Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation to the registrant under any of the following provisions:

□

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

□

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

□

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

□

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02

Results of Operations and Financial Condition

On May 15, 2014, the Company issued a press release announcing its financial results for the quarter ended March 31, 2014.

Item 7.01

Regulation FD Disclosure

On May 15, 2014, the Company issued the press release described in Item 2.02 above. The press release is attached hereto as Exhibit 99.1 and is incorporated herein by this reference.  

Item 8.01.     Other Events

On May 15, 2014, the Company held a telephonic conference call to discuss the Company’s financial results for the quarter ended March 31, 2014. A copy of the Company’s script read during the conference call is attached hereto at Exhibit 99.2 and is incorporated herein by this reference.

The press release and the Company’s conference call script furnished under Item 7.01 and 8.01, including exhibits 99.1 and 99.2, of this Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall they be deemed incorporated by reference in any filing under the Securities Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01

Financial Statements and Exhibits

(d)

Exhibits

Exhibit No.

Description

99.1

Press Release of Implant Sciences Corporation, dated May 15, 2014.

99.2

Implant Sciences Corporation conference call script held on May 15, 2014 at 4:15 PM ET.

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

IMPLANT SCIENCES CORPORATION

By:  /s/  Roger P. Deschenes

Roger P. Deschenes

Vice President, Finance and Chief Financial Officer

Date:  May 20, 2014

3

EXHIBIT INDEX

Exhibit No.

Description

99.1

Press Release of Implant Sciences Corporation, dated May 15, 2014.

99.2

Implant Sciences Corporation conference call script held on May 15, 2014 at 4:15 PM ET.

Exhibit 99.1

IMPLANT SCIENCES REPORTS THIRD QUARTER FISCAL 2014

FINANCIAL RESULTS

Wilmington, MA… May 15, 2014…Implant Sciences Corporation (OTCQB:IMSC), a high technology supplier of systems and sensors for the homeland security market and related industries, today announced financial results for the fiscal quarter and nine month period ended March 31, 2014.  

Revenues for the three months ended March 31, 2014 increased 115%, to $2.7 million, from $1.3 million for the comparable prior year period.  Our net loss for the three months ended March 31, 2014 was $4.9 million as compared with a net loss of $5.3 million for the comparable prior year period, a decrease of $0.4 million.  The decrease in the net loss is primarily due to higher sales and gross margin and by a $1.0 million decrease in stock-based compensation recorded on the September 2012 officer and director option grants in the three months ended March 31, 2014, partially offset by increased operating expenses and increased interest expense.

Revenues for the nine months ended March 31, 2014 decreased 27%, to $7.0 million, from $9.6 million for the comparable prior year period.  Our net loss for the nine months ended March 31, 2014 was $15.3 million as compared with a net loss of $21.8 million for the comparable prior year period, a decrease of $6.5 million.  The decrease in the net loss is primarily due to a $10.0 million decrease in stock-based compensation recorded in the nine months ended March 31, 2014 on option grants to our directors and officers in September 2012, offset partially by increased operating expenses and increased interest expense.

Earnings before interest, taxes, depreciation, stock-based compensation, warrants issued to non-employees and common stock issued to consultants (Adjusted EBITDA), which is reconciled to net loss in this press release, were a loss of $2,299,000 in the three months ended March 31, 2014, compared to a loss of $2,307,000 in the comparable prior year period and, for the nine months ended March 31, 2014, a loss of $6,897,000, compared to a loss of $5,020,000 in the comparable prior year period.

Glenn D. Bolduc, President and CEO of Implant Sciences, commented, “During our recently concluded quarter we continued to progress through several regulatory approval processes, most notably we entered into the final testing phase for checkpoint qualification with the TSA and achieved approvals in China and Germany, all of which are important strategic achievements that we believe position the Company for consistent and sustainable growth. We have taken important steps to broaden the markets we serve, increase our revenue opportunities, and improve our financial stability.” The following are some of our recent developments:

·

In February 2014, we entered into Operational Test and Evaluation (OT&E), the final phase of testing for checkpoint qualification, with the Transportation Security Administration and continue to progress through this phase.

