<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                   ------------------------------------------
                                   FORM 10-KSB

(Mark one)

[X]  Annual report under section 13 or 15(d) of the  Securities  Exchange Act of
     1934 For the fiscal year ended April 30, 2003

                                       OR

[ ]  Transition report under section 13 or 15(d) of the Securities  Exchange Act
     of  1934  For  the   transition

           Period from _____________________ to _____________________

                       Commission file number: 0 - 32093

                           HiEnergy Technologies, Inc.
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

               Delaware                                 91-2022980
               --------                                 ----------
   (State or other jurisdiction of         (I.R.S. Employer Identification No.)
    incorporation or organization)

         1601 Alton Pkwy, Suite B, Irvine, CA                   92606
--------------------------------------------------------------------------------
       (Address of principal executive offices)               (Zip Code)

                    Issuer's telephone number: (949) 757-0855
                                               ---------------

Securities registered under Section 12(b) of the Act: None
                                                      ----

Securities  registered  under Section
  12(g) of the Act:     Common Stock,  par value $0.0001 per share
                        ------------------------------------------
                                     (Title of class)


Check  whether the Issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 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. [ ]

Registrant's revenues for its most recent fiscal year:          $144,587
                                                       -------------------------

As  of July 22, 2003 the aggregate market value of the voting common equity held
by  non-affiliates of the registrant was $14,249,000 based on $0.75/share as the
closing  price  reported  on  the  OTC BB operated by the NASD. Shares of common
stock held by each officer and director and by each person who owns five percent
or more of the outstanding common stock have been excluded from this calculation
as  such  persons  may  be  considered  to  be  affiliated  with the registrant.

On July 22, 2003,  the registrant  had  28,819,464  shares of common stock,  par
value $0.0001 per share, issued and outstanding.

Documents incorporated by reference: None.
                                     ----



          TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: Yes [ ] No [X]


<PAGE>



                           HIENERGY TECHNOLOGIES, INC.

                                    INDEX TO
                          ANNUAL REPORT ON FORM 10-KSB
                    FOR THE FISCAL YEAR ENDED APRIL 30, 2003


<TABLE>
<CAPTION>
PART I                                                                                                 PAGE

<S>                                                                                                      <C>
Item 1     Description of Business...................................................................... 4

Item 2     Description of Property......................................................................17

Item 3     Legal Proceedings............................................................................17

Item 4     Submission of Matters to a Vote of Security Holders..........................................18

PART II

Item 5     Market for Common Equity and Related Shareholder Matters.....................................19

Item 6     Management's Discussion and Analysis or

           Plan of Operation............................................................................23

Item 7     Financial Statements.........................................................................35


Item 8     Changes In and Disagreements With Accountants on Accounting and

           Financial Disclosure.........................................................................70


PART III

Item 9     Directors, Executive Officers, Promoters and Control Persons; Compliance

           With Section 16(a) of the Exchange Act.......................................................71

Item 10    Executive Compensation.......................................................................73


Item 11    Security Ownership of Certain Beneficial Owners and Management and

           Related Shareholder Matters..................................................................76

Item 12    Certain Relationships and Related Transactions...............................................78

Item 13    Exhibits and Reports on Form 8-K.............................................................80

Item 14    Controls and Procedures......................................................................81

Item 15    Principal Accountant Fees and Services.......................................................81

SIGNATURES..............................................................................................82
</TABLE>


<PAGE>


                                     PART I

Unless we say  otherwise,  references in this document to "we",  "us",  "our" or
"Company"   refer  to  HiEnergy   Technologies,   Inc.   and  its   consolidated
subsidiaries.

FORWARD-LOOKING STATEMENTS

Except for the historical  information  presented in this document,  the matters
discussed  in this  Form  10-KSB,  and  specifically  in the  sections  entitled
"Description of Business" and  "Management's  Discussion and Analysis or Plan of
Operation," or otherwise  incorporated  by reference into this document  contain
"forward-looking  statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995). These statements can be identified by the use of
forward-looking  terminology  such as  "believes,"  "plans,"  "expects,"  "may,"
"will,"  "should," or  "anticipates" or the negative thereof or other variations
thereon or comparable  terminology,  or by  discussions of strategy that involve
risks and  uncertainties.  The safe  harbor  provisions  of  Section  21E of the
Securities  Exchange Act of 1934, as amended,  and Section 27A of the Securities
Act of 1933, as amended,  apply to forward-looking  statements made by us. These
forward-looking  statements  involve risks and  uncertainties,  including  those
statements  incorporated by reference into this Form 10-KSB.  The actual results
that we achieve may differ materially from any  forward-looking  projections due
to such risks and uncertainties.  These forward-looking  statements are based on
current  expectations,  and we assume no obligation to update this  information.
Readers are urged to carefully review and consider the various  disclosures made
by us in this Annual  Report on Form 10-KSB and in our other  reports filed with
the Securities and Exchange Commission that attempt to advise interested parties
of the risks and factors that may affect our business.


