heated  to  evaporate  some  of  the explosive particles, and then directs these
vapors  into  the  Ion  Mobility  Spectrometry  device. Our electronic detection
system  uses  a  sensor  that  does  not  require physical contact to screen the
article  to  detect  trace  residues  and  detects the explosives from the vapor
alone. Since our device does not use any radioactive source, management believes
it  is  safer  than trace explosives residue detection systems currently in use.

     We  believe  its  explosives detection system is roughly 833 to 4,500 times
more  sensitive  than  an  explosives-sniffing  dog. This belief is based on the
assumption  that  an explosives-sniffing dog is as sensitive to explosives as it
is  to  narcotics.

     We  have  tested  for false positives and false negatives by using numerous
non-explosive  organic  vapors. The electronic detection system properly did not
register  the  existence of non-explosives. The accepted testing methodology for
false  positives  requires  testing  on  a  commercially  available  electronic
detection  system  and  is  usually  performed  in  the  context  of  a specific
application,  such  as baggage screening, personnel screening, locating bombs in
buildings,  and  cargo  or auto screening. The official false positive and false
negative  testing  must  be  done by an independent third party agency, however,
such  independent  testing  has  not  yet  been  performed.

     Management believes the material competitive disadvantage of our electronic
detection system is the cost. We believe that our device will be 30% to 40% more
expensive  than  Ion  Mobility  Spectrometry based electronic detection systems,
which  are  approximately  $40,000 to $50,000 per unit. However, we believe that
the  efficiency of our electronic detection system and the resultant improvement
in  throughput  of  the  quantity of carry-on articles and personnel that can be
screened  will  provide  a  cost  justification.

     Consistent with our policy to protect our proprietary technologies, we have
submitted  three preliminary patent applications to the United States Patent and
Trademark  Office.  These  patent  applications  will  cover  specific  design
configurations  that  are  responsible  for  our  improved  vapor  detection
sensitivity.

     We  are  developing several versions of the systems to serve these markets.
We  are  developing a table-top unit, which can be used to screen passengers and
carry-on  baggage  in  airports. We are also developing a portable system, which
can  be  used  to  replace  bomb-sniffing dogs to clear buildings, aircrafts, or
ships  where  hidden  bombs are believed to exist. We plan to first market these
systems  to  U.S.  government  agencies  for  use  in  airports  and  government
buildings.  We have signed a Cooperative Research and Development Agreement with
an  agency of the Department of Transportation which will permit the Company and
the  government  to exchange critical test data and for the Company to deliver a
certain  number  of  units  to  the Department of Transportation for independent
evaluation  and  field  testing.


                                       18
<PAGE>
     The electronic detection system does not change our current operational and
spending  focus.  Our  operations and spending continue to focus on the sales of
our semiconductor, medical coatings and prostate seed products. Additionally, we
continue  to  fund  research  and  development  through  government  grants  in
accordance  with  the  provisions of the respective grant awards. We may require
additional  funding  in  order  to  advance  the  commercial  development of the
electronic  detection  system.  If  such additional funding is required, we will
attempt  to  obtain such financing by: (i) a government grant, (ii) the exercise
of  the  redeemable  common stock purchase warrants, or (iii) private financing.
However, there can be no assurance that we will be successful in our attempts to
raise  such  additional  financing.

     On  October  7,  2002,  we  issued 250,000 shares of Series A 7% Cumulative
Convertible  Preferred Stock having a stated value of $10 per share, pursuant to
a  Securities  Purchase  Agreement  executed  on October 7, 2002 with the Laurus
Master  Fund,  Ltd.  We received $2,500,000 in gross proceeds, less a management
fee  and  placement agent fee of approximately $300,000, and related transaction
costs  estimated  to  be  an  additional  $100,000. The terms of the Series A 7%
Cumulative  Convertible  Preferred  Stock  provide for repayment in cash or with
shares of common stock beginning three months subsequent to the execution of the
Securities  Purchase  Agreement.  If  the market price, determined as the lowest
closing price for the eleven-day period prior to a conversion date, is less than
$5.70,  then  for  repayment  purposes,  the  common stock will be valued at the
greater  of  83%  of the average market price of the three lowest closing prices
during  the  30 trading days immediately preceding the conversion date or $2.02.
Otherwise,  the fixed conversion price is $5.19. We also issued to Laurus Master
Fund, Ltd., a warrant to purchase 55,000 shares of our common stock at $6.23 per
share.  The  Securities Purchase Agreement also provides for a security interest
in  substantially all of our assets. We utilized approximately $192,000 to repay
the  remaining outstanding Term Loan to a bank on October 7, 2002. Additionally,
the  Securities Purchase Agreement contains default covenants, including certain
financial  covenants.  We  will  utilize  the  proceeds  of  this  financing  to
commercialize  our  explosives  detection  system, purchase certain equipment to
expand  our  semiconductor  business,  and for general working capital purposes.

     We  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. Our 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  our  development of commercialization activities and
arrangements;  and  the purchase of additional facilities and capital equipment.

     As  of  June 30, 2002, we were conducting our operations with approximately
$1,014,000  in cash and cash equivalents. We estimate such amounts combined with
our  cash  flow from operations and borrowing arrangements will be sufficient to
fund  our  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.

Critical  Accounting  Policies  and  Estimates

The  Company's  significant  accounting  policies are described in Note 1 to the
financial  statements  included  in  Item  7  of this Form 10-KSB. The Company's
discussion and analysis of its financial condition and results of operations are
based upon the financial statements, which have been prepared in accordance with
accounting  principles  generally accepted in the United States. The preparation
of  these  financial  statements  requires  the  Company  to  make estimates and
judgments  that affect the reported amounts of assets, liabilities, revenues and
expenses,  and  related  disclosure  of contingent assets and liabilities. On an
on-going  basis, the Company evaluates its estimates, including those related to
bad  debts,  product  returns,  inventories,  investments, intangible assets and
warranty  obligations.  The Company bases its estimates on historical experience
and  on  various  other assumptions that are believed to be reasonable under the
circumstances,  the  results  of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other  sources.  In  the past, actual results have not been materially different
from  the  Company's estimates. However, results may differ from these estimates
under  different  assumptions  or  conditions.

The  Company has identified the following as critical accounting policies, based
on  the  significant  judgments  and  estimates  used in determining the amounts
reported  in  its  financial  statements:

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.

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.

Accounts  Receivable  and  Allowance  for  Doubtful  Accounts

The  Company  maintains  allowances  for  estimated  losses  resulting  from the
inability  of  its  customers  to make required payments.  Judgments are used in
determining  the  allowance for doubtful accounts and are based on a combination
of  factors.  Such  factors include the historical collection experience, credit
policy  and  specific  customer  collection  issues.  In circumstances where the
Company  is  aware  of  a  specific  customer's  inability to meet its financial
obligations  to  us (e.g., bankruptcy filings), we record a specific reserve for
bad  debts  against  amounts  due to reduce the net recognized receivable to the
amount  we  reasonably  believe  will  be  collected.  We perform ongoing credit
evaluations  of  our customers and continuously monitor collections and payments
from  our  customers.  While  actual bad debts have historically been within our
expectations  and  the  provisions established, we cannot guarantee that we will
continue  to  experience  the  same  bad debt rates that we have in the past.  A
significant  change  in  the  liquidity  or  financial  position  of  any of our
customers  could  result  in  the  uncollectibility  of  the  related  accounts
receivable  and  could adversely impact our operating cash flows in that period.


                                       19
<PAGE>
Sales  Returns  and  Allowances

The  Company  records  reductions  to revenue for estimated customer returns and
allowances.  We  record estimated allowances against revenues in the same period
the  revenue is recorded.  These estimates are based upon historical analysis of
our credit memo data and other known factors for pricing and disputes that arise
in the normal course of business. To date, allowances have not been significant.
Actual  returns  may  differ significantly from our estimates if factors such as
economic  conditions  or  competitive  conditions  differ from our expectations.

Inventories

We  value  our inventories at lower of cost or market. Cost is determined by the
first-in,  first-out  (FIFO)  method,  including  material,  labor  and  factory
overhead.  In  assessing  the  ultimate  realization  of inventories, management
judgment  is required to determine the reserve for obsolete or excess inventory.
Inventory on hand may exceed future demand either because the product is excess,
or  because the amount on hand is more than can be used to meet future need.  We
provide  for  the total value of inventories that we determine to be obsolete or
excess  based on criteria such as customer demand and changing technologies.  At
June  30,  2002, our inventory reserves were approximately $77,000 or 15% of our
gross  inventories.

Warranties

We  provide  for the estimated cost of product warranties at the time revenue is
recognized.  We  record  an  estimate  for warranty related costs at the time of
sale  based  on  our  actual historical return rates and repair costs. While our
warranty costs have historically been within our expectations and the provisions
established,  we  cannot  guarantee that we will continue to experience the same
warranty  return  rates or repair costs that we have in the past.  A significant
increase  in  warranty return rates or costs to repair our products could have a
material  adverse  impact  on our operating results for the period or periods in
which  such  returns  or  additional  costs  materialize.

Valuation  of  Certain  Marketable  Equity  Securities

The Company currently classifies its investment securities as available-for-sale
securities. Pursuant to SFAS No. 115 such securities are measured at fair market
value  in  the  financial statements with unrealized gains or losses recorded in
other  comprehensive  income until the securities are sold or otherwise disposed
of.  However,  in  accordance  with  SFAS No. 115 a decline in fair market value
below  cost  that  is  other than temporary is accounted for as a realized loss.

Property,  Plant  and  Equipment  and  Other  Assets

Property,  plant  and  equipment  is  recorded  at  cost and is depreciated on a
straight-line  basis  over the estimated useful lives of such assets. Changes in
circumstances  such as technological advances, changes to the Company's business
model  or  changes  in  the  Company's capital strategy can result in the actual
useful  lives  differing from the Company's estimates.  In those cases where the
Company  determines that the useful life of property, plant and equipment should
be  shortened,  the Company would depreciate the net book value in excess of the
salvage  value,  over  its  revised  remaining  useful  life  thereby increasing
depreciation  expense.