·

We entered into a second Cooperative Research and Development Agreement (CRADA) with the U.S. Department of Homeland Security’s Transportation Security Laboratory (TSL) for our QS-B220 explosives trace detector (ETD) which will be used as gold standard ETD by the TSL.

·

In March 2014, our QS-H150 handheld ETD was certified by the Chinese Ministry of Public Security.

·

Our QS-B220 ETD received regulatory approval from the German Federal Ministry of the Interior for aviation security applications at German airports in March 2014.

·

We successfully completed the final registration audits for registration to ISO 9001:2008 and ISO 14001:2004 standards and received the registration certificates on May 13, 2014.

·

On March 19, 2014, we completed a $20,000,000 refinancing with an accredited institutional investor group and extended the maturity of our credit agreements with DMRJ Group LLC through March 31, 2015.

·

We continued our recent gains in the Russian market with the shipment of our QS-H150 handheld to the Minsk National Airport which are being deployed at the 2014 Men’s World Hockey Championship and continued global distribution of our QS-H150 with sales to Latin America and Asia.

·

We achieved growing sales of our QS-B220 to several domestic and international freight forwarders for use in air cargo screening and for use in critical infrastructure protection in Asia.

Mr. Bolduc concluded, “We believe that our continued progress with the TSA establishes our credibility as the next generation explosives technology in the competitive global trace explosives industry. The growth in sales of our QS-B220 recognized in the just concluded quarter is attributable to being accepted into the “Qualified” section of the TSA’s Air Cargo Screening Technology List. We remain excited about our future prospects.”

Details for the three months and nine months ended March 31, 2014 follow below.

Three months Ended March 31, 2014 vs. March 31, 2013

Ø

Revenues for the three months ended March 31, 2014 were $2,708,000 as compared with $1,262,000 for the comparable prior year period, an increase of $1,446,000, or 114.6%.  The increase in revenue is due primarily to: a 1,050.0% increase in the number of QS-B220 benchtop units sold in the three months ended March 31, 2014, due to increased shipments to Asia and Europe, for use in infrastructure protection and air cargo screening, which resulted in a 1,082.3% increase in QS-B220 revenues; a 72.5% increase in the number of QS-H150 handheld units sold in the three months ended March 31, 2014, primarily due to the shipment of QS-H150 handheld units in Latin America which resulted in a 51.4% increase in QS-H150 revenues; and, to a lesser extent, increased sales of parts and supplies in the three months ended March 31, 2014, as compared to the comparable prior year period; and a 2.8% increase in average unit sell prices on sales of QS-B220 units.  These increases are partially offset by a 12.3% decrease in average unit sell prices on sales of our QS-H150 handheld units. We began shipping the QS-B220 in the second quarter of fiscal 2013.

Ø

Gross margin for the three months ended March 31, 2014 was $806,000 or 29.8% of revenues as compared with $303,000 or 24.0% of revenues for the comparable prior year period.  The increase in gross margin as a percent of revenues is primarily the result of higher margins achieved on sales of our QS-B220 benchtop units and a $84,000 decrease in stock-based compensation recorded on stock option grants to officers and directors in September 2012, partially offset by a $296,000 increase in manufacturing overhead due to an increase in manufacturing personnel costs and increased occupancy costs, as compared to the prior year period.

Ø

Research and development expense for the three months ended March 31, 2014 was $1,179,000 as compared with $1,116,000 for the comparable prior year period, an increase of $63,000 or 5.6%.  The increase in research and development expense is due primarily to a $50,000 increase in payroll and related benefit costs, a $25,000 increase in occupancy costs, a $22,000 increase in government testing fees, a $24,000 increase in consulting fees and a $11,000 increase in prototype expense, offset partially by a $78,000 decrease in stock-based compensation recorded on the September 2012 officer and director option grants.