ITEM 1.  DESCRIPTION OF BUSINESS


OVERVIEW

We have developed  technology capable of remote and non-intrusive,  quantitative
on-line  deciphering  of  the  chemical  composition  of  substances,  including
explosives,  biological  weapons  and  illegal  drugs.  We plan to  continue  to
develop, commercialize and market our technology to agencies,  organizations and
ultimately  industrial  users  that need to  improve  the  speed,  accuracy  and
efficiency of their security screening procedures.


Our  technology  is a  "stoichiometric"  sensor that  identifies  the  empirical
chemical formulas of the analyzed  chemical  substance.  "Stoichiometry"  is the
scientific  term for the art and science of deciphering  the empirical  chemical
formulas of unknown substances.


Our technology is superior to confirmation  detectors which provide confirmation
of  presence or absence by using  "pattern  recognition"  technology  which only
qualitatively  recognizes the specific  chemical  compounds that the detector is
programmed to identify.  While both  stoichiometric  technology and confirmation
detectors  will  conclusively  identify the chemical  nature of the target being
scanned,   stoichiometric  detection  produces  an  identification  of  chemical
formulas  of almost  every  substance  and is not  limited to  finding  targeted
substances.  Our  technologies  are  far  superior  to  the  so-called  "anomaly
detectors","  such as x-ray scanners,  which merely  identify  objects fitting a
certain profile.  As a general  proposition,  anomaly detectors will give a high
rate of "false positives." that require additional examination.


During the period 1998-2002,  our prototype SuperSenzor demonstrated the ability
to retrieve from three feet away, in a matter of seconds,  the chemical  formula
and three-dimensional  location of (1) explosive simulant through steel or soil;
(2) cocaine  simulant through rice; and (3) anthrax through paper. The empirical
chemical   formulas   of   substances   and   their   locations   are   obtained
non-intrusively, trans-barrier, and online.


On May 8, 2002, our prototype MicroSenzor demonstrated, before two inspectors of
the Office of Inspector General of the Department of Transportation, the ability
to semi-automatically, stoichiometrically identify one kilogram of TNT explosive
simulant in a metal  container  from a distance  of one foot in 20 minutes,  and
discriminate it from common non-explosive substances.




                                       4
<PAGE>

On  June  3,  2002  our  prototype  MiniSenzor  demonstrated,  before  an ad hoc
(internal)  committee  led by an aviation  security  specialist,  its ability to
stoichiometrically  identify,  through  a metal  container,  one pound of semtex
explosive simulant in 30 seconds,  automatically and without human intervention,
as well as to reject common non-explosive substances like sugar and chocolate.


The  SuperSenzor,  MiniSenzor  and  MicroSenzor  are  based  on the  proprietary
invention named atometry. We led the joint private  sector-government-university
research  consortium  that  developed  atometry over the period from  1997-2002.
Atometry was  scientifically  validated at the US Department of Energy's Special
Technologies  Laboratory  in Santa  Barbara and was for the first time  publicly
presented at the White House  International  Symposium on Drug Control Policy in
1999 and published in the Symposium's Proceedings.


We are unaware of any other stoichiometric detector on the market. We understand
there may be two in the  laboratory  stages,  neither of which has been shown to
have stoichiometric detection capability.


On January 9, 2003, our MiniSenzor  demonstrated  high reliability in blind open
air field tests at the Indian Point, Maryland,  U.S. Navy Base. The primary goal
of the tests was to  determine  the  ability  of our  MiniSenzor  to  chemically
determine,  from the outside, whether or not the filler of an artillery shell or
other  containers,  is an explosive or an inert substance.  MiniSenzor  scored a
perfect 100%.


MiniSenzor   automatically,    without   any   human   intervention,   correctly
differentiated  every explosive from every non-explosive -- a score of 100%. The
secondary goal was to identify what specific  explosive but in 20% of the cases,
MiniSenzor  could not  distinguish  between two  explosives.  MiniSenzor got the
exact  chemical   composition  of  all  the  inert   substances  and  could  not
differentiate two explosives that were too similar to be distinguished  exactly,
which made our score come to 80%. In easier cases,  it  differentiated  TNT from
Semtex; gasoline from diesel fuel; and fertilizer from RDX.