Long-lived  assets,  including fixed assets and intangibles other than goodwill,
are  reviewed  by  the  Company  for  impairment  whenever  events or changes in
circumstances  indicate  that  the  carrying amount of any such asset may not be
recoverable.  The  estimate  of  cash  flow  is  based upon, among other things,
certain  assumptions  about expected future operating performance. The Company's
estimates  of  undiscounted  cash  flow may differ from actual cash flow due to,
among  other  things, technological changes, economic conditions, changes to its
business  model  or  changes  in  its  operating  performance. If the sum of the
undiscounted  cash  flows  (excluding interest) is less than the carrying value,
the  Company  recognizes an impairment loss, measured as the amount by which the
carrying value exceeds the fair value of the asset.   In the year ended June 30,
2001,  certain  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 in the year
ended June 30, 2001.  There were no impairment write-offs in the year ended June
30,  2002.  The  aggregate  charge is included in the accompanying statements of
operations  as  research  and  development.

Commitments  and  Contingencies

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.  The  need  for  a  reserve  for  contingencies  is reviewed on a
quarterly  basis  to assure that the Company is properly reserved and if needed,
the  reserve  balances  are adjusted to account for changes in circumstances for
ongoing issues and the establishment of additional reserves for emerging issues.
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.  However,  changes  in the future could impact these determinations.

Income  Taxes

We  recognize  deferred  tax  assets  and  liabilities  based on the differences
between the financial statement carrying amounts and the tax bases of assets and
liabilities.  We regularly review our deferred tax assets for recoverability and
establish  a  valuation allowance based upon historical losses, projected future
taxable  income  and  the expected timing of the reversals of existing temporary
differences.  As  a  result of this review, we have established a full valuation
allowance  against  our  deferred  tax  assets.

Stock  Compensation  Expense

The  Company  accounts for its stock-based compensation plans in accordance with
the  provisions  of  Accounting  Principles Board Opinion No. 25, Accounting for
Stock  Issued  to  Employees  (APB 25), and related interpretations and complies
with  the  disclosure  provisions  provided  under  SFAS No. 123, Accounting for
Stock-Based  Compensation.  Under  APB 25, unearned compensation is based on the
difference, if any, on the date of grant between the fair value of the Company's
stock and the exercise price.   The Company accounts for grants to non-employees
in  accordance  with  FAS 123, Accounting for Stock Based Compensation, and EITF
96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees
for  Acquiring,  or in Conjunction with Selling Goods or Services.  Accordingly,
during  the  period  ended  June  30,  2002,  the Company recorded approximately
$208,000  related  to  such  measured  compensation  expense.


ITEM  7.    FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA


     Our  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                                          32
    Balance Sheet as of June 30, 2002                                       33
    Statements of Operations for the Years Ended June 30, 2001 and 2002     34
    Statements of Changes in Stockholders' Equity for the Years
       Ended June 30, 2001 and 2002                                         35
    Statements of Cash Flows for the Years Ended June 30, 2001 and 2002     36
    Notes to Financial Statements                                        37 - 48

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 us and our accountants during the fiscal
year  ended  June  30,  2002.

                                    PART III

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

     Section  16(a) of the Securities Exchange Act of 1934, as amended, requires
our  officers,  directors  and  persons  who beneficially own more than 10% of a
registered  class  of  our  equity  securities  ("ten  percent stockholders") to
file  reports  of  ownership  and  changes  in ownership with the Securities and
Exchange  Commission.  Officers,  directors  and  ten  percent  stockholders are
charged  by  the  SEC regulations to furnish us with copies of all Section 16(a)
forms  they  file.

     Based  solely  upon  a  review  of Forms 3, 4, and 5 and amendments thereto
furnished  to  us  during  the  past  fiscal  year,  and, if applicable, written
representations  that Form 5 was not required, we believe that all Section 16(a)
filing  requirements  applicable  to  our  officers,  directors  and ten percent
stockholders  were  fulfilled  in  a  timely  manner.


                                       20
<PAGE>
Name                 Age  Position                                Director Since
----                 ---  --------                                --------------

Anthony J. Armini*... 64  President, Chief Executive Officer and            1984
                          Chairman of the Board
Stephen N. Bunker*... 59  Vice President and Chief Scientist,               1988
                          Director
Alan D. Lucas........ 46  Vice President of Marketing, Sales and           _____
                          Business Development
David C. Volpe....... 47  Acting Chief Financial Officer                   _____
Shunkichi Shimizu**.. 57  Director                                          1998
Michael Szycher...... 64  Director                                          1999
Pasquale Ruggieri.... 69  Director                                          2001

     *    Executive Officer

     **   Mr. Shimizu resigned from our Board on July 31, 2002 to pursue other
          interests.

     Dr.  Anthony J. Armini has been our President, Chief Executive Officer, and
Chairman  of the Board of Directors since our incorporation.  From 1972 to 1984,
prior  to  our  founding,  Dr.  Armini  was  Executive  Vice  President at Spire
Corporation.  From  1967 to 1972, Dr. Armini was a Senior Scientist at McDonnell
Douglas  Corporation.  Dr. Armini received his Ph.D. in nuclear physics from the
University  of  California,  Los  Angeles  in 1967.  Dr. Armini is the author of
eighteen patents and five patents pending in the field of implant technology and
fourteen  publications  in  this  field.  Dr.  Armini  has  over thirty years of
experience  working  with cyclotrons and linear accelerators, the production and
characterization  of  radioisotopes,  and  fifteen  years  experience  with  ion
implantation  in  the  medical and semiconductor fields.  Dr. Armini has been on
the  Board  of  Directors  of  CardioTech International, Inc., a publicly traded
company  of  which  Dr.  Szycher is President and Chief Executive Officer, since
October  2000.

     Dr.  Stephen N. Bunker has served as our Vice President and Chief Scientist
since  1987  and a Director since 1988.  Prior to joining us, from 1972 to 1987,
Dr.  Bunker  was a Chief Scientist at Spire Corporation.  From 1971 to 1972, Dr.
Bunker  was  an  Engineer at McDonnell Douglas Corporation.  Dr. Bunker received
his  Ph.D.  in nuclear physics from the University of California, Los Angeles in
1969.  Dr.  Bunker  is  the  author  of  ten  patents  in  the  field of implant
technology.

     Alan  D.  Lucas  has  served  as our Vice President of Marketing, Sales and
Business  Development  since  March  1998.  Prior  to  joining  us,  Mr.  Lucas
accumulated  over  20  years  experience  in  various  marketing  and  business
development positions for medical device companies.  Most recently, from 1996 to
1998, Mr. Lucas was the Director of Corporate Development at ABIOMED, Inc.  From
1994  to  1996, Mr. Lucas was a strategic marketing and sales consultant focused
on  medical  technology.  From  1991  to  1994,  Mr.  Lucas  was the Director of
Marketing at Vision Sciences, Inc. a developmental stage medical device company.

     David  C.  Volpe has served as our Acting Chief Financial Officer since May
2001.  Mr.  Volpe has also been serving as the Acting Chief Financial Officer of
CardioTech  International,  Inc. since June 1999.  Since May 1996, Mr. Volpe has
been the Managing Director of VC Advisors, Inc., providing financial management,
business  development  and  financing expertise to a variety of companies in the
Internet,  medical,  telecommunications,  software  and  high technology fields.
From  1991 through 2000, Mr. Volpe was a senior financial executive with several
private  venture-backed and publicly held, technology based companies, including
Chief Financial Officer of Cynosure Inc. and FaxNet Corporation.  Prior to that,
Mr.  Volpe  was  a  Manager at Price Waterhouse focusing his efforts on emerging
growth,  technology-based  companies.  Mr.  Volpe  holds  a  B.S.  degree  from
California  State  University  and  is  a  member  of  the  AICPA.


                                       21
<PAGE>
     Shunkichi  Shimizu  joined  our  Board of Directors in March 1998.  In July
2002,  Mr.  Shimizu  resigned  from  our  Board  of  Directors  to  pursue other
interests.  He  has  been  the  Executive Vice President of TK Holdings, Inc. of
Delaware, a subsidiary of Takata Corporation since 1997. Takata Corporation is a
manufacturer of seat belts and airbags.  Prior to joining Takata Corporation, he
served  as  Head of International Financial Institutions Division at the Bank of
Tokyo-Mitsubishi,  Ltd.,  Headquarters.

     Michael  Szycher  joined  our  Board of Directors in December 1999.  He has
been  President  and  Chief  Executive  Officer  and  Director  of  CardioTech
International,  Inc.,  a  publicly  traded  manufacturer  of medical devices and
biocompatible  polymers since 1996.  From 1988 to 1996, Dr. Szycher was Chairman
and  Chief  Technology  Officer  of  Polymedica  Industries.  Dr.  Szycher  is a
recognized  authority on polyurethanes and blood compatible polymers.  He is the
editor  of  six  books  on  various  subjects  in blood compatible materials and
devices  and  the  author  of eighty original research articles.  Dr. Szycher is
also  Editor-in-Chief  of  the  quarterly  publication  Journal  of  Biomaterial
Applications.

     Pasquale  Ruggieri  joined our Board of Directors in December 2001.  He has
served  as  the  Vice  President of Investment Banking for Schneider Securities,
Inc.,  a full service broker dealer, since 1991.  Prior to that Mr. Ruggieri was
Executive  Vice  President and Director of Investment Banking for Jonathan Alan,
Inc.,  a full service broker dealer.  He holds a B.S. in Business Administration
from  Bryant  College.

ITEM  10.     EXECUTIVE  COMPENSATION

     The  following  table sets forth the aggregate cash compensation paid by us
with respect to the three fiscal years ended June 30, 2000, 2001 and 2002 to our
chief  executive  officer  and  each  of the three other most highly compensated
executive  officers  in  fiscal  2002.  We  have  no  other  executive officers.