Ø

Selling, general and administrative expenses for the three months ended March 31, 2014 were $2,845,000 as compared with $3,191,000 for the comparable prior year period, a decrease of $346,000, or 10.8%. The decrease in selling, general and administrative expenses is due primarily to a $807,000 decrease in stock-based compensation recorded on the September 2012 officer and director option grants, a $135,000 decrease in legal fees and a $127,000 decrease in consulting fees, due primarily to the non-cash benefit recognized on the settlement agreement with a consultant, partially offset  by the $295,000 benefit recognized as a result of the litigation settlement with Fulong in the prior year period, a $172,000 increase in variable sales expenses due to higher revenues and increased non-employee sales commissions,  a $147,000 increase in occupancy costs, due to the relocation of our corporate offices, a $106,000 increase in stock-based compensation on non-employee warrants and a $84,000 increase in payroll, related benefit costs and travel expense resulting from the addition of sales personnel.

Ø

For the three months ended March 31, 2014, other expense was $1,721,000 as compared with other expense of $1,335,000, for the comparable prior year period, an increase of $386,000. The increase is due to increased interest expense on higher borrowings under our credit facility with DMRJ and our credit facility with BAM.

Ø

Our net loss for the three months ended March 31, 2014 was $4,939,000 as compared with a net loss of $5,339,000 for the comparable prior year period, a decrease of $400,000, or 7.5%.  The decrease in the net loss is primarily due to higher sales and gross margin, decreased stock-based compensation recorded on the September 2012 officer and director option grants in the three months ended March 31, 2014, partially offset by increased operating expenses and increased interest expense.

Nine Months Ended March 31, 2014 vs. Mach 31, 2013

Ø

Revenues for the nine months ended March 31, 2014 were $7,023,000 as compared with $9,615,000 for the comparable prior year period, a decrease of $2,593,000, or 27.0%.  The decrease in revenue is due primarily to an 60.2% decrease in the number of QS-H150 handheld units sold in the nine months ended March 31, 2014, primarily due to the shipment of QS-H150 handheld units under our contract with the India Ministry of Defence in the nine months ended March 31, 2013, which resulted in a 61.4% decrease in QS-H150 revenues, and, to a lesser extent, decreased sales of parts and supplies in the nine months ended March 31, 2014, as compared to the comparable prior year period and a 3.2% decrease in the average unit sell prices on sales of our QS-H150 handheld units, partially offset by a 1044.4% increase in the number of QS-B220 benchtop units sold in the nine months ended March 31, 2014, due to increased shipments to U.S. air cargo screening facilities, increased shipments into Latin America, Europe and agencies of the U.S. government, which resulted in a 985.3% increase in QS-B220 revenues.

Ø

Gross margin for the nine months ended March 31, 2014 was $2,189,000 or 31.2% of revenues as compared with $2,732,000 or 28.4% of revenues for the comparable prior year period.  The increase in gross margin as a percent of revenues is primarily the result of the $552,000 decrease in stock-based compensation recorded on stock option grants to officers and directors in September 2012, partially offset by a $517,000 increase in manufacturing overhead due to an increase in manufacturing personnel costs and increased occupancy costs, as compared to the prior year period.

Ø

Research and development expense for the nine months ended March 31, 2014 was $3,601,000 as compared with $3,521,000 for the comparable prior year period, an increase of $80,000 or 2.3%.  The increase in research and development expense is due primarily to a $357,000 increase in payroll and related benefit costs, a $122,000 increase in occupancy costs, a $54,000 increase in government testing fees and a $48,000 increase in prototype expense, offset partially by a $487,000 decrease in stock-based compensation recorded on the September 2012 officer and director option grants and a $7,000 decrease in contract engineering services.

Ø

Selling, general and administrative expenses for the nine months ended March 31, 2014 were $8,939,000 as compared with $17,115,000 for the comparable prior year period, a decrease of $8,176,000, or 47.8%. The decrease in selling, general and administrative expenses is due primarily to a $8,898,000 decrease in stock-based compensation recorded on the September 2012 officer and director option grants, the imposition of liquidated damages of $298,000 under our contract with the India Ministry of Defence in the prior year period, a $173,000 decrease in bank charges, a $253,000 decrease in legal expenses, offset partially by a $444,000 increase in payroll, related benefit costs and travel expense resulting from the addition of sales personnel, a $484,000 increase in occupancy costs, due to the relocation of our corporate offices,  the $295,000 benefit recognized as a result of the litigation settlement with Fulong in the prior year period, a $264,000 increase in stock-based compensation on non-employee warrants, a $105,000 increase in variable selling expenses due to increased non-employee sales commissions and a $177,000 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.