Our  scientists  consider  MiniSenzor to be a "poor man's  SuperSenzor"  because
SuperSenzor  is  projected  to be at least 10 times  more  accurate.  MiniSenzor
initially had not been  developed as an industrial  product but rather as a test
device for the ultimate SuperSenzor.


Delivery of the key  component of the first  portable  SuperSenzor,  which is 25
lbs. in weight,  is  scheduled  for August  2003.  Past  SuperSenzor  tests were
carried out with large, immobile laboratory equipment.

CORPORATE HISTORY

We are the parent public company of what had been an operating  subsidiary named
HiEnergy Microdevices,  Inc. We were incorporated under the laws of the State of
Washington on March 22, 2000,  under the name SLW Enterprises  Inc. On April 30,
2002,  we  changed  our  name  to  HiEnergy  Technologies,  Inc.  following  our
acquisition of an approximately 92% ownership interest in HiEnergy Microdevices,
Inc. in a reverse take-over transaction. As a result of this transaction, former
stockholders  of  HiEnergy  Microdevices  came to own  approximately  65% of our
outstanding equity. The composition of our board of directors currently consists
of five directors.


On October 22,  2002,  we changed our  domicile  (state of  incorporation)  from
Washington to Delaware by merging into a Delaware corporation.  Our name remains
HiEnergy Technologies, Inc. Our 92% owned subsidiary, HiEnergy Microdevices is a
Delaware  corporation  formed in 1995. It is the entity by which our  technology
had been  developed.  Dr.  Bogdan  Maglich,  our  Chairman  of the Board,  Chief
Executive Officer,  President,  Treasurer and Chief Scientific Officer,  founded
HiEnergy  Microdevices to  commercialize  the technology he invented to remotely
and non-intrusively decipher the chemical composition of substances.


Prior to the reverse  take-over  transaction,  SLW Enterprises'  initial efforts
focused on establishing a web-based nutritional supplement sales business. under
a different trade name. That business has been inactive the past fiscal year.





                                       5
<PAGE>

INDUSTRY OVERVIEW

We believe our  technology  will have broad  applicability  within the substance
detection industry. The need for substance detection cuts across many spheres of
our economic and political  life.  Many  Americans  most  prominently  associate
substance  detection  with the  security  industry and more  precisely  with air
travel since September 11, 2001.

Detection  technology  is used to detect a wide range of  substances,  including
explosives,   biological  weapons  and  illegal  drugs.  We  believe  the  major
commercial  applications  for our  technology  are in areas  requiring  security
precautions,   including   airports,   ports   of   entry,   military/government
installations and other secured areas. In addition,  industrial  quality control
processing in certain  industries  requires  non-intrusive  sampling.  The table
below summarizes selected markets for detection technology.

Market Area                               Potential Customer
--------------------------------------------------------------------------------
Airport security screening                Transportation Security Administration
--------------------------------------------------------------------------------
Customs contraband detection              U.S. Customs Service
--------------------------------------------------------------------------------
Biological weapons detection              Department of Defense
--------------------------------------------------------------------------------
Landmine detection                        Department of Defense
--------------------------------------------------------------------------------
Industrial quality control                Crude oil refiners, bulk food
processing                                processors, steel manufactures
--------------------------------------------------------------------------------
Police and ATF Bomb squads                Bureau of Alcohol, Tobacco,
explosive detection                       Firearms (ATF); Local Bomb Squads
--------------------------------------------------------------------------------

We believe our core technology has applications in each of these markets. In the
aggregate we believe that the domestic demand for detection  technology  exceeds
$3 billion over the next several  years.  We cannot  predict the exact timing on
which the agencies and organizations  comprising these markets will purchase new
detection  systems.  International  markets  also exist in each of these  market
areas.

Detection  technologies  can be  broadly  divided  into  anomaly  detectors  and
confirmation  detectors.  Anomaly  detectors,  such as x-ray scanners,  identify
anomalies  that require  further  intrusive  inspection  to determine  whether a
threat is present. As a general proposition,  anomaly detectors will give a high
rate of false  positives that must be further  investigated  while  confirmation
detectors will conclusively  identify the chemistry of the target being scanned.
Pattern  recognition  confirmation  detectors  qualitatively  recognize specific
chemical  substances  that the detector is programmed to identify.  In contrast,
stoichiometric  confirmation detectors produce a quantitative  identification of
chemical formulas without having to seek a match to a pre-programmed qualitative
pattern. Because stoichiometric detection produces an identification of chemical
formulas,  it is a  superior  technology  to  pattern  recognition  confirmation
detection,  which only  recognizes  specific  signal shapes that the detector is
programmed to identify.

