Quarter Ended December 31, 2012 vs. December 31, 2011

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Revenues for the quarter ended December 31, 2012 were $6,938,000 as compared with $1,132,000 for the comparable prior year period, an increase of $5,806,000, or 512.9%.  The increase in revenue is due primarily to the shipment of the India Ministry of Defence order, resulting in a 511% increase in the number of QS-H150 handheld units sold and increased sales of parts and supplies during the quarter ended December 31, 2012, as compared to the comparable prior year period and, to a lesser extent, incremental sales of our QS-B220 benchtop units, which we began shipping commercially in the third quarter of fiscal 2012, partially offset by a 9.3% decrease in average unit sell prices on sales our QS-H150 handheld units.

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Gross margin for the quarter ended December 31, 2012 was $2,468,000 or 35.5% of revenues as compared with gross margin of $365,000, or 32.2% of revenues for the comparable prior year period.  The gross margin increase is primarily the higher unit volume of our explosives detection products sold, resulting in decreased unabsorbed manufacturing overhead and higher margins realized on sales of parts and supplies, partially offset by stock-based compensation recorded on the September 2012 officer and director option grants and by the 9.3% decrease in the average unit sell prices on sales of our QS-H150 handheld units in the quarter ended December 31, 2012, as compared to the comparable prior year period.

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Research and development expense for the quarter ended December 31, 2012 was $1,068,000 as compared with $747,000 for the comparable prior year period, an increase of $321,000 or 43.0%.  The increase in research and development expense is due primarily to increased payroll and related benefit costs, stock-based compensation recorded on the September 2012 officer and director option grants, partially offset by decreased contracted engineering.

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Selling, general and administrative expenses for the quarter ended December 31, 2012 were $3,793,000 as compared with $1,982,000 for the comparable prior year period, an increase of $1,811,000, or 91.4%.  The increase in selling, general and administrative expenses is due primarily a $1,221,000 increase in stock-based compensation recorded on the September 2012 officer and director option grants, increased payroll, related benefit costs and travel expense resulting from the addition of sales personnel, the imposition of liquidated damages of $298,000 under our contact with the India Ministry of Defence, due to delayed shipment and increased bank fees, partially offset by lower consulting fees due to the issuance of our common stock to certain consultants in the comparable prior year period.

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For the quarter ended December 31, 2012, other expense, net was $1,330,000 as compared with other expense, net of $926,000, for the comparable prior year period, an increase of $404,000. The increase was primarily due to increased interest expense on higher borrowings under our credit facility with DMRJ. Interest expense increased $404,000 to $1,331,000 in the quarter ended December 31, 2012 from $927,000 in the comparable prior year period.

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Our net loss for the quarter ended December 31, 2012 was $3,723,000 as compared with a net loss of $3,290,000 for the comparable prior year period, an increase of $433,000, or 13.2%.  The increase in the net loss is primarily due to stock-based compensation recorded on the September 2012 officer and director option grants, increased operating expenses and increased interest expense.

Six Months Ended December 31, 2012 vs. December 31, 2011

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Revenues for the six months ended December 31, 2012 were $8,353,000 as compared with $2,168,000 for the comparable prior year period, an increase of $6,185,000, or 285.3%.  The increase in revenue is due primarily to the shipment of the India Ministry of Defence order, resulting in a 284% increase in the number of QS-H150 handheld units sold and increased sales of parts and supplies during the six months ended December 31, 2012, as compared to the comparable prior year period and, to a lesser extent, incremental sales of our QS-B220 benchtop units, which we began shipping commercially in the third quarter of fiscal 2012, partially offset by a 8.4% decrease in average unit sell prices on sales our QS-H150 handheld units.

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Gross margin for the six months ended December 31, 2012 was $2,429,000 or 29.1% of revenues as compared with gross margin of $764,000 or 35.2% of revenues for the comparable prior year period.  The decrease in gross margin is primarily the result of increased manufacturing overhead spending due to stock-based compensation recorded on the September 2012 officer and director option grants, increased manufacturing personnel costs and by the 8.4% decrease in the average unit sell prices on sales of our QS-H150 handheld units in the six months ended December 31, 2012, as compared to the comparable prior year period.

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Research and development expense for the six months ended December 31, 2012 was $2,405,000 as compared with $1,566,000 for the comparable prior year period, an increase of $839,000 or 53.6%.  The increase in research and development expense is due primarily to stock-based compensation recorded on the September 2012 officer and director option grants, increased payroll and related benefit costs, partially offset by decreased contracted engineering.

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Selling, general and administrative expenses for the six months ended December 31, 2012 were $13,924,000 as compared with $3,795,000 for the comparable prior year period, an increase of $10,129,000, or 266.9%.  The increase in selling, general and administrative expenses is due primarily to a $9,484,000 increase in stock-based compensation recorded on the September 2012 officer and director option grants, increased payroll, related  benefit costs and travel expense resulting from the addition of sales personnel, the imposition of liquidated damages of $298,000 under our contact with the India Ministry of Defence, due to delayed shipment, increased legal fees and increased bank fees, partially offset by lower consulting fees due to the issuance of our common stock to certain consultants in the comparable prior year period.

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For the six months ended December 31, 2012, other expense, net was $2,571,000 as compared with other income, net of $1,765,000, for the comparable prior year period, an increase of $806,000. The increase was primarily due to increased interest expense on higher borrowings under our credit facility with DMRJ. Interest expense increased $805,000 to $2,572,000 in the six months ended December 31, 2012 from $1,767,000 in the comparable prior year period.

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Our net loss for the six months ended December 31, 2012 was $16,471,000 as compared with a net loss of $6,362,000 for the comparable prior year period, an increase of $10,109,000, or 158.9%.  The increase in the net loss is primarily due to stock-based compensation recorded on the September 2012 officer and director option grants, increased operating expenses and increased interest expense.

Company Conference Call

Management will host a webcast and conference call on Thursday, January 31, 2013 at 4:15 PM Eastern time to review the Company’s second quarter fiscal 2013 ended December 31, 2012 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: 866-383-8119 within the U.S. or 617-597-5344 outside the U.S. and entering passcode 93095366.  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 48142954.  The conference call will also be available live over the Internet at 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 January 2013, the Company became only the third ETD manufacturer, and the sole American-owned company, to receive product approval 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 approval for air cargo screening, the Company’s QS-B220 has also received a Developmental Testing & Evaluation (DT&E) 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 March 31, 2013; 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; the risk that 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; the risk that our business is subject to intense competition; the risks that our markets are subject to rapid technology change and that our success depends on our ability to develop and introduce new products; the risks that we may not be able to retain our management and key employees or to identify, hire and retain additional personnel as needed; the risks that 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 its 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 for the period ended June 30, 2012. 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