Ø

For the nine months ended March 31, 2014, other expense was $4,990,000 as compared with other expense of $3,906,000, for the comparable prior year period, an increase of $1,084,000. The increase is due to increased interest expense on higher borrowings under our credit facility with DMRJ and BAM.

Ø

Our net loss for the nine months ended March 31, 2014 was $15,341,000 as compared with a net loss of $21,810,000 for the comparable prior year period, a decrease of $6,469,000, or 29.7%.  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 nine months ended March 31, 2014, 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, May 15, 2014 at 4:15 PM Eastern time to review financial results for the three months and nine months ended March 31, 2014. Following the Company’s prepared remarks there will be a Q&A session.  The call can be accessed by interested parties by dialing: 866-700-0133 within the U.S. or 617-213-8831 outside the U.S. and entering passcode 90391694.  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 44239175.  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 lenders, DMRJ Group, LLC and certain lenders for which BAM Administrative Services LLC serves as agent, by March 31, 2015; if we are unable to satisfy these obligations and to raise additional capital to fund operations, BAM or 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.

Exhibit 99.2

IMPLANT SCIENCES CORPORATION

THIRD QUARTER FISCAL 2014

EARNINGS CONFERENCE CALL SCRIPT

May 15, 2014

CFO – Roger Deschenes

Thank you. I'd like to welcome everyone to Implant Sciences' Third Quarter Fiscal 2014 Earnings Conference Call.  We also welcome those of you joining us on the webcast. On the call this afternoon are Glenn Bolduc, President and Chief Executive Officer, Bill McGann, Chief Operating Officer, Darryl Jones, Vice President, Sales and Marketing and joining us remotely is Bob Liscouski, a Director of the Company and a former Assistant Secretary for U.S. Infrastructure Protection with the Department of Homeland Security under Governor Ridge. We will begin by providing a brief financial report on the Company’s Fiscal 2014 results for the three and nine months ended March 31, 2014.  Glenn will provide a market overview and discuss recent developments. Following our prepared remarks, we will open the call up for questions from today’s participants.

During this afternoon‘s presentation, we will make forward-looking statements concerning upcoming events and our expectations regarding the Company's financial performance.  Each time we do, we will try to identify these statements with words such as “expect,” “believe,” “anticipate” or other words that indicate potential events.

These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those stated in the forward-looking statements.  Please consider the risk factors contained in the press release issued on May 15, 2014 and stated during this conference call, as well as the risk factors and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013, as amended, which is on file with the Securities and Exchange Commission.

During our presentation we may discuss or disclose non-GAAP measures.  These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with US GAAP. The presentation of non-GAAP information is intended instead to provide additional information to investors to facilitate the comparison of past and present results.

A replay of the conference call will be available for a limited time by dialing 888-286-8010 within the U.S. or 617-801-6888 outside the U.S. and entering the pass code 44239175.  Any forward-looking statements we make today are based on assumptions which we believe to be reasonable as of today, May 15th, 2014.  We undertake no obligation to update these statements as a result of future events.  Finally, this conference call is the property of Implant Sciences Corporation and any recording, reproduction or rebroadcast of this conference call without the expressed written consent of Implant Sciences Corporation is prohibited.

Roger Deschenes - Implant Sciences Corp. – Chief Financial Officer

On May 15, 2014, we issued an earnings press release summarizing the Company’s financial performance for the three and nine months ended March 31, 2014.  Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2014, was filed with the Securities and Exchange Commission, today, May 15, 2014.  

Review of fiscal results

Our revenues for the three months ended March 31, 2014 were $2,708,000 as compared with $1,262,000 for the comparable prior year period, an increase of $1,446,000, or 114.6%. For the nine months ended March 31, 2014, revenues were $7,023,000 as compared with $9,615,000 for the prior year period, a decrease of $2,593,000, or 27.0%.  The revenue increase in the three months ended March 31, 2014 is due primarily to increased shipments of our QS-B220 to Asia and Europe, for use in infrastructure protection and air cargo screening and increased shipments of QS-H150 handheld units in Latin America.