The most commonly employed  detection  technology today is the x-ray, an anomaly
detector. Certain versions of the x-ray known as a CT x-ray can retrieve precise
three-dimensional  images of the  density  of  objects.  The x-ray can  identify
objects fitting a certain profile that require further  inspection  through some
confirmation  detection process.  But the x-ray is "chemically  blind", and thus
unable to identify the contents of a container without opening the container. In
airport security  screening,  for example,  the x-ray can roughly  determine the
target's density and if it is similar to that of a typical explosive.  There are
hundreds of common substances,  however,  that have a density similar to that of
explosives.  As many travelers experience daily at U.S. airports, once the x-ray
identifies an anomaly,  intrusive  inspection is required to determine whether a
security threat is present.

MARKET OPPORTUNITY

The events of  September  11, 2001 have  fundamentally  altered the way both the
public and governments view security.  In response to September 11,  governments
are looking to step up security not only in the air travel sector,  but across a
wide array of  activities.  The enhanced  security will demand either  increased
time and  expense  using



                                       6
<PAGE>

existing  technology  or the  adoption  of  innovative  technologies  to improve
security while minimizing the drag on economic activity.

Specific problems that exist with current technology include the following:


AIRPORT SECURITY SCREENING


Congress passed  legislation  requiring that 100% of checked baggage be screened
for explosives by December 31, 2002,  and authorized  extensions to the December
31,  2002  deadline  for fully  deployed  electronic  detection  systems  in the
legislation  which  created  the  new  Department  of  Homeland  Security.   The
Transportation  Security  Administration  began  screening  100% of all  checked
baggage by the December 31, 2002 deadline,  but is using temporary  measures and
equipment many airports.  Existing technology,  such as Computed Tomography (CT)
machines, cannot identify the contents of luggage, as they are chemically blind.
Instead, they look at the density of the objects inside a container, and ask the
operator of the CT machine to decide  whether  there is a problem.  This process
results  in a very high rate of false  positives,  it  depends  solely  upon the
alertness and training of the operator,  it cannot see through metal containers,
and it cannot confirm the existence of explosives.


CUSTOMS SCREENING

The U.S.  Customs  Service has identified the need to screen and check packages,
shipping  containers,  and trucks entering all U.S. ports of entry. This task is
monumental  (approximately 5.7 million sea containers enter the U.S. each year),
and  requires  technology  that is quick,  non-intrusive,  and can  operate at a
distance.  Under the Container  Security  Initiative  of January 2002,  the U.S.
Customs has even begun  pre-inspection  of "high risk" cargo containers at three
major  points of origin.  Existing  technology  is limited in that it cannot see
well through  metal,  needs to be close to the  suspected  object (or inside the
container), and cannot confirm the identity of the unknown substance.

LANDMINE DETECTION

The  Department of Defense has the difficult  task of protecting  its own troops
and tanks from anti-personnel and anti-tank mines. Significant damage is done to
tanks,  soldiers,  and  civilians  by old and new mines  around the  world.  The
current technology to clear landmines that uses anomaly detectors, such as metal
detectors,  Ground  Penetrating  Radar and  infrared  imaging,  has  significant
drawbacks:  only one out of 800 anomalies turn out, after having been unearthed,
to be real mines; the rest of the anomalies are "clutter" that must nevertheless
be investigated as though they were live mines.  The result is that mines cannot
be checked  quickly,  and humans must place themselves at risk to verify that an
area of land is clear.  The United  Nations has estimated that it would cost $30
billion  and take  more than 150 years to clear  all  landmines  using  existing
technology.

CONTAMINATION CONTROL

With the advent of security for not only people,  but the actual  products  they
use,  there is a growing  market to make sure that  someone does not cause panic
and widespread terrorism by contamination. We believe that contamination control
of all kinds could ultimately be one of our most significant markets.  Currently
contamination  control  is  conducted  through  sampling,   with  targets  being
subjected to tests to determine whether specific  contaminants are present. This
approach  requires  the  destruction  of the target  (resulting  in an  economic
incentive to minimize  sample size), it may not identify  isolated  instances of
contamination,  and it may not detect a  contaminant  because the  contaminant's
identification was excluded from the testing regimen.

CARBOMB DETECTION

Car bombs have emerged as a threat in the European market and in the Middle East
/ African market with the recent terrorist attacks in Casablanca and Riyadh, and
capability  to  remotely  detect car bombs has  generated  interest in the these
markets. These attacks were carried out by large car bombs, which are relatively
easily  detectable  with  HiEnergy's  technologies.  We  believe  we can,  under
appropriate  circumstances,  capture a significant part of both the European and
Middle East- / African markets.

