Quarter Ended September 30, 2013 vs. September 30, 2012

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Revenues for the quarter ended September 30, 2013 were $1,165,000 as compared with $1,415,000 for the comparable prior year period, a decrease of $250,000, or 17.7%.  The decrease in revenue is due primarily to the decreased shipment of QS-H150 handheld units sold into Northern Africa and China in

the three months ended September 30, 2013, resulting in a 81% decrease in the number of QS-H150 handheld units sold, decreased sales of parts and supplies during the three months ended September 30, 2013, as compared to the comparable prior year period, partially offset by an 8.2% increase in average unit sell prices on sales our QS-H150 handheld units and increased sales of our QS-B220 benchtop units.

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Gross margin for the three months ended September 30, 2013 was $213,000 or 18.3% of revenues as compared with gross loss of $39,000 or (2.8%) of revenues for the comparable prior year period.  The increase in gross margin is primarily the result of the $372,000 decrease in stock-based compensation recorded on stock option grants to officers and directors in September 2012, partially offset by increased manufacturing overhead spending due to an increase in manufacturing personnel costs and increased occupancy costs, as compared to the prior year period.

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Research and development expense for the quarter ended September 30, 2013 was $1,231,000 as compared with $1,337,000 for the comparable prior year period, a decrease of $106,000 or 7.9%.  The decrease in research and development expense is due primarily to a $339,000 decrease in stock-based compensation recorded on the September 2012 officer and director option grants, partially offset by a $217,000 increase in payroll and related benefit costs and increased occupancy costs.  

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Selling, general and administrative expenses for the quarter ended September 30, 2013 were $3,408,000 as compared with $10,131,000 for the comparable prior year period, a decrease of $6,723,000, or 66.4%. The decrease in selling, general and administrative expenses is due primarily to a $7,189,000 decrease in stock-based compensation recorded on the September 2012 officer and director option grants, a $123,000 decrease in legal fees and a $41,000 decrease in bank charges, offset partially by a $299,000 increase in payroll, related benefit costs and travel expense resulting from the addition of sales personnel, a $211,000 increase in occupancy costs, due to the relocation of our corporate offices, a $114,000 increase in selling expenses due to the opening of our Shanghai representative office, increased participation at industry trade shows and an increase in demonstration units provided to our sales force.

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For the quarter ended September 30, 2013, other expense was $1,595,000 as compared with other expense of $1,241,000, for the comparable prior year period, an increase of $354,000. The increase is due to increased interest expense on higher borrowings under our credit facility with DMRJ Group.

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Our net loss for the quarter ended September 30, 2013 was $6,021,000 as compared with a net loss of $12,748,000 for the comparable prior year period, a decrease of $6,727,000, or 52.8%.  The decrease in the net loss is primarily due to the decrease in stock-based compensation recorded on the September 2012 officer and director option grants in the quarter ended September 30, 2013, partially offset by increased operating expenses and increased interest expense.

Company Webcast and Conference Call

The Company will host a webcast and conference call on Thursday, November 14, 2013 at 4:15 PM Eastern time to review the quarter ended September 30, 2013 financial results. Following the Company’s prepared remarks there will be a Q&A session.  The call can be accessed by interested parties by dialing: 877-474-9505 within the U.S. or 857-244-7558 outside the U.S. and entering passcode 45817726.  Participants are asked to call the assigned number approximately 5 minutes before the conference call begins.  A replay of the conference call will be available approximately two hours after the call for one month by dialing: 888-286-8010 within the U.S. or 617-801-6888 outside the U.S. and entering passcode 58696151.  The conference call will also be available live over the Internet at the “Webcasts” page of the Investor Relations section of Implant Sciences’ website at www.implantsciences.com.  A replay of the webcast will be available for one month after the call.