For the nine months ended March 31, 2014, revenues decreased primarily due to the shipment of QS-H150 handheld units under our contract with the India Ministry of Defence in the prior year period, partially offset by increased sales of our QS-B220 benchtop units to U.S. air cargo screening facilities, increased shipments into Latin America, Europe and agencies of the U.S. government, which speaks to the investment we have made in our sales team and their efforts to strengthen our sales channel.

Average unit sell prices on sales of our QS-H150 handheld units, for the three and nine months, decreased 12.3% and 3.2%, respectively.

We’re continuing to see improvement in our gross margin which for the three months ended March 31, 2014 was $806,000 or 29.8% of revenues as compared with $303,000 or 24.0% of revenues for the prior year period.  For the nine months ended March 31, 2014, gross margin was $2,189,000 or 31.2% of revenues as compared with $2,732,000 or 28.4% of revenues.

The decrease in gross margin dollars, for both the three and nine months ended March 31, 2014, is due primarily to decreased sales of QS-H150 handheld units. The increase in the gross margin percentage, for both the three and nine months ended March 31, 2014, is primarily the result of decreased stock-based compensation recorded on stock option grants to officers and directors in September 2012, partially offset by an increase in manufacturing personnel costs and increased occupancy costs, as compared to the prior year period.

Research and development expense for the three months ended March 31, 2014 was $1,179,000 as compared with $1,116,000 for the comparable prior year period, an increase of $63,000 or 5.6%.  Research and development expense for the nine months ended March 31, 2014 was $3,601,000 as compared with $3,521,000 for the comparable prior year period, an increase of $80,000 or 2.3%. The increase in research and development expense, for the three and nine month periods, is due primarily to increased payroll, related benefit costs and occupancy costs, offset partially by decreases of $78,000 and $487,000, respectively, in stock-based compensation recorded on the September 2012 officer and director option in the current period.

Selling, general and administrative expenses for the three months ended March 31, 2014 were $2,845,000 as compared with $3,191,000 for the comparable prior year period, a decrease of $346,000, or 10.8%. For the nine months ended March 31, 2014, selling, general and administrative expenses were $8,939,000 as compared with $17,115,000 for the comparable prior year period, a decrease of $8,176,000, or 47.8%. The decrease in selling, general and administrative expenses, for the three and nine month periods, is due primarily to decreased stock-based compensation recorded on the September 2012 officer, partially offset by increases in several administrative expenses, which are noted in the earnings release.

For the three months ended March 31, 2014, other expense was $1,721,000 as compared with other expense of $1,335,000, for the prior year period, an increase of $386,000. For the nine months ended March 31, 2014, other expense was $4,990,000 as compared to $3,906,000, for the prior year period, an increase of $1,084,000. The increase is due to increased interest expense on higher borrowings under our credit facility with DMRJ, and to a lesser extent in the nine month period, borrowings under a new senior secured promissory note.

Our net loss for the three months ended March 31, 2014 was $4,939,000 as compared with a net loss of $5,339,000 for the comparable prior year period, a decrease in the net loss of $400,000. The decrease in the net loss is primarily due higher sales and gross margin and by decreased stock-based compensation recorded on the September 2012 officer and director option grants in the three months ended March 31, 2014, offset partially by increased operating expenses and increased interest expense.

 Our net loss for the nine months ended March 31, 2014 was $15,341,000 as compared with a net loss of $21,810,000 for the comparable prior year period, a decrease of $6,469,000.  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 nine months ended March 31, 2014, partially offset by increased operating expenses and increased interest expense

Aggregate stock based compensation recorded on employee stock options and non-employee warrants amounted to $779,000 for the three months ended March 31, 2014, compared to $1,679,000 in the prior year period and amounted to $3,128,000 for the nine months ended March 31, 2014, compared to $12,807,000, in the prior year period.