<TABLE>
<CAPTION>
                                    SUMMARY COMPENSATION TABLE
                                                                                        Long-Term
                                                                                      Compensation
                                             Annual  Compensation                         Awards
                                           -----------------------                     -----------
                                                                                         Shares
                                                                      Other Annual       Options
                                                                    Compensation ($)   Underlying
Name and Principal Position          Year   Salary($)   Bonus ($)          (1)         Granted(#)
-----------------------------------  ----  -----------  ----------  -----------------  -----------
<S>                                  <C>   <C>          <C>         <C>                <C>

Anthony J. Armini*                   2002  $  182,533   $   75,000  $         10,993             -
 President, Chief Executive Officer  2001  $  129,133   $   25,000  $          6,255        90,000
 and Chairman of the Board           2000  $  129,837   $   25,000  $         19,386             -

Stephen N. Bunker*                   2002  $  126,539            -  $          5,759             -
Vice President,                      2001  $  101,545            -  $          4,872             -
Chief Scientist and Director         2000  $  118,213            -  $          6,514             -

David C. Volpe                       2002  $ 73,000(3)           -                 -        15,000
Acting Chief Financial Officer       2001           -            -                 -             -
Alan D. Lucas                        2002  $  161,538            -  $         11,179             -
Vice President of Sales, Marketing   2001  $  135,434   $   15,000  $          6,370        50,000
and Business Development             2000  $  123,478   $   45,000  $          6,465        50,000

Darlene M. Deptula-Hicks**           2002           -            -                 -             -
Former Vice President, Chief         2001  $  132,762   $   15,000  $       39,490(2)       25,000
Financial Officer and Treasurer      2000  $  121,477   $   40,000  $          6,401        20,000

<FN>
-------------------------------
     *    Executive  Officer

     **   The  former vice president, chief financial officer and treasurer (the
          "Former  Officer")  resigned  her  position  pursuant  to a separation
          agreement effective May 1, 2001. The separation agreement provided for


                                       22
<PAGE>
          a  six  month  severance  payment  in  the aggregate amount of $68,019
          (which  amount  is included in the $132,762 salary amount set forth in
          the  table  above),  the acceleration of vesting of options for 21,736
          shares  of  our  common stock and the repurchase by us from the Former
          Officer of an additional 23,000 shares of our common stock acquired by
          the  Former Officer through the exercise of stock options resulting in
          net  cash  proceeds  of  $33,120 to the Former Officer. As of June 30,
          2002 and 2001, the former officer exercised and sold 14,736 and 32,464
          shares,  respectively. We recognized $259,000 of non-cash, stock-based
          compensation  related  to  this  agreement.

     (1)  Other  annual  compensation  consists  of medical, life and disability
          insurance  premiums  and  401(k) plan benefits paid by us on behalf of
          these  executive  officers.

     (2)  Other  annual  compensation  consists of life and disability insurance
          premiums, 401(k) plan benefits paid by us on behalf of these executive
          officers,  and  $33,120  paid  in  cash as a net payment to repurchase
          23,000  shares  of  our  common stock acquired through the exercise of
          stock  options.

     (3)  Represents consulting fees paid to our Acting Chief Financial Officer.
</TABLE>

     EMPLOYMENT  AGREEMENTS

     Anthony  J.  Armini.  On  September 26, 1998, we entered into an employment
agreement, with an initial term of five years.  Under this employment agreement,
Dr.  Armini serves as our president and chief executive officer at a base salary
of  $125,000.  In  addition,  Dr.  Armini may participate in our employee fringe
benefit  plans or programs generally available to employees of comparable status
and  position.  We  and  Dr. Armini and are entitled to terminate his employment
for any material breach of his employment agreement at any time upon at least 30
days'  written  notice.  In  the event we terminate Dr. Armini without cause, we
will pay him 12 months salary.  Under his employment agreement, he is subject to
restrictive  covenants,  including confidentiality provisions.  Also, during his
employment  and  for  a  period  of  two  years after the term of the employment
agreement,  Dr.  Armini  is  subject  to  a  non-competition  provision.

     Stephen  N.  Bunker.  On  September 26, 1998, we entered into an employment
agreement  with  Dr. Bunker in substantially the same form as that described for
Dr.  Armini.  Dr.  Bunker  serves as our vice president and chief scientist at a
base  annual  salary  of  $100,000.

     Alan  D.  Lucas.  We  entered  into an employment agreement with Mr. Lucas,
with an effective date of June 1, 2002 and terminates June 30, 2003.  Under this
employment agreement, Mr. Lucas serves as our vice president of sales, marketing
and  business development at a base annual salary of $160,000.  In addition, Mr.
Lucas may participate in our employee fringe benefit plans or programs generally
available to employees of comparable status and position.  Mr. Lucas is eligible
to  receive  a  bonus  up  to  10% of his annual base salary, subject to certain
performance goals and the approval of the Compensation Committee of the Board of
Directors.  In  the event that we terminate Mr. Lucas without cause, we will pay
him  seven  months salary and the vesting of his options will accelerate.  Under
his  employment  agreement,  he  is  subject to restrictive covenants, including
confidentiality  provisions.  Also, during his employment and for a period of 12
months  after  termination  of  employment  with  us,  Mr. Lucas is subject to a
non-competition  provision.

     DIRECTOR  COMPENSATION

     Our  directors  who  are  our employees do not receive any compensation for
service  on  the  board of directors. Directors who are not our employees, other
than  Mr.  Shimizu,  are  paid a yearly stipend of $2,500 and are reimbursed for
reasonable  travel  expenses incurred in connection with attendance at board and
committee  meetings.

     Under  the 1998 incentive and nonqualified stock option plan, each director
who  is  not  our  employee,  other  than Mr. Shimizu, automatically receives an
annual  grant  of  options  to  purchase  2,000 shares of our common stock at an
exercise  price  equal to the closing price of the common stock on that date for
each  year  of service. Each such option will have a term of five years and will
vest  in  full  on  the  date  of  the  grant.


                                       23
<PAGE>
                          OPTIONS GRANTS IN FISCAL 2002

     The  following table sets forth certain information regarding stock options
held  as  of  June  30,  2002  by  the  executive  officers.

<TABLE>
<CAPTION>
                                  Number of
                                  Securities     % of Total Granted
                                  Underlying       to Employees in      Exercise     Expiration
Name and Principal Position     Options Granted      Fiscal Year      Price ($/Sh)      Date
------------------------------  ---------------  -------------------  -------------  ----------
<S>                             <C>              <C>                  <C>            <C>
David C. Volpe                           15,000                  14%  $        7.55    10/22/11
Acting Chief Financial Officer

-----------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                     AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
                                FISCAL YEAR END OPTION VALUES

                                       Number of Securities        Value of Unexercised
                                      Underlying Unexercised       In-the-Money Options
                                     Options at June 30, 2002      at June 30, 2002 (1)
                                    --------------------------  ----------------------------
Name and Principal Position         Exercisable  Unexercisable  Exercisable   Unexercisable
----------------------------------  -----------  -------------  ------------  --------------
<S>                                 <C>          <C>            <C>           <C>

Anthony J. Armini
President, Chief Executive Officer
and Chairman of the Board                90,000              -  $    402,000  $            -
David C. Volpe
Acting Chief Financial Officer           15,000              -  $     80,000  $            -

Alan D. Lucas
Vice President of Sales, Marketing
and Business Development                118,400          6,800  $    764,000  $       54,000

<FN>
     (1)  As of June 30, 2002, the  market  value  of  a  share  of common stock was $12.90.
</TABLE>


                                       24
<PAGE>
EQUITY  COMPENSATION  PLAN  DISCLOSURE

     The  following  table  sets  forth  certain information as of June 30, 2002
regarding  securities  authorized  for  issuance  under  our equity compensation
plans.

<TABLE>
<CAPTION>
                                                                        NUMBER OF SECURITIES
                       NUMBER OF SECURITIES TO    WEIGHTED-AVERAGE     REMAINING AVAILABLE FOR
                       BE ISSUED UPON EXERCISE   EXERCISE  PRICE OF     FUTURE ISSUANCE UNDER
                       OF OUTSTANDING OPTIONS,  OUTSTANDING OPTIONS,     EQUITY COMPENSATION
    PLAN CATEGORY        WARRANTS AND RIGHTS     WARRANTS AND RIGHTS            PLANS
---------------------  -----------------------  ---------------------  -----------------------
<S>                    <C>                      <C>                    <C>

Equity Compensation
Plans Approved by
Security Holders                       449,700  $                6.94                  182,503

Equity Compensation
Plans Not Approved by
Security Holders                             -                      -                        -
                       -----------------------  ---------------------  -----------------------
   Total                               449,700  $                6.94                  182,503
                       =======================  =====================  =======================
</TABLE>

ITEM  11.     SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets  forth  information as of August 31, 2002, with
respect  to  the  beneficial  ownership of our common stock of each director and
nominee for director, each named executive officer in the executive compensation
table  above,  all  of  our  directors and current officers as a group, and each
person  known  by  us  to  be  a beneficial owner of five percent or more of our
common  stock.  This  information  is based upon information received from or on
behalf  of  the  individuals  named  therein.

<TABLE>
<CAPTION>
                                                      Number of Shares     Percent of
Name of Beneficial Owner                           Beneficially Owned (1)   Class (2)
-------------------------------------------------  ----------------------  -----------
<S>                                                <C>                     <C>
Patricia A. Armini                                                781,122        12.6%
5 Skytop Drive
Manchester, MA 01944

Casparin Corporation (3)                                          776,418        12.5%
Gorsiraweg 14
P.O. Box 3889
Willemstad, Curacao
Netherlands Antilles

MedTec Iowa, Inc.                                                 500,000         8.0%
1401 8th Street
Orange City, Iowa 51041

Anthony J. Armini (5)                                           1,305,122        21.0%

Stephen N. Bunker                                                 637,848        10.3%

Shunkichi Shimizu (4)                                                ____       _____

Michael Szycher (5)                                                 6,000           *


                                       25
<PAGE>
Pasquale Ruggieri (5)                                               9,348           *

Alan D. Lucas (5)                                                 118,532         1.9%

All Directors and Officers as a group (6 persons)               1,986,850        32.0%
<FN>
--------------------------------
*    Less than 1%.

(1)  Unless otherwise noted, each person identified possesses sole voting and
     investment power over the shares listed.

(2)  The calculation of percent of class is based on 6,216,080 shares of common
     stock issued and outstanding as of August 31, 2002, excluding shares held
     by or for us.

(3)  Casparin Corporation is a wholly-owned subsidiary of TREC (Holland)
     Amsterdam B.V., a sister company of NAR Holding Corporation. Casparin
     Corporation is a wholly-owned subsidiary of Trec (Holland) Amsterdam B.V.
     The Company believes that the principal beneficial owner of Trec (Holland)
     Amsterdam B.V. is Takata Corporation and that its principal beneficial
     owner is Juchiro Takada.

(4)  Mr. Shimizu is an employee of Casparin Corporation and is not permitted by
     Casparin Corporation to personally hold any stock or receive any stipend.