About Implant Sciences

Implant Sciences is the leader in next generation Explosives Trace Detection (ETD) technology. In October 2013, the Company became the third ETD manufacturer, and the sole American-owned company, to currently have product qualification from the US Transportation Security Administration. Implant Sciences develops, manufactures and sells sophisticated sensors and systems for Security, Safety, and Defense (SS&D) markets. The Company has developed proprietary technologies used in its commercial explosives and narcotics trace detection systems, which ship to a growing number of locations domestically and internationally. Implant Sciences’ QS-H150 portable explosives trace detector has received Qualified Anti-Terrorism Technology Designation and, in addition to receiving TSA qualification for air cargo screening and certification by Service Technique de l’Aviation Civile in France for passenger and air cargo screening, the Company’s QS-B220 has also received Qualified Anti-Terrorism Technology Designation by the U.S. Department of Homeland Security under the Support Anti-terrorism by Fostering Effective Technology Act of 2002 (the SAFETY Act). For further details on the Company and its products, please visit the Company's website at www.implantsciences.com.

Safe Harbor Statement

This press release may contain certain “forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations and are subject to risks and uncertainties that could cause the Company’s actual results to differ materially from the forward-looking statements. Such risks and uncertainties include, but are not limited to, the risks that we will be required to repay all of our indebtedness to our secured lender, DMRJ Group, by September 30, 2014; if we are unable to satisfy our obligations to DMRJ and to raise additional capital to fund operations, DMRJ may seize our assets and our business may fail; we continue to incur substantial operating losses and may never be profitable; our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern; our explosives detection products and technologies (including any new products we may develop) may not be accepted by the Transportation Security Administration or by other U.S. or foreign government and law enforcement agencies or commercial consumers of security products; economic, political and other risks associated with international sales and operations could adversely affect our sales; liability claims related to our products or our handling of hazardous materials could damage our reputation and have a material adverse effect on our financial results; our business is subject to intense competition; our markets are subject to rapid technology change and our success will depend on our ability to develop and introduce new products; we may not be able to retain our management and key employees or identify, hire and retain additional personnel as needed; we may not be able to enforce our patent and other intellectual property rights or operate without infringing on the proprietary rights of others: and other risks and uncertainties described in our filings with the Securities and Exchange Commission, including our most recent Forms 10-K, 10-Q and 8-K. Such statements are based on management’s current expectations and assumptions which could differ materially from the forward-looking statements.

For further information, you are encouraged to review Implant Sciences’ filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, as amended, for the period ended June 30, 2013. The Company assumes no obligation to update the information contained in this press release.

For further information contact:

Implant Sciences Corporation

Glenn Bolduc, President and CEO

(978) 752-1700

gbolduc@implantsciences.com

or

Investor Contact:

Laurel Moody

646-810-0608

lmoody@corporateprofile.com

(1) Adjusted EBITDA is defined as net loss plus interest expense, net of interest income, income taxes, depreciation, stock-based compensation, fair value of warrants issued to non-employees and the fair value of common stock issued to consultants.  EBITDA is commonly used in the technology industry, and we present Adjusted EBITDA to enhance your understanding of our financial performance.  We use Adjusted EBITDA as an internal performance measurement and believe that it provides investors and analysts with a measure of operating results unaffected by differences in capital structures and capital investment among otherwise comparable companies and improves comparability of results of operations. Management uses this supplemental measure to evaluate performance over a period of time and to analyze underlying trends in the Company's business and to establish operational goals and forecast that are used in allocating resources.  We expect to compute our non-GAAP financial measure, using the same consistent method from quarter to quarter and year to year.            

While we believe that Adjusted EBITDA is a useful measure for investors, it is not a measurement presented in accordance with United States generally accepted accounting principles, or GAAP.  You should not consider Adjusted EBITDA in isolation or as a substitute for net income, cash flows from operations, or any other performance measures calculated in accordance with GAAP.  In addition, Adjusted EBITDA has inherent material limitations as a performance measure.  It does not include interest expense, but because we have borrowed money, interest expense is a necessary element of our costs.  In addition, Adjusted EBITDA does not include depreciation.  Since we have capital assets, depreciation expense is a necessary element of our costs.  Adjusted EBITDA does not include stock-based compensation, which is a necessary element of our costs since we issue stock awards to employees as an important incentive to maximize overall company performance and as a benefit of employment with the company.  Adjusted EBITDA does not include the fair value of warrants issued to non-employees, which is a necessary element of our costs since we have issued warrants to non-employees and as part of our financing strategy. Finally, Adjusted EBITDA does not include the fair value of common stock issued to consultants, which is a necessary element of our costs since we have issued shares of our common stock in lieu of cash payments to consultants we have retained. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.