In each of these areas, as well as others, we believe the market will pay for an
innovative security approach that improves security while minimizing the drag on
economic activity. The need for explosive and biological identification is a key
factor in our  assessment  of the  market  opportunity  for our  technology.  We
believe the entire security and anti-terrorism market is a growing industry.



                                       7
<PAGE>

THE HIENERGY TECHNOLOGIES SOLUTION

We have developed unique detection  technology that remotely and non-intrusively
determines  the  chemical  formula of unknown  substances  in real time  (called
"stoichiometric"  detection).  Our  technology  is unique in that it can for the
first time:

     o    Identify chemical compositions of unknown substances;

     o    Operate remotely (i.e.: from a distance of millimeters to meters);

     o    Operate through barriers (i.e.: through solid steel casing); and

     o    Operate in real-time (i.e.: in a matter of seconds).

We  believe  our  technology  represents  a major  innovation  in the  field  of
detection  technology because it will allow us to develop detection systems that
can - without  needing to  pre-program  patterns to be  recognized - confirm the
presence of concealed explosives,  illegal drugs,  biological/chemical  weapons,
and   other   contraband.   Because   stoichiometric   detection   produces   an
identification  of chemical  formulas,  it is a superior  technology  to pattern
recognition  confirmation  detection,  which only recognizes  specific  chemical
formulas that the detector is programmed  to identify.  Confirmation  detectors,
which confirm the presence of specific  chemicals in a scanned target,  are as a
general rule superior to anomaly detectors, such as x-ray scanners, which merely
identify  objects  fitting a certain  profile that require  further  examination
through some confirmation  detection process (such as a time-consuming  search).
We believe our  stoichiometric  detection  technology  will provide  substantial
improvement  over the anomaly  detection  based  technology that prevails today,
because  stoichiometric  detection will produce more accurate  detection results
while  simultaneously  reducing  the  high  rate of  false  positives  (and  the
accompanying time-consuming searches).
Over the last three years several successful  demonstrations have been conducted
which proved the technical concepts.

     o    A Department of Defense funded  demonstration  which  demonstrated the
          chemical  detection of an explosive simulant through 3/4 of an inch of
          steel as well as 5 inches of soil from a distance of 3 feet;

     o    A  demonstration   under  a  U.S.   Customs  Service   contract  which
          demonstrated  the  chemical  detection of cocaine  simulant  buried in
          rice; and

     o    A  demonstration  for the Defense  Advanced  Research  Projects Agency
          which demonstrated the chemical fingerprinting of Anthrax simulant.

We are unaware of any prior  demonstrations in the history of analytic chemistry
where empirical chemical formulas have been stoichiometrically deciphered (a) on
a timely basis, (b) without sampling and (c) through barriers.

We have developed our unique  technology  through  several years of research and
testing,  including work under research contracts sponsored by the Department of
Defense and the U.S. Customs Service,  as well as by research and testing at the
University  of  California,  Irvine.  Patent  applications  have been  filed for
certain proprietary components of the technology.

The  technology  uses the  physical law that the gamma  spectrum  emitted from a
collision  between a neutron  and an atom in the target has a unique  signature.
Combining  information  on the neutron's  direction of travel with its length of
travel  provides the position in space of the nucleus  impacted.  A  proprietary
processor  synthesizes  the gamma  spectrum  data and  outputs  both the precise
molecular  makeup (also known as  stoichiometry)  of the irradiated  specimen as
well as its  coordinates.  In  this  manner,  our  technology  performs  remote,
non-intrusive  deciphering of the chemical formulas of concealed  substances and
can "see through"  metals and other  materials.  Further,  it does this analysis
without the need of being in close  proximity  with the target for inspection or
chemical identification.

We believe our technology  will allow us to create  leading  products in several
market areas, including airport security screening, customs screening,  landmine
detection and contamination control.



                                       8
<PAGE>

AIRPORT SECURITY SCREENING

X-ray detectors for airport security rely on anomaly detection, where a detector
signals that a potential  problem may exist.  The operator  must,  for each bag,
decide whether there is a potential problem,  and then use a secondary,  usually
intrusive,  means to actually  determine  whether  there is an  explosive.  This
system creates several problems,  including a very high rate of false positives,
and worse,  the  inability  to detect  explosives.  The system  depends upon the
judgment of recently federalized screeners,  the training and management of whom
has proven a major stumbling block to consistent,  alert security.  Our proposed
systems  will  be  dramatically   different.   They  should  improve  safety  by
unambiguously  and  automatically  displaying the chemical formula of the target
through up to 3/4 inch thick steel and not relying upon operator interpretation.
Our technology should dramatically lower the rate of false positives,  improving
speed and efficiency and reducing air travel delays.