(5)  Includes 216,400 options exercisable within 60 days of the date hereof.
</TABLE>

ITEM  12.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     Certain  of  our  directors hold positions as directors of CardioTech.  Our
CEO  and  Chairman  of  the Board of Directors is also a director of CardioTech.
The  CEO  and  Chairman  of  the  Board  of  Directors of CardioTech is also our
director.  Our Acting Chief Financial Officer is also the Acting Chief Financial
Officer  of  CardioTech.  As of June 30, 2002, approximately $24,000 was due and
payable  to  our  Acting  Chief  Financial  Officer.  Our Acting Chief Financial
Officer  also  received  payments  from the Company in the approximate amount of
$73,000  for  services  during  fiscal  2002.

     Accounts receivable from related parties as of June 30, 2002 consisted of a
loan  of  $138,000  to  our  chief executive officer, which was used to exercise
options  for  50,000 shares of our common stock on December 9, 1997. The loan is
due  and  payable  upon  the  disposal  of  the 50,000 shares and the loan bears
interest  at  6%  per  annum.  This  transaction  was reported as a reduction of
stockholders'  equity.

     In  December 2001, we completed a private placement with Generation Capital
Associates  in  which  it  purchased  145,349  units  for  $1,500,000. Each unit
consists  of  one  share  of common stock and one common stock purchase warrant.
Investors Capital Corp. acted as one of the placement agents in this transaction
and  received  common  stock  purchase  warrants to purchase 8,000 shares of our
common  stock at an exercise price of $12.90 per share. Mr. Pasquale Ruggieri is
a  member  of our Board of Directors and also serves as an investment banker for
Investors  Capital  Corp.

     On  October  10,  2001,  CardioTech  provided  us a $500,000 Line of Credit
Facility,  which  was  subsequently  terminated by mutual agreement on March 29,
2002.

     In  March  2000,  we  entered into a $250,000 joint research agreement with
CardioTech  to  develop  a  proprietary  porous  polymer  biocompatible  coating
technology  as  a  platform  for  our  proprietary  radioactive  brachytherapy
technology.  During  fiscal 2001, we paid $50,000 pursuant to the aforementioned
agreement.  The joint research and development agreement provides for CardioTech
to  develop  the  polyurethane  coating  instrumental  in  the  development of a
polyurethane  coated  drug-eluting  stent  and  for  CardioTech  to  grant  us a
perpetual  worldwide  exclusive license to use, sublicense and otherwise deal in
any technology developed by CardioTech in connection with the development of the


                                       26
<PAGE>
stents.  In  consideration of the research, development and technology transfer,
we  will  pay  Cardiotech  $150,000 in cash pursuant to a milestone schedule. In
addition, CardioTech will sell to us 100,000 shares of CardioTech's common stock
at  a price of $1.00 per share pursuant to the achievement of certain milestones
related  to  the  research  and development. The owner of the technology used in
connection  with  the  stent will be CardioTech, however such technology will be
transferred  to  us  pursuant  to  a  technology license as described above. The
developed  technology represents a "platform" in the sense that the polyurethane
developed  by  CardioTech  and utilized to cover the stent will be the medium in
which specific anti-restenosis drugs will be implanted and therefore becomes the
key  technological  component  of  this  drug-eluting  stent.  The  research and
development  agreement  provides  for 6 phases including the design of equipment
necessary  to  produce  prototypes  of  the  stent,  development  of a series of
prototypes,  production  of  a  limited number of prototypes and the delivery of
prototypes  to  us.  The  material  deadline  is  therefore  the  delivery of an
operative  prototype.  We  are  obligated  to  pay  the  entire  $250,000 if all
milestone conditions are met. Through June 30, 2002, we paid CardioTech $115,000
pursuant  to  the  aforementioned  agreement.  Additionally,  we acquired 60,000
shares  of  the  common stock of CardioTech at a price of $1.00 per share. As of
June 30, 2002, the fair market value of the CardioTech shares held as investment
is  $105,000.  CardioTech is a publicly traded company whose common stock trades
under  the  symbol  CTE  on  the  American  Stock  Exchange.

     In January 2000, we 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
and  sub-grants  to  the  Company  and  Stanford  University.  We  acted  as  a
subcontractor  to CardioTech and received a total of $25,000 in payments through
September  2000.  There  are no further amounts to be received by us pursuant to
this  grant.


                                       27
<PAGE>
<TABLE>
<CAPTION>
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/A:

     (1)               Financial Statements

     (2)               Exhibits

     Exhibit Number:
<S>  <C>               <C>

     *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
     3.5               Certificate of Vote of Directors establishing Series A 7% Cumulative Convertible
                       Preferred Stock, dated October 7, 2002
     **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
     4.4               Specimen Certificate of the Series A 7% Cumulative Convertible Preferred Stock
     **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


                                       28
<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 Insurance 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, 1997(1)
     *10.26            Vendor Agreement Memorandum between the Company and Osteonics, dated
                       February 2, 1998(1)
     *10.27            Sample Purchase Order between the Company and MicroSpring Company, Inc.,
                       dated October 24, 1996(1)
     *10.28            Asset Purchase Agreement between the Company and Falex Corporation, dated
                       November 17, 1995(1)
     *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, 1998(1)
     ***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
     *****10.46        Second Amendment to Lease and Extension Agreement
     *****10.47        Sublease Agreement


                                       29
<PAGE>
     *****10.48        Consent to Sublease Agreement
     ******10.52       Distribution Agreement, dated January 26, 2000, by and between Implant Sciences
                       Corporation and MedTec Iowa, Inc.(1)
     ******10.53       Stock Purchase Agreement, dated March 2, 2000, by and between Implant Sciences
                       Corporation and MedTec Iowa, Inc.
     ******10.54       Research and Development Agreement, dated March 13, 2000, by and between
                       Implant Sciences Corporation and Cardiotech International
     ******10.55       Amendment to Distributorship Agreement between Med-Tec Iowa, Inc., and Implant
                       Sciences Corporation dated 26 January 2000
     *******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.
     ********10.68     Letter Agreement between Implant Sciences Corporation and Darlene Deptula-Hicks
                       dated May 1, 2001
     10.69             Securities Purchase Agreement between Implant Sciences Corporation and Laurus
                       Master Fund, Ltd. Dated October 7, 2002.
     10.70             Security Agreement between Implant Sciences Corporation and Laurus Master Fund,
                       Ltd. Dated October 7, 2002.
     10.71             Common Stock Purchase Warrant for 55,000 shares issued to Laurus Master Fund,
                       Ltd. Dated October 7, 2002.
     *21.1             Subsidiaries of the Company
     23.1              Consent of Independent Auditors
     *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.


                                       30
<PAGE>
                 ***** Previously filed in Quarterly Report on Form 10-QSB for the quarter ended
                       December 31, 1999, filed on February 14, 2000, and is incorporated herein by
                       reference.
                ****** Previously filed in Quarterly Report on Form 10-QSB for the quarter ended March
                       31, 2001, filed on May 11, 2000, and is incorporated herein by reference.
               ******* Previously filed in Annual Report on Form 10-KSB for the fiscal year ended June 30,
                       2001, filed on October 15, 2001, and is incorporated herein by reference.
              ******** Previously filed in Amendment No. 1 to the Annual Report on Form 10-KSB for the
                       fiscal year ended June 30, 2001, filed on February 8, 2002, 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 April 12, 2002 reporting the press release dated
                       April 2, 2002 regarding, "Implant Sciences Corporation Extends Warrant Expiration
                       Date."

                       Current Report on Form 8-K, dated April 30, 2002 reporting the Report of the Audit
                       Committee Charter relating to the November 9, 2001 Definative Proxy Statement.
</TABLE>



                                       31
<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,  2002  and the related statements of operations, stockholders'
equity  and  cash  flows  for each of the two years in the period ended June 30,
2002.  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, 2002, and the results of its operations and its cash flows for each of
the  two  years in the period ended June 30, 2002, in conformity with accounting
principles  generally  accepted  in  the  United  States.


                                                 /s/  ERNST & YOUNG LLP


Boston, Massachusetts
August 23, 2002, except for Note 16
as to which the date is October 7, 2002



                                       32
<PAGE>
<TABLE>
<CAPTION>
                          IMPLANT SCIENCES CORPORATION
                                  BALANCE SHEET


                                                                     JUNE 30,
                                                                       2002
                                                                   ------------
<S>                                                                <C>
ASSETS

Current assets:
  Cash and cash equivalents (includes $35,000 of restricted cash)  $ 1,014,000
  Accounts receivable, less allowance of $67,000                       916,000
  Inventories                                                          452,000
  Investments - available for sale securities                          105,000
  Deferred income taxes                                                 62,000
  Prepaid expenses                                                      39,000
                                                                   ------------
    Total current assets                                             2,588,000

Property and equipment, net                                          3,708,000
Investment in Epsilon Medical, Inc.                                     37,000
Other assets, net                                                      128,000
                                                                   ------------

    Total assets                                                   $ 6,461,000
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                 $   573,000
  Accrued expenses                                                     778,000
  Current portion of long-term debt                                    176,000
  Current portion of obligations under capital lease                    10,000
                                                                   ------------
    Total current liabilities                                        1,537,000
                                                                   ------------

Long-term liabilities:
  Long-term debt, net of current portion                                59,000
  Non current obligations under capital lease                           16,000
  Deferred income taxes                                                 29,000
                                                                   ------------
                                                                       104,000
                                                                   ------------
    Total liabilities                                                1,641,000
                                                                   ------------

Stockholders' equity:
  Common stock, $0.10 par value; 20,000,000 shares authorized;
  6,200,901 shares issued and outstanding                              620,000
  Additional paid-in capital                                        13,630,000
  Accumulated deficit                                               (9,328,000)
  Deferred compensation                                                 (9,000)
  Accumulated other comprehensive income                                45,000
  Notes receivable from employees                                     (138,000)
                                                                   ------------

    Total stockholders' equity                                       4,820,000
                                                                   ------------

    Total liabilities and stockholders' equity                     $ 6,461,000
                                                                   ============

   The accompanying notes are an integral part of these financial statements.
</TABLE>


                                       33
<PAGE>
<TABLE>
<CAPTION>
                               IMPLANT SCIENCES CORPORATION
                                 STATEMENTS OF OPERATIONS