Our EPS for the quarter was a loss of $0.08 / share, which if adjusted for stock-based compensation, the loss is reduced to $0.07 / share, which is in line with analyst estimates.

That concludes the financial report and I will now turn the call over to Glenn.

1 | Page

Glenn Bolduc - Implant Sciences Corp. – President and Chief Executive Officer

Thank you, Roger. We would also like to thank all of the participants joining us on today’s call.

In his book, Only the Paranoid Survive, Andy Grove, co-founder of Intel, introduces the concept of Strategic Inflection Points by writing, “a strategic inflection point is a time in the life of a business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end.”

Implant Sciences went through its own strategic inflection point a few years ago. We knew we had to change or die. We knew that the road ahead would be difficult. We made the commitment to transform the business, and we entered what Mr. Grove calls “the Valley of Death”.

Today we are successfully emerging from one inflection point and preparing to enter another. We have a clear picture of our strategic advantages and feel empowered to capitalize on them. We are ready to take on a leadership role in the market in order to capture significant share and drive new opportunities through demand creation.

Our vision from the beginning has been to build a sustainable business for the future, one that would grow and return value to our shareholders. Fortunately for us, we found an investment partner that shares this vision, Platinum Partners in New York. With their support we have been able to make the investments necessary to turn our vision into a reality. We have assembled what many consider to be the best trace detection team in the industry. We have designed and built a product that knowledgeable experts have called the best detector in the business. We have invested in our sales channel, we have moved into a modern facility, and we have built a top notch manufacturing team.

All of this brings us to the results for our third quarter which ended on March 31st. The third quarter was a strong one for the company. Our $2.7 million in revenue is more than double the amount from the comparable period last year. What’s more, excluding the India MoD shipment, our year to date revenue numbers are also approximately double those from last year.

Historically, third quarter revenues represent 15 to 20 percent of our annual business. If this relationship were to hold true for our most recent third quarter results, it would yield the biggest year in Company history, and that’s before adding in any sales to TSA. While every reputable financial advisor in the world will tell you that past performance is no indicator of future results, this is the kind of growth we have been aiming towards ever since we made the decision to focus on the trace detection business at our earlier inflection point. It is also the kind of growth that will lead to a strong, sustainable business.

We believe that this growth is the result of several factors, with one of the largest being our growing list of international certifications. These certifications provide unbiased proof of the performance capabilities of our equipment. In the third quarter we were proud to add approvals from the Chinese Ministry of Public Security and the German Federal Ministry of the Interior. We will add that we aren’t, by any means, done yet.

We also credit our investment in our sales team and their efforts in strengthening our sales channel. Overall, we would say that our non-US Government business is on track with our plans and expectations.

The milestone we still need to achieve to unlock our full US Government business potential is the addition of the QS-B220 to the Qualified Products List, also called the QPL. This is TSA’s designated list of products that it purchases from directly for use in checkpoint and checked baggage operations. As we have discussed before, getting added to the QPL is a three stage process of laboratory testing, also known as IT&E, testing at TSIF, and then operational testing and evaluation in actual airports, or OT&E.  When we spoke last quarter, we were just starting OT&E. As of today we believe we are nearing the end of it. We are literally counting down the days and feel confident about our systems performance!

Things have taken longer than we hoped because ours is a new design in the industry. The QS-B220 works somewhat differently than previous generations of trace detection equipment, and the differences can manifest themselves operationally. Some differences have necessitated training, explanation, or evaluation for the testers to fully understand. Each of these requires a little extra time and effort on the part of the TSA team to resolve, occasionally as much as a few days. This may be the source of the rumors you have heard about testing being halted.

As of today we are not aware of any deficiencies that will prevent the system from passing OT&E. We have had service personnel stationed near the airports where the QS-B220 is being tested. Thus far they have received a minimal number of service requests and our overall statistics on operational support have been very good by our accounting. Those who remember the Maytag repairman TV commercials may have some insight in how our service personnel are starting to feel.  Of course, during this period we have no access to the TSA data collection; but based on the data our field support teams are collecting, our metrics are strong. From where we sit, all we see is TSA doing a very thorough job of testing and evaluating a piece of equipment that we expect will soon be protecting travelers in the United States.