CUSTOMS SCREENING

The U.S.  Customs  Service has  identified the need to screen ports of entry for
contraband, weapons, and biological agents. Currently, less than five percent of
all shipping  containers are checked by any physical  screening method.  Senator
Charles Schumer has estimated that it could cost up to $5 billion to check every
shipping container and truck entering the United States.  Because our technology
has  demonstrated  that it can  perform  detection  through up to 3/4 inch thick
steel, it offers the potential for real time trans-metal deciphering of chemical
formulas.  Thus, shipping  containers could be checked for contraband,  weapons,
and explosives in real-time without having to open and unseal the containers. We
are not  aware of any  other  form of  detection  technology  that  can  perform
trans-metal stoichiometric detection.

LANDMINE DETECTION

Current technology used to clear landmines, such as Ground Penetrating Radar and
metal detectors,  has significant  drawbacks.  Existing technology is limited by
the need to penetrate soil, by the manufacture of non-metallic landmines, and by
its  inability  to  operate  from a distance  in real time.  Only one out of 800
anomalies turn out, after having been unearthed,  to be real mines;  the rest of
the anomalies are "clutter" that must  nevertheless  be  investigated  as though
they were live  mines.  The  result of these  drawbacks  is that land  cannot be
checked  quickly or  accurately,  and humans  must place  themselves  at risk to
verify that an area of land is clear.  Because our  technology can "see through"
soil and  containers,  and return a  quantitative  chemical  formula,  it should
enable field  personnel to quickly,  accurately,  and safely confirm whether the
anomaly is an explosives loaded landmine or clutter.

CONTAMINATION CONTROL

We believe that our technology  will be able to  stoichiometrically  analyze the
contents of a given  liquid or solid and provide an  immediate  warning if there
are any chemicals or compounds  that are not supposed to be present.  We believe
our  technology  will  be  a  significant  improvement  over  existing  sampling
procedures because of our technology's chemical-specific capabilities.  Although
we intend to begin  pursuing  this market area in the coming  fiscal  year,  the
development of this market area into a revenue-producing  segment is a long-term
project.

CARBOMB DETECTION

We  submitted a solicited  bid for our new CarBomb  Finder(tm)  series of remote
clandestine  detectors of bombs in trunks, seats and engines of parked or moving
cars to a  counterterrorist  agency of a major European  Union country.  CarBomb
Finder(tm)   is  designed  as  a   police-vehicle-borne   SuperSenzor   (`303'),
MiniSenzor(`302')  or  MicroSenzor  (`301')  which will  decipher  the  chemical
composition of the contents of other cars through the metallic walls of both the
police car and the target vehicle. The CarBomb  Finder (TM) will detect bombs in
trunks,  seats  and  engines  of  parked or moving  cars.  They are  priced  at,
$500,000,   $250,000  and  $175,000  respectively.   They  provide  clandestine,
non-obtrusive, effective searching inside cars.


The CarBomb Finder has generated interest in the European market possibly due to
the most recent terrorist attacks, those in Casablanca and Riyadh. These attacks
were carried out by large car bombs, which are relatively easily detectable with
HiEnergy's  technologies.  We believe we can, under  appropriate  circumstances,
capture both the European and Middle East-African markets.



                                       9
<PAGE>

PROPOSED PRODUCTS

We are developing three versions of our technology:

     o    SuperSenzor: Fixed or van mounted,  generator-powered product that can
          locate a concealed  substance  within the item being  scanned and will
          include imaging.

     o    MiniSenzor:   A  portable  sensor  intended  to  accomplish  the  same
          objective,  but without imaging, that will use a miniature accelerator
          that is expected to provide a substantial  speed  improvement over the
          MicroSenzor.

     o    MicroSenzor:  Portable,   battery-powered,   lower-cost  system,  also
          without imaging.

We have assembled  bench-top  prototypes of the MicroSenzor and MiniSenzor,  and
are in the process of  creating a  bench-top  prototype  of the  SuperSenzor.  A
bench-top  prototype is an improvised  system,  designed for  laboratory use and
testing, which has not been assembled into an integrated unit.

We are using our existing  bench-top  prototypes to conduct  tests.  These tests
will determine performance  parameters,  e.g. detection rates and speed, for the
MicroSenzor and MiniSenzor.