                                                                    YEARS ENDED JUNE 30,
                                                                --------------------------
                                                                    2001          2002
                                                                ------------  ------------
<S>                                                             <C>           <C>
Revenues:
  Product and contract research revenues:
    Medical                                                     $ 3,596,000   $ 5,552,000
    Semiconductor                                                   772,000     1,069,000
                                                                ------------  ------------
      Total revenues                                              4,368,000     6,621,000
                                                                ------------  ------------

Costs and expenses:
  Cost of product and contract research revenues                  4,247,000     5,185,000
  Research and development                                        1,500,000     1,302,000
  Selling, general and administrative (including $320,000 and
   $208,000 of stock-based compensation, respectively)            2,319,000     2,314,000
                                                                ------------  ------------
    Total costs and expenses                                      8,066,000     8,801,000
                                                                ------------  ------------

Loss from operations                                             (3,698,000)   (2,180,000)
                                                                ------------  ------------

Other income (expense):
  Interest income                                                   167,000        31,000
  Interest expense                                                  (47,000)      (42,000)
  Other                                                                   -         2,000
  Equity in loss of Epsilon Medical, Inc.                            (2,000)       (5,000)
                                                                ------------  ------------
    Other income (expense)                                          118,000       (14,000)
                                                                ------------  ------------

Net loss                                                         (3,580,000)   (2,194,000)

Preferred distribution                                                    -      (530,000)
                                                                ------------  ------------

Net loss applicable to common shares                            $(3,580,000)  $(2,724,000)
                                                                ============  ============

Net loss per share:
  Per share - basic:
    Net loss                                                    $     (0.62)  $     (0.36)
    Preferred distribution                                                -         (0.09)
                                                                ------------  ------------
    Net loss per share applicable to common shares              $     (0.62)  $     (0.45)
                                                                ============  ============

  Per share - diluted:
    Net loss                                                    $     (0.62)  $     (0.36)
    Preferred distribution                                                -         (0.09)
                                                                ------------  ------------
    Net loss per share applicable to common shares              $     (0.62)  $     (0.45)
                                                                ============  ============

Weighted average common shares outstanding
     used for basic earnings per share                            5,817,212     6,083,370
                                                                ============  ============

Weighted average common shares outstanding
     used for diluted earnings per share                          5,817,212     6,083,370
                                                                ============  ============

   The accompanying notes are an integral part of these financial statements.
</TABLE>


                                       34
<PAGE>
<TABLE>
<CAPTION>
                                     IMPLANT SCIENCES CORPORATION
                             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                  Common Stock
                               -------------------
                                                    Additional
                                Number                Paid-in       Deferred      Accumulated
                               of shares   Amount     Capital     Compensation      Deficit
                               ---------  --------  -----------  --------------  -------------
<S>                            <C>        <C>       <C>          <C>             <C>
Balance at June 30, 2000       5,708,082  $571,000  $10,171,000  $     (61,000)  $ (3,024,000)

Issuance of common stock         195,797    20,000      491,000
pursuant to exercise of stock
options
Issuance of common stock           7,288         -            -
pursuant to exercise of
warrants
Issuance of common stock           1,603         -        9,000
pursuant to employee stock
purchase plan
Stock-based compensation                                259,000
Amortization of deferred                                                61,000
compensation
Repayment of notes receivable
from employees
Repurchase of common stock
Net loss                                                                           (3,580,000)
                               ---------  --------  -----------  --------------  -------------
Balance at June 30, 2001       5,912,770   591,000   10,930,000              -     (6,604,000)

Issuance of common stock          68,758     7,000      178,000
pursuant to exercise of stock
options
Issuance of common stock          70,900     7,000      631,000
pursuant to exercise of
warrants
Issuance of common stock           3,124         -       22,000
pursuant to employee stock
purchase plan
Issuance of common stock         145,349    15,000    1,076,000
pursuant to private financing
agreement, net of issuance
costs
Stock-based compensation                                217,000         (9,000)
Unrealized gain on available
for sale securities
Repayment of notes receivable
from employees
Sale of treasury stock                                   46,000
Preferred distribution                                  530,000                      (530,000)
Net loss                                                                           (2,194,000)
                               ---------  --------  -----------  --------------  -------------
Balance at June 30, 2002       6,200,901  $620,000  $13,630,000  $      (9,000)  $ (9,328,000)
                               =========  ========  ===========  ==============  =============


                                  Notes                           Accumulated
                               Receivable      Treasury Stock        Other           Total
                                  from      --------------------  Comprehensive    Stockholders' Comprehensive
                                Employees    Shares    Amount        Income          Equity         Income
                               -----------  --------  ----------  --------------  --------------  ------------
<S>                            <C>          <C>       <C>         <C>             <C>             <C>
Balance at June 30, 2000       $ (275,000)        -   $       -   $            -  $   7,382,000

Issuance of common stock                                                                511,000
pursuant to exercise of stock
options
Issuance of common stock                                                                      -
pursuant to exercise of
warrants
Issuance of common stock                                                                  9,000
pursuant to employee stock
purchase plan
Stock-based compensation                                                                259,000
Amortization of deferred                                                                 61,000
compensation
Repayment of notes receivable      87,000                                                87,000
from employees
Repurchase of common stock                   23,000    (207,000)                       (207,000)
Net loss                                                                             (3,580,000)  $(3,580,000)
                               -----------  --------  ----------  --------------  --------------  ------------
Balance at June 30, 2001         (188,000)   23,000    (207,000)               -      4,522,000   $(3,580,000)
                                                                                                  ============

Issuance of common stock                                                                185,000
pursuant to exercise of stock
options
Issuance of common stock                                                                638,000
pursuant to exercise of
warrants
Issuance of common stock                                                                 22,000
pursuant to employee stock
purchase plan
Issuance of common stock                                                              1,091,000
pursuant to private financing
agreement, net of issuance
costs
Stock-based compensation                                                                208,000
Unrealized gain on available                                              45,000         45,000   $    45,000
for sale securities
Repayment of notes receivable      50,000                                                50,000
from employees
Sale of treasury stock                      (23,000)    207,000                         253,000
Preferred distribution                            -           -                               -
Net loss                                                                             (2,194,000)   (2,194,000)
                               -----------  --------  ----------  --------------  --------------  ------------
Balance at June 30, 2002       $ (138,000)        -   $       -   $       45,000  $   4,820,000   $(2,149,000)
                               ===========  ========  ==========  ==============  ==============  ============

   The accompanying notes are an integral part of these financial statements.
</TABLE>


                                       35
<PAGE>
<TABLE>
<CAPTION>
                               IMPLANT SCIENCES CORPORATION
                                 STATEMENT OF CASH FLOWS

                                                                  YEARS ENDED JUNE 30,
                                                               --------------------------
                                                                   2001          2002
                                                               ------------  ------------
<S>                                                            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                     $(3,580,000)  $(2,194,000)
  Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:
    Depreciation and amortization                                  653,000       754,000
    Amortization of deferred compensation                           61,000             -
    Non-cash stock compensation expense                            259,000       208,000
    Equity in loss of Epsilon Medical, Inc.                          2,000         5,000
    Impairment of patents                                           80,000             -
    Write-off loan financing fees                                   11,000             -
    Changes in operating assets and liabilities:
      Accounts receivable                                          280,000      (210,000)
      Inventories                                                 (248,000)     (103,000)
      Prepaid expenses                                              18,000        (3,000)
      Notes receivable                                               3,000        50,000
      Other noncurrent assets                                        5,000       (40,000)
      Accounts payable                                            (290,000)      251,000
      Accrued expenses                                             (55,000)       (8,000)
                                                               ------------  ------------
        Net cash used in operating activities                   (2,801,000)   (1,290,000)
                                                               ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Investment - available for resale securities                           -       (60,000)
  Purchase of property and equipment                              (977,000)     (871,000)
  Capitalized patent costs                                         (46,000)            -
                                                               ------------  ------------
        Net cash used in investing activities                   (1,023,000)     (931,000)
                                                               ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from common stock issuance, net of discount             607,000     2,189,000
    of $300,000
  Repurchase of common stock                                      (207,000)            -
  Repayments of long-term debt                                    (182,000)     (186,000)
                                                               ------------  ------------
        Net cash provided by  financing activities                 218,000     2,003,000
                                                               ------------  ------------

  Net decrease in cash and cas equivalents                      (3,606,000)     (218,000)
  Cash and cash equivalents, beginning                           4,838,000     1,197,000
                                                               ------------  ------------
  Cash and cash equivalents, ending                            $ 1,232,000   $   979,000
                                                               ============  ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Interest paid                                                $    47,000   $    42,000
  Fixed assets acquired through capital leases                      11,000        24,000

   The accompanying notes are an integral part of these financial statements.
</TABLE>


                                       36
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

1.   DESCRIPTION OF BUSINESS

          Implant Sciences Corporation (the "Company") develops products for the
     medical device and explosives detection industry using ion implantation and
     thin  film  coatings  of  radioactive  and  non-radioactive  materials. The
     Company  has  received  Food  and  Drug  Administration 510(k) clearance to
     market  its  I-Plant  Iodine-125  radioactive  seed  for  the  treatment of
     prostate  cancer.  The  Company  also  has under development 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.  Additionally,  the
     Company  is  developing  an  explosives  detection device to be used in the
     detection  of  trace  residues  of  explosives.

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 $35,000 of
     cash  to  collateralize  a  loan  with  the  bank  (See  Note  9).

     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 carry forwards 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 legal life. As
     of  June 30, 2002 there were 20 patents issued. Accumulated amortization at
     June  30,  2002  was  approximately  $105,000.

     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  $12,000  and  $3,000,  for  fiscal  2001  and 2002,
     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


                                       37
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

     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 in the
     year  ended  June 30, 2001. There were no impairment write-offs in the year
     ended  June  30, 2002. The aggregate charge is included in the accompanying
     statements  of  operations  as  research  and  development.

     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  four  (4)  major  customers  that accounted for the
     following  annual  revenue:

                                     YEAR ENDED JUNE 30,
                                   ----------------------
                                      2001        2002
                                   ----------  ----------
            Company A              $  726,000  $2,850,000
            Company B               1,418,000   1,650,000
            Company C                 747,000     770,000
            Company D                  64,000      52,000

          The  accounts  receivable  at June 30, 2001 and 2002 for Company A was
     approximately  $156,000 and $433,000, respectively. Accounts receivable for
     Company  B  at  June  30,  2001  and  2002  was  $185,000  and  $185,000,
     respectively. The accounts receivable at June 30, 2001 and 2002 for Company
     C  was  approximately  $107,000  and  $103,000,  respectively.