While we could wish the process was faster, our ultimate objectives are being met and our new ETD system has gained the recognition that it deserves in the process. The time spent over the past couple of months in familiarizing screening operators at the designated airports is not only building confidence with TSA personnel, but is also providing invaluable experience for our installation, training, and field service teams.  All of this is required to establish the proper rhythm of delivering, operating and maintaining new systems in the field for the decades ahead. These ARE the critical aspects of the OT&E process and our experience to date with the TSA has been positive.  

Separate from the OT&E process, but yet another indicator of the future opportunity for the QS-B220 is the CRADA we recently signed with the U.S. Department of Homeland Security's Transportation Security Laboratory, or TSL. The purpose of this CRADA is for the laboratory to use the newly approved QS-B220 as a gold standard explosives trace detector for assessing new threats and defining future standards. This means that TSL will be using Implant Sciences’ technology to help shape the explosives detection security environment of tomorrow. Our relationship with TSL remains strong and we are committed to sustaining it.

It is no secret, or surprise, that despite this growth in revenue the Company continues to operate at a loss. That is because we have invested in the infrastructure to meet our next major step along the path to our goal of building a sustainable Company— that is to be ready to install and support our products at airports across the United States and the world. This has required scaling up our organization to handle much larger volumes of production, sales, and support in advance of receiving revenues. The fact of the matter is to play at this level in the industry you have to prove you are ready before you get the order.

To secure our ability to reach the goal, we have been searching for additional investment. In our third quarter we were successful in attracting another group to share our vision. Their $20 million investment, combined with Platinum’s agreement to extend the maturity of our existing debt to March 31^st of next year, provides us with the ability to keep the “pedal to the metal” while we finish the work that we began some five years ago.

An example of this is the recent hiring of Jonathan Saunders as Manufacturing Manager and Garry Haacke as Test Manager. Jonathan brings an extensive background in manufacturing operations to our growing production floor, and his joining the team is an important part of ramping up our production capability. Garry will be using his background in Chemistry and Instrumentation Technology to help make sure our products are of the best possible quality.

Another important part of reaching our goal is the completion of our new combined quality and environmental management system. We announced earlier this week that our system had been reviewed by an independent auditor and recommended for registration under both ISO9001 and ISO14001. We are very pleased to be able to inform you today that we have received our final registration certificates. This achievement establishes our credibility as a world class organization with proven capabilities to deliver and support quality products while remaining sensitive to our impact on the global environment.  

These three pieces, increased financial backing, manufacturing leadership, and the new business management system, have come together at just the right time. We have recently begun the largest single production run of ETD systems in Company history, a quantity of systems that will be necessary to fill the orders we see coming in over the next few months. This run is bigger than that which we needed to fulfill the Beijing Olympics order. It is more trace detectors than we built for India MoD. One of the most exciting moments in our recent company history was determining that we absolutely had to begin manufacturing this large quantity of systems.

None of this would have been possible without the strong backing of Platinum. Their commitment to helping us buld lasting value for our shareholders has been one of the cornerstones of our success. We thank them for their support and guidance over the years. We also thank our investors who have stood by us through thick and thin. We hope to be seeing more “thick” very soon.

Speaking at the annual meeting of the Academy of Management in August, 1998, Andy Grove said, “key warning signs that hint that the change you are dealing with make a Strategic Inflection Point is when it is clear to you that all of a sudden the company or the entity that you worry about has shifted. You have dealt with one particular company or establishment as a competitor all your life and all of a sudden you don't care about them, you care about what somebody else thinks. I have this mental silver bullet test. If you had one bullet, who would you shoot with it? If you change the direction of the gun, that is one of the signals that you may be dealing with something more than an ordinary shift in the competitive landscape.”

Ask our competitors where they stand on the silver bullet test. We’re pretty sure that they’ve changed the direction of their guns lately, and that’s a sign of a Strategic Inflection Point we should all be pretty excited about.

Thank you for participating in today’s conference call and for your continued interest in Implant Sciences. We will now take your questions.

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