Once  tests  using the  bench-top  prototypes  have been  completed,  we plan to
assemble and test commercial  prototypes.  A commercial prototype will integrate
and assemble all of the bench-top  prototype's  components into a fixed unit. We
plan to test our  commercial  prototypes  in  circumstances  that  simulate  the
environments  in which they will be used. This testing process will be a crucial
link to the delivery of market-ready  detection systems we seek to achieve.  The
results of ongoing tests may alter the  direction and focus of our  technology's
development program.

We have assembled a commercial prototype (beta version) of a MiniSenzor designed
for  interrogating  unexploded  ordnances,  and conducted tests in circumstances
that simulate the environment in which it would be used.

The  SuperSenzor,  for  which we are in the  process  of  creating  a  bench-top
prototype, has four key components:

     1.   The "emitter" is a miniature  accelerator  which  produces a stream of
          fast neutrons and alpha particles.

     2.   The "receiver" is a detector of gamma rays generated by the target.

     3.   The  "gammalyzer"  is  a  fast  electronics   system  operating  on  a
          billionth-of-a-second  scale.  It detects and  analyzes the gamma rays
          and alpha particles to determine the target  substance's  location and
          separate  the  "signal"  (i.e.,  the  target  substance,  such  as  an
          explosive) from "noise" (i.e., clutter).

     4.   The  "controller"  is a computer and software for interface and signal
          coordination which displays the result of the analysis online.

None of these key components  require an increase in  performance  parameters to
make a commercial  prototype of the SuperSenzor,  although design  modifications
may be required to coordinate the components  into a fixed unit capable of being
built on an integrated  production  line. We must also assess the  durability of
these key  components  in an  environment  where they must  function  accurately
day-in and day-out, rather than occasionally in a lab experiment.

We  have  developed  relationships  with  some of the  manufacturers  of the key
components of our  technology,  such as AMETEK Ortec, a manufacturer of high-end
gamma ray  detectors,  and Thermo MF Physics,  a  manufacturer  of  accelerators
(neutron  generators).  We do not  presently  have supply  contracts  with these
manufacturers or any others.  Our equipment  purchases to date have not entailed
the volume levels that would make it advisable to put supply contracts in place.

The MicroSenzor is essentially a one-man  portable  version of the  SuperSenzor.
The  MicroSenzor  operates  from a short  range,  a few  inches  from the object
inspected.  It is 100 times slower than the SuperSenzor,  making it suitable for
more static  environments.  We believe that certain  prospective  customers will
view its lower unit cost and relative  ease of transport  as  advantages.  These
prospective  customers would choose a MicroSenzor for security



                                       10
<PAGE>

applications and industrial  applications where using a SuperSenzor would not be
feasible or  efficient.  The  MiniSenzor  that we are  developing is expected to
perform in a manner  similar to the  MicroSenzor,  but with a substantial  speed
improvement.

The MicroSenzor has three key components:

     1.   The emitter is a neutron source via Americium isotope production.

     2.   The receiver is a detector of gamma rays, the same as that used in the
          SuperSenzor.

     3.   The controller computer software for interface and results display.

The MicroSenzor provides only chemical formulas as its result,  without imaging.
We have conducted  laboratory  tests of the  MicroSenzor for inspectors from the
Office of the Inspector General of the Federal Aviation  Administration,  and we
have  concluded  a series of tests of the  MiniSenzor  (under a Phase I DOD SBIR
Grant) at the University of California, Irvine.

MARKETING PLANS, SALES, GOVERNMENT GRANTS AND PRODUCTION

The market niche that we occupy,  within the broad  security and  anti-terrorism
industry,  is that of advanced detector technology.  This niche is characterized
by expensive,  technologically  advanced systems such as Computed Tomograhy (CT)
and  Quadrapole  Resonance (QR) systems for airline and customs  screening,  and
Ground Penetrating Radar (GPR) based systems for landmine detection.

Within this market niche, we believe our  stoichiometric  technology has several
competitive  advantages,  including its ability to determine the exact  chemical
formula  of  a  substance,  perform  trans-metal  deciphering,  operate  from  a
distance, and not rely on user interpretation.

GENERAL MARKETING PLANS

We believe  our  technology  represents  a new  generation  of  improvements  in
security technology. As a result, we believe that a general education program is
necessary  to persuade  opinion  leaders  and the public of the  benefits of our
technology.  We must raise customer awareness,  implement a customer development
program, and create public pressure to demand adoption of our technology.

To increase customer awareness, we plan to gain an understanding of the specific
requirements  for target  customers and explain how our technology  will satisfy
their  requirements.  We  plan  to  explain  our  technology  through  technical
presentations,   on-site   demonstrations,   publishing  articles  in  technical
journals, speaking at technical conferences,  and creating opportunities to give
interviews and generate media attention.