     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, subcontractor 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.


                                       38
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

     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.

          The Company utilizes a distributor for the sale of its prostate seeds.
     Under  the  terms  of  the distributor arrangement, the distributor has the
     right  to  return  product  previously  purchased,  subject  to  certain
     conditions, and is entitled to certain price protection. Due to the limited
     time  frame  under  which these rights may be exercised by the distributor,
     the  Company  is  able  to  estimate the actual financial impact of each of
     these  provisions.  The Company records a provision for its estimate of the
     actual  sales  returns  and  price  discounts  each  period.

          The  Company  revenues  by  major  product  categories  is as follows:


                                                JUNE 30,
                                         ----------------------
                                            2001        2002
                                         ----------  ----------
            Prostate Seeds               $  714,000  $2,850,000
            Medical Coatings              2,013,000   2,089,000
            Radioactive products            125,000      20,000
            Semiconductor                   770,000     886,000
            Government grants               746,000     776,000
                                         ----------  ----------

                                         $4,368,000  $6,621,000
                                         ==========  ==========

     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 for the year ended June 30,
     2001  and  2002  was  $39,000  and $97,000, respectively. 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  research  contracts and, therefore, is included in cost of product and
     contract  research  revenues  in  the accompanying statement of operations.

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

                                                   JUNE 30,
                                            ----------------------
                                               2001        2002
                                            ----------  ----------
            Company funded                  $2,228,000  $1,541,000
            Customer funded                    747,000     770,000
                                            ----------  ----------

            Total research and development  $2,975,000  $2,311,000
                                            ==========  ==========


                                       39
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

     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,
                                          --------------------------
                                              2001          2002
                                          ------------  ------------
          Basic:
            Net loss                      $(3,580,000)  $(2,194,000)
            Weighted shares outstanding     5,817,212     6,083,370
            Net loss per share - basic    $     (0.62)  $     (0.36)

          Diluted:
            Net loss                      $(3,549,000)  $(2,194,000)
            Weighted shares outstanding     5,817,212     6,083,370
            Net loss per share - diluted  $     (0.61)  $     (0.36)

     New Accounting Standards

          In  July  2001, the FASB issued SFAS No. 141, "Business Combinations."
     SFAS  No. 141 improves the transparency of the accounting and reporting for
     business  combinations  by  requiring  that  all  business combinations are
     accounted for under a single method, the purchase method. This statement is
     effective  for  all  business  combinations  initiated after June 30, 2001.

          In  July  2001,  the  FASB  issued  SFAS  No. 142, "Goodwill and Other
     Intangible  Assets."  This  statement  applies  to intangibles and goodwill
     acquired  after  June  30,  2001,  as  well  as  goodwill  and  intangibles
     previously  acquired.  Under  this  statement,  goodwill  as  well as other
     intangibles,  determined  to  have  an  infinite  life  will  no  longer be
     amortized;  however,  these  assets  will  be  reviewed for impairment on a
     periodic  basis.  This statement is effective for the Company for its first
     quarter  of  its  2003  fiscal year. Management is currently evaluating the
     impact that this statement will have on the Company's financial statements.

          In  August  2001,  the FASB issued SFAS No. 143, "Accounting for Asset
     Retirement  Obligations."  SFAS  No. 143 addresses financial accounting and
     reporting obligations associated with the retirement of tangible long-lived
     assets  and  the  associated  asset retirement costs. It applies to (a) all
     entities  and  (b)  legal  obligations  associated  with  the retirement of
     long-lived  assets  that  result  from  the  acquisition,  construction,
     development  and/or  the normal operation of a long-lived asset, except for
     certain obligations of lessees. SFAS No. 143 amends SFAS No. 19, "Financial
     Accounting  and  Reporting  by  Oil  and  Gas  Producing Companies," and is
     effective  for financial statements issued for fiscal years beginning after
     June  15,  2002.  The Company does not anticipate that the adoption of SFAS
     No.  143  will  have  a  material  impact  on  its  financial  statements.

          In  October  2001,  the  FASB issued SFAS No. 144, "Accounting for the
     Impairment  or  Disposal  of Long-Lived Assets." SFAS No. 144 addresses the
     financial  accounting  and  reporting  for  the  impairment  or disposal of
     long-lived  assets.  SFAS  No. 144 supersedes SFAS No. 121, "Accounting for
     the  Impairment  of  Long-Lived  Assets  and  for  Long-Lived  Assets to be
     Disposed  Of,"  but  retains  SFAS No. 121's fundamental provisions for (a)
     recognition/measurement  of  impairment of long-lived assets to be held and
     used  and  (b)  measurement of long-lived assets to be disposed of by sale.
     SFAS  No.  144  also  supersedes  the  accounting/reporting  provisions  of
     Accounting  Principles Board (APB) Opinion No. 30, Reporting the Results of
     Operations  -  Reporting the Effects of Disposal of a Segment of a Business
     and  Extraordinary,  Unusual  and  Infrequently  Occurring  Events  and
     Transactions,  for segments of a business to be disposed of but retains APB
     Opinion  No.  30's requirement to report discontinued operations separately
     from  continuing operations and extends that reporting to a component of an
     entity  that either has been disposed of or is classified as held-for-sale.
     SFAS  No.  144  is  effective for fiscal years beginning after December 15,
     2001,  and  interim periods within those fiscal years. The Company does not
     anticipate that the adoption of SFAS No. 144 will have a material impact on
     its  financial  statements.


                                       40
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

          In  July  2002,  the FASB issued SFAS No. 146, "Accounting for Exit or
     Disposal  Activities."  SFAS  No.  146  addresses  the accounting for costs
     associated with restructuring and other disposal activities. This statement
     supersedes  Emerging  Issues Task Force ("EITF") Issue No. 94-3, "Liability
     Recognition  for  Certain  Employee Termination Benefits and Other Costs to
     Exit an Activity." This statement will be effective for disposal activities
     initiated  after  December  31,  2002,  and  the  Company  will  adopt this
     statement  for  any  costs relating to restructuring or disposal activities
     initiated  after  the  effective  date.

3.   INVENTORY

          Inventory  at  June 30, 2002  consists  of  the  following:

               Raw materials                   $206,000
               Work-in-process                  216,000
               Finished goods                    30,000
                                               --------

                                               $452,000
                                               ========

4.   PROPERTY AND EQUIPMENT

          Property  and  equipment  at  June 30, 2002 consists of the following:

               Machinery and equipment                          $ 5,270,000
               Computers and software                               311,000
               Furniture and fixtures                               155,000
               Motor vehicles                                        33,000
               Leased property under capital leases                  32,000
               Leasehold improvements                               258,000
                                                                ------------
                                                                  6,059,000
               Less: accumualted depreciation and amortization   (2,351,000)
                                                                ------------

                                                                $ 3,708,000
                                                                ============

5.   ACCRUED EXPENSES

          Accrued  expenses  at  June 30, 2002  consists  of  the  following:

               Accrued compensation and benefits       $343,000
               Subcontractor costs                      206,000
               Accrued legal, accounting and printing   117,000
               Accrued trade payables                    29,000
               Accrued sales tax                         26,000
               Deferred revenue                          25,000
               Accrued utilities                         18,000
               Accrued insurance                          7,000
               Other                                      5,000
               Warranty                                   2,000
                                                       --------

                                                       $778,000
                                                       ========


                                       41
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

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, 2001 and 2002,
     the  Company recognized its share of equity losses in Epsilon Medical, Inc.
     of  approximately  $2,000  and  $5,000,  respectively. Summarized financial
     information  is  not  presented  as  it  is  not  material  to the Company.

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  from  the  National  Institute  of  Health  are  firm-fixed  priced
     contracts  and  generally  range  in length from six to twenty four months.
     Contracts received from the Department of Defense are both firm-fixed price
     and  cost plus type programs and also range from six to twenty-four months.
     Revenues  under  such arrangements were approximately $746,000 and $770,000
     for the years ended June 30, 2001 and 2002, respectively. Unbilled accounts
     receivable  relating  to  such  arrangements was approximately $111,000 and
     $16,000  for  the  fiscal years ended June 30, 2001 and 2002, respectively.

          The  Company also conducts research and development under cost-sharing
     arrangements  with  its  commercial customers. There were no revenues under
     such  arrangements  for  the  fiscal  years  ended  June 30, 2001 and 2002.

8.   COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT

          In  August  2002,  the  Company  executed  a  Cooperative Research and
     Development  Agreement  with an agency of the Department of Defense ("DOD")
     for  its  trace  explosives  detection prototypes. Under the agreement, the
     Company  will  submit  these  prototypes  for  testing  and  evaluation. In
     addition,  the DOD's agency will supply the Company with test protocols and
     current  and  anticipated  performance  criteria  needed  for  commercial
     approval. The Company's explosives trace detection systems ("ETD") utilizes
     its  proprietary  Laser  Ion  Mobility  Spectrometer  technology,  a  novel
     technology  based  on  its  expertise  with  ions,  or  charged  particles.

9.   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 is 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 and the
     Company  chose  not  to  renew  the Credit Facility. There were no balances
     outstanding  as  of  June  30,  2002.

          The  Company  has  a term loan facility of $1,500,000, of which it had
     utilized $750,000 at June 30, 2002. 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,  2002,  the  balance
     outstanding  was  $235,000.

          The  Company's  Loan  Agreement requires compliance with two financial
     covenants  including  minimum  levels  of net worth and net loss limits. At
     June  30,  2002,  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 had fully collateralized the Term Loan and executed
     pledge  agreements with respect to the collateral. As of June 30, 2002, the
     Company  and  the  director  collateralized  the Term Loan with $35,000 and
     $200,000  of  cash,  respectively. The Company's bank has waived its rights
     under  the  Loan  Agreement with respect to this financial covenant at June
     30,  2002  through  and  including  June  30,  2003.


                                       42
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

          On  October  7,  2002,  the  Company  paid  the  remaining  balance of
     principal  and interest of approximately $192,000 in connection with the 7%
     Convertible  Preferred  Stock  financing and terminated the Term Loan. (See
     Note  16)

          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, is subject to a security
     agreement  providing  a  second  lien on substantially all of the Company's
     assets, and provides for a $15,000 commitment fee which was paid during the
     three  month  period  ended  March  31,  2002.  The  Company and CardioTech
     mutually  agreed  to  terminate the Line of Credit on March 29, 2002. There
     were  no  borrowings  on  this  Line  of  Credit from inception through its
     termination  on  March  29,  2002.  As  of  June  30,  2002,  there were no
     borrowings  outstanding  or  other obligations due CardioTech in respect of
     the  Line  of  Credit.

10.  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, a
     public  company,  is  a  related  party  with  the Company by virtue of its
     significant  business  relationships.

          Certain  directors  of  the  Company  hold  positions  as directors of
     CardioTech.  The  CEO and Chairman of the Board of Directors of the Company
     is  also  a  director  of  CardioTech. The CEO and Chairman of the Board of
     Directors of CardioTech is also a director of the Company. The acting Chief
     Financial Officer of the Company is also the acting Chief Financial Officer
     of  CardioTech.  As  of  June  30,  2002, approximately $24,000 was due and
     payable  to  the  Company's  acting  Chief  Financial  Officer.

          Accounts receivable from related parties as of June 30, 2002 consisted
     of  a  loan of $138,000 to the Company's chief executive officer, which was
     used to exercise options for 50,000 shares of the Company's common stock on
     December  9,  1997.  The  loan  is due and payable upon the disposal of the
     50,000 shares and the loan bears interest at 6% per annum. This transaction
     was  reported  as  a  reduction  of  stockholders'  equity.

          In  December  2001,  we  completed a private placement with Generation
     Capital Associates in which it purchased 145,349 units for $1,500,000. Each
     unit  consists  of  one share of common stock and one common stock purchase
     warrant.  Investors  Capital  Corp. acted as one of the placement agents in
     this  transaction  and  received common stock purchase warrants to purchase
     8,000  shares of our common stock at an exercise price of $12.90 per share.
     Mr. Pasquale Ruggieri is a member of our Board of Directors and also serves
     as  an  investment  banker  for  Investors  Capital  Corp.

          On  October  10, 2001, CardioTech provided the Company a $500,000 Line
     of  Credit  Facility, which was subsequently terminated by mutual agreement
     on  March  29,  2002  (See  Note  9).

          In  March  2000,  the  Company  entered into a $250,000 joint research
     agreement  with  CardioTech  to  develop  a  proprietary  porous  polymer
     biocompatible  coating  technology  as  a  platform  for  the  Company's
     proprietary  radioactive  brachytherapy  technology. Through June 30, 2002,
     the  Company  paid  CardioTech  $115,000  pursuant  to  the  aforementioned
     agreement.  Additionally,  the Company acquired 60,000 shares of the common
     stock  of CardiTech at a price of $1.00 per share. As of June 30, 2002, the
     fair  market value of the CardioTech shares held as investment is $105,000.
     CardioTech is a publicly traded company whose common stock trades under the
     symbol  CTE  on  the  American  Stock  Exchange.

          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  and  sub-grants  to  the  Company  and  Stanford
     University. The Company acted as a subcontractor to CardioTech and received
     a total of $25,000 in payments through September 2000. There are no further
     amounts  to  be  received  by  the  Company  pursuant  to  this  grant.


                                       43
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

11.  LEASE OBLIGATION

          The  Company has a five year operating lease for 25,422 square feet of
     its  manufacturing, research and office space which expires on May 31, 2007
     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 sublease 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,  2001  and  2002  was  $531,000  and  $580,000,  respectively.

          Included  in  property  and  equipment  at  June 30, 2001 is equipment
     recorded  under  a  capital  lease  with  a  net  book  value  of  $33,000.
     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,
     2002,  together with the present value of net minimum lease payments are as
     follows:

                                                            CAPITAL   OPERATING
                                                             LEASE      LEASE
                                                            --------  ----------
               Year ending June 30:
               2003                                         $ 10,000  $  358,000
               2004                                            5,000     261,000
               2005                                            5,000     286,000
               2006                                            5,000     305,000
               2007                                            6,000     229,000
               Thereafter                                          -           -
                                                            --------  ----------
               Net minimum lease payments                     31,000  $1,439,000
                                                                      ==========

               Less: finance charges                           5,000
                                                            --------

               Present value of net minimum lease payments  $ 26,000
                                                            ========


12.  INCOME  TAXES

          The  Company's  actual  income  tax provision (benefit) as of June 30,
     differed  from the U.S. federal statutory income tax provision (benefit) as
     set  forth  below:

                                                         YEARS ENDED JUNE 30,
                                                       ------------------------
                                                           2001         2002
                                                       ------------  ----------

          Expected federal tax provision (benefit)     $(1,205,000)  $(742,000)
          State income taxes, net of federal benefit      (214,000)   (127,000)
          Stock compensation expense                        21,000      74,000
          Tax credits                                      (55,000)    (15,000)
          Effect of valuation allowance                  1,381,000     802,000
          Non-deductible expenses and other                 72,000       8,000
                                                       ------------  ----------

          Effective tax rate                           $         -   $       -
                                                       ============  ==========


                                       44
<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  $ 3,332,000
                Accrued expenses                                      50,000
                Book over tax patent amortization                     68,000
                Other                                                 28,000
                                                                 ------------
              Total deferred tax assets                            3,478,000
                Valuation allowance                               (3,300,000)
                                                                 ------------
              Net deferred tax assets                                178,000
                                                                 ------------

              Deferred tax liabilities:
                Tax over book depreciation                          (145,000)
                                                                 ------------
              Total deferred tax liabilities                        (145,000)
                                                                 ------------

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


          At  June  30,  2002  the  Company  has  unused  net  operating  loss
     carryforwards  of approximately $7,913,000, available to reduce federal and
     state  taxable  income, and tax credit carryforwards of $176,000, available
     to  offset  federal  and state taxable income, both of which expire through
     2022.  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.

13.  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 280,000 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.  As  of June 30, 2002, a total of 182,503 stock options are available
     for  issuance  under  the  1998  and  2000  stock  option  plans.


                                       45
<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, 2002, and 2001:

<TABLE>
<CAPTION>
                                               2002                   2001
                                        --------------------  ---------------------
                                                  WEIGHTED-              WEIGHTED-
                                                   AVERAGE                AVERAGE
                                                   EXERCISE               EXERCISE
                                         SHARES     PRICE      SHARES      PRICE
                                        --------  ----------  ---------  ----------
<S>                                     <C>       <C>         <C>        <C>
Outstanding at beginning of period      414,893   $     5.26   435,690   $     2.99

Granted                                 111,000         9.27   183,000         7.97
Exercised                               (68,190)        2.66  (195,797)        2.61
Canceled                                 (8,003)        6.84    (8,000)        8.41
                                        --------  ----------  ---------  ----------

Outstanding at end of period            449,700         6.94   414,893         5.26
                                        ========  ==========  =========  ==========

Options exercisable at end of period    348,190         6.23   361,581         5.05
                                        ========  ==========  =========  ==========

Weighted-average fair value of options
  granted during the year:                              5.21                   3.71
                                                  ==========             ==========
</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.  As  of June 30, 2002, the former officer
     exercised  the  remaining 14,736 shares. The Company recognized $259,000 of
     expense  related  to  this  agreement  in  fiscal  2001.

          The  following  table  presents  weighted  average  price  and  life
     information  about  significant option groups outstanding at June 30, 2002:

<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>
$    1.00           1,000          9.89  $    1.00      1,000  $    1.00
     1.37          79,000          3.76       1.37     79,000       1.37
     4.00          25,200          5.73       4.00     25,200       4.00
     5.00          37,500          7.33       5.00     24,750       5.00
6.50 - 6.75        32,000          7.19       6.52     32,000       6.52
7.55 - 7.56        60,000          8.59       7.56     43,300       7.56
8.00 - 8.85       177,000          4.53       8.57    117,000       8.44
9.12 - 9.50        13,000          7.88       9.27      5,940       9.33
    10.90           5,000          9.76      10.90          -      10.90
12.45 - 12.75      16,000          9.57      12.47     16,000      12.47
    14.00           4,000          4.46      14.00      4,000      14.00
                ---------                           ---------
                  449,700                             348,190
                =========                           =========
</TABLE>


                                       46
<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
     2001 and 2002, consistent with the provisions of FAS 123, the pro forma net
     loss  per share-diluted for 2001 and 2002, would have increased by $740,000
     and  $343,000  respectively,  and  $0.13  per  share  and  $0.06 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-Scholes model with the following weighted
     average  assumptions:

                                       OPTIONS GRANTED
                                ----------------------------
                                    2001           2002
                                -------------  -------------
      Volatility                     47%            63%
      Expected life (years)           5              5
      Risk free interest rate   4.91% - 6.21%  3.68% - 4.55%
      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  2001  and 2002 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
     (the  "IPO  Warrants") in connection with its initial public offering. Each
     Unit  carries the right to purchase one share of common stock at $9.00, and
     is  redeemable by the Company at $0.20 per warrant if the closing bid price
     of  the  common  stock  averages  in  excess  of  $10.50 for a period of 20
     consecutive  trading  days.  On  March  28,  2002, the Company extended the
     expiration  date  of  the IPO Warrants from June 23, 2002 to June 30, 2003.
     The  Company  did  not  receive  any  consideration from the holders of the
     warrants,  accordingly  the  Company  recognized  this  transaction  as  a
     preferred distribution based upon the estimated fair value of the extension
     of approximately $530,000. 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.  As  of  June  30,  2002, IPO Warrants in the amount of 929,100
     warrants  remain  outstanding,  and  all  of  the Representative's Warrants
     remain  outstanding.

          The  Company  received  $1,500,000  in  a  private  placement  with an
     investor  and  issued  145,349  Units,  each consisting of one share of its
     common  stock  and  one  common  stock  purchase  warrant. Two warrants are
     exercisable  for  one  share  of  its  common stock at an exercise price of
     $12.00 per share. Originally, the exercise price of the warrants was $12.90
     per share. Per the financing terms agreement, if the registration statement
     is not effective within 90 days following the closing date of the financing
     the exercise price of the warrants is reduced 5% for the first month and 2%
     for  each additional month that the registration statement is not effective
     for  up  to  24  months  following  the  closing  date. Total consideration
     received  was $1,500,000, which reflected a discount of 20% from the market
     price.  This  discount  reflects the best terms available to the Company in
     the  private  placement  market  during  its second fiscal quarter of 2001.


                                       47
<PAGE>
                          IMPLANT SCIENCES CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

          In  connection  with  the  transaction,  the Company issued additional
     warrants  to the investor's general counsel to purchase 10,000 shares at an
     exercise  price  of  $12.00  per  share  and  a document preparation fee of
     $5,000. The Company also engaged two placement agents who received warrants
     to  purchase an aggregate of 12,000 shares of the Company's common stock at
     an  exercise  price  of  $12.00  per share and a placement fee of $105,000.
     Originally,  the  exercise  price of the warrants was $12.90 per share. Per
     the  financing  terms  agreement,  if  the  registration  statement  is not
     effective  within  90  days following the closing date of the financing the
     exercise price of the warrants is reduced 5% for the first month and 2% for
     each  additional month that the registration statement is not effective for
     up  to  24 months following the closing date. All warrants pursuant to this
     transaction  are  exercisable  at  any time prior to December 12, 2006. Mr.
     Pasquale  Ruggieri,  a  member  of  the  Company's Board of Directors, also
     serves  as  an  investment  banker  for  one  of  the  placement  agents in
     connection  with  this  transaction.

          The  Company has recorded the proceeds from the private placement, net
     of the discount of $300,000 and offering costs of $272,000 paid in cash and
     warrants  having  a  fair  value  of  $55,000,  as  a capital contribution.

14.  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.  No  royalties were recognized under this arrangement in fiscal 2001
     and  2002.

15.  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  $73,000  and  $60,000  in  2001  and  2002,  respectively.

16.  SUBSEQUENT  EVENT

          On  October  7, 2002, the Company issued 250,000 shares of Series A 7%
     Cumulative  Convertible  Preferred  Stock  having a stated value of $10 per
     share,  pursuant  to  a Securties Purchase Agreement executed on October 7,
     2002  with  the  Laurus  Master  Fund, Ltd. We received $2,500,000 in gross
     proceeds,  less  a  management fee and placement agent fee of approximately
     $300,000,  and  related  transaction  costs  estimated  to be an additional
     $100,000.  The  terms  of  the Series A 7% Cumulative Convertible Preferred
     Stock  provide  for  repayment  in  cash or with shares of our common stock
     beginning  three  months  subsequent  to  the  execution  of the Securities
     Purchase  Agreement.  If the market price, determined as the lowest closing
     price  for  the  eleven-day period prior to a conversion date, is less than
     $5.70,  then for repayment purposes, the common stock will be valued at the
     greater  of  83%  of  the  average market price of the three lowest closing
     prices during the 30 trading days immediately preceding the conversion date
     or $2.02. Otherwise, the fixed conversion price is $5.19. We also issued to
     Laurus  Master Fund, Ltd. A warrant to purchase 55,000 shares of our common
     stock  at  $6.23 per share. The Securities Purchase Agreement also provides
     for  a  security  interest  in substantially all of our assets. We utilized
     approximately  $192,000  to  repay the remaining outstanding Term Loan to a
     bank  on  October  7, 2002. Additionally, the Securities Purchase Agreement
     contains  default  covenants,  including  certain  financial  covenants.

          We  will  utilize  the proceeds of this financing to commercialize our
     explosives  detection  system,  purchase  certain  equipment  to expand our
     semiconductor  business,  and  for  general  working  capital  purposes.

17.  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.


                                       48
<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 14, 2002                     /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,  and  each  of  the undersigned officers and directors of
Implant  Sciences  Corporation hereby severally constitutes and appoints Anthony
J.  Armini  his  true  and lawful attorney-in-fact and agent, with full power to
him,  to  sign  for  him,  in  his  name  in  the  capacity indicated below, all
amendments  to  such  report on Form 10-KSB, hereby ratifying and confirming his
signature  as  it  may  be signed by his attorney to such report and any and all
amendments  thereto.

Date:  October 14, 2002             /s/  Anthony  J.  Armini
                                    ------------------------
                                    Anthony  J.  Armini
                                    President, Chief Executive Officer,
                                    Chairman of the Board of Directors
                                    (Principal Executive Officer)


Date:  October 14, 2002             /s/  David  C.  Volpe
                                    ---------------------
                                    David  C.  Volpe
                                    Acting  Chief  Financial  Officer
                                    (Principal Financial and Accounting Officer)


 Date:  October 14, 2002            /s/  Stephen N. Bunker
                                    ----------------------
                                    Stephen  N.  Bunker
                                    Vice  President  and  Chief  Scientist,
                                    Director


Date:  October 14, 2002             /s/  Michael  Szycher
                                    ---------------------
                                    Michael  Szycher,  Director


Date:  October 14, 2002             /s/  Pasquale  Ruggieri
                                    -----------------------
                                    Pasquale  Ruggieri,  Director


<PAGE>
                                 CERTIFICATIONS


     I,  Anthony  J.  Armini,  President  and Chief Executive Officer of Implant
Sciences  Corporation,  certify  that:

1.   I  have  reviewed  this  annual  report  on Form 10-KSB of Implant Sciences
     Corporation;

2.   Based  on  my  knowledge,  this  annual  report does not contain any untrue
     statement  of a material fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  annual  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included in this annual report, fairly present in all material
     respects  the  financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and  I  are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange  Act  Rules 13a-14 and 15d-14) for the registrant and we have:

     a.   designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is  being  prepared;

     b.   evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and

     c.   presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;

5.   The  registrant's  other certifying officers and I have disclosed, based on
     our  most  recent  evaluation,  to  the registrant's auditors and the audit
     committee  of  registrant's  board  of directors (or persons performing the
     equivalent  function):

     a.   all  significant  deficiencies  in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and

     b.   any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls.

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether  or  not there were significant changes in internal
     controls  or  in  other  factors  that  could significantly affect internal
     controls  subsequent  to  the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

                                           Date:  October 14, 2002

                                           /s/  Anthony  J.  Armini
                                           -------------------------------------
                                           Anthony  J.  Armini
                                           President and Chief Executive Officer


<PAGE>
     I,  David  C.  Volpe,  Acting  Chief  Financial Officer of Implant Sciences
Corporation,  certify  that:

1.   I  have  reviewed  this  annual  report  on Form 10-KSB of Implant Sciences
     Corporation;

2.   Based  on  my  knowledge,  this  annual  report does not contain any untrue
     statement  of a material fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  annual  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included in this annual report, fairly present in all material
     respects  the  financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and  I  are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange  Act  Rules 13a-14 and 15d-14) for the registrant and we have:

     a.   designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is  being  prepared;

     b.   evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and

     c.   presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;

5.   The  registrant's  other certifying officers and I have disclosed, based on
     our  most  recent  evaluation,  to  the registrant's auditors and the audit
     committee  of  registrant's  board  of directors (or persons performing the
     equivalent  function):

     a.   all  significant  deficiencies  in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and

     b.   any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls.

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether  or  not there were significant changes in internal
     controls  or  in  other  factors  that  could significantly affect internal
     controls  subsequent  to  the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

                                          Date:  October 14, 2002

                                          /s/  David  C.  Volpe
                                          ------------------------------
                                          David  C.  Volpe
                                          Acting Chief Financial Officer


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<TABLE>
<CAPTION>
                                  EXHIBIT INDEX
                                  -------------

     Exhibit Number:   Description
     ---------------   -----------
<S>                    <C>
     *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
     3.5               Certificate of Vote of Directors establishing Series A 7% Cumulative Convertible
                       Preferred Stock, dated October 7, 2002
     **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
     4.4               Specimen Certificate of the Series A 7% Cumulative Convertible Preferred Stock
     **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
     *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 Insurance 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, 1997(1)


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     *10.26            Vendor Agreement Memorandum between the Company and Osteonics, dated
                       February 2, 1998(1)
     *10.27            Sample Purchase Order between the Company and MicroSpring Company, Inc.,
                       dated October 24, 1996(1)
     *10.28            Asset Purchase Agreement between the Company and Falex Corporation, dated
                       November 17, 1995(1)
     *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, 1998(1)
     ***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
     *****10.46        Second Amendment to Lease and Extension Agreement
     *****10.47        Sublease Agreement
     *****10.48        Consent to Sublease Agreement
     ******10.52       Distribution Agreement, dated January 26, 2000, by and between Implant Sciences
                       Corporation and MedTec Iowa, Inc.(1)
     ******10.53       Stock Purchase Agreement, dated March 2, 2000, by and between Implant Sciences
                       Corporation and MedTec Iowa, Inc.
     ******10.54       Research and Development Agreement, dated March 13, 2000, by and between
                       Implant Sciences Corporation and Cardiotech International
     ******10.55       Amendment to Distributorship Agreement between Med-Tec Iowa, Inc., and Implant
                       Sciences Corporation dated 26 January 2000
     *******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.


<PAGE>
     *******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.
     ********10.68     Letter Agreement between Implant Sciences Corporation and Darlene Deptula-Hicks
                       dated May 1, 2001
     10.69             Securities Purchase Agreement between Implant Sciences Corporation and Laurus
                       Master Fund, Ltd. Dated October 7, 2002.
     10.70             Security Agreement between Implant Sciences Corporation and Laurus Master Fund,
                       Ltd. Dated October 7, 2002.
     10.71             Common Stock Purchase Warrant for 55,000 shares issued to Laurus Master Fund,
                       Ltd. Dated October 7, 2002.
     *21.1             Subsidiaries of the Company
     23.1              Consent of Independent Auditors
     *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.
                 ***** Previously filed in Quarterly Report on Form 10-QSB for the quarter ended
                       December 31, 1999, filed on February 14, 2000, and is incorporated herein by
                       reference.
                ****** Previously filed in Quarterly Report on Form 10-QSB for the quarter ended March
                       31, 2001, filed on May 11, 2000, and is incorporated herein by reference.
               ******* Previously filed in Annual Report on Form 10-KSB for the fiscal year ended June 30,
                       2001, filed on October 15, 2001, and is incorporated herein by reference.
              ******** Previously filed in Amendment No. 1 to the Annual Report on Form 10-KSB for the
                       fiscal year ended June 30, 2001, filed on February 8, 2002, and is incorporated herein
                       by reference.
                     1 Filed under application for confidential treatment.
</TABLE>


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