We expect that our customer  development program will include developing a close
relationship with the appropriate  technical officers within a target customer's
organization.  We expect our program to include describing to potential customer
technical  personnel  how the  technology  can apply to their  applications  and
requirements.  We hope to provide  assistance in developing  specifications  and
statements  of work and budgets and to provide  additional  briefings  to higher
levels of management.

We  may  seek  to  cooperate  with  established  participants  in  the  security
marketplace  to market our  technology  through their  established  distribution
channels.  We plan to develop strategic  relationships with suppliers of current
security screening products. We believe that using these suppliers'  established
channels and customers  could afford us quicker access to our targeted  markets.
We plan to raise awareness of the unique  capabilities  of our technology  among
legislators,  non-technical  decision makers and the general public. Because our
technology  is complex it will be very helpful to have digital video (both on CD
and cassette) and printed promotional  materials that can be sent to prospective
customers, consultants, news reporters, and strategic partners. This prepackaged
promotional  material will be cost efficient because it could save on travel and
presentation  costs - enabling us to send packets of information  that concisely
explain the complex technology and show the demonstration  units in operation at
minimal cost.

To  facilitate  international  sales,  we  expect  to  work  with a  network  of
representatives located in countries with identified  opportunities.  We plan to
select  these  representatives  based on their  track  record in  selling to the
target



                                       11
<PAGE>

customers  and to  compensate  them on a  commission  basis tied to the contract
sales price. We have identified some of the prospective representatives we would
like to retain.

We  hope  to  combine  the  effects  of  technical  presentations  to  potential
customers,  news media  demonstrations  and public relations to create a "public
demand" for our technology.  Publishing articles in technical journals, speaking
at technical conferences and creating opportunities to give interviews will be a
longer-term  strategy to maintain the public  demand for and  awareness  of our
technology.

For the time being,  we will try to segregate the  deployment of our  technology
from the general public. We anticipate a possible adverse public reaction to the
concept of "neutron  bombardment." We anticipate the need for neutron  shielding
in  certain  applications,  such as  airports,  to  shield  personnel  from  our
anticipated levels of radiation  bombardment.  We have not determined the levels
of shielding that are required,  which may vary depending on the  regulations of
the states in which the system is installed. See Risk Factors.

We  believe  that  any  public  objections  can  ultimately  be overcome through
education.  Our  Chief  Scientific  Officer,  Dr.  Maglich,  believes  that  our
anticipated  level of neutron radiation dose will result in 10 to 100 times less
tissue  damage  than  the  acceptable  level  of  x-ray radiation dose needed to
accomplish  security screening. Fast neutrons, which are used in our technology,
do not produce the same radioactive environment as thermal neutrons. Despite the
relative  safety  of  our technology, we propose to use our technology initially
only  for  screening procedures that are remote from the general public (such as
checked  baggage) to avoid this adverse public reaction, instead of proposing to
use  our  technology  for  high  profile  procedures  (such  as carry-on baggage
screening).  As  public  knowledge  and  awareness increase, we believe that the
broader  array  of  uses  for  our  technology  will  become available. See Risk
Factors.

SPECIFIC MARKETING PLANS

We  intend  to focus  on four  markets  initially:  Airport  luggage  screening
(Transportation  Security  Administration),  landmine  detection  (Department of
Defense),   customs  screening  (US  Customs  Service),  and  carbomb  detection
(domestic  and foreign  governments).  This  initial  list of  customers  may be
refined or altered as  conditions  dictate.  A separate  but  potentially  large
segment  includes  industrial  users.  We will pursue each market using the same
core technology.

     o    Stoichiometric   Luggage  Screening  Systems:   We  believe  that  our
          SuperSenzor  technology  can  be  integrated  into  luggage  screening
          systems at passenger  airports  throughout the world to  significantly
          reduce false alarm rates and to identify a wider variety of substances
          than current anomaly detection scanning systems.  One configuration of
          the technology may be a system that will screen an entire luggage cart
          at a time on a confirmation detection basis, as opposed to the current
          systems  that  screen  only one bag at a time on an anomaly  detection
          basis.   Although   these  systems  will  be  more  expensive  than  a
          single-piece  luggage  screening  system,  we believe that  government
          agencies  may be willing to pay a higher  price  because of  increased
          volume and time efficiency. Other configurations of the technology may
          be  a  system  that  will  screen  individual  checked  baggage  on  a
          confirmation  detection basis, or a system that is used in tandem with
          existing  systems to enhance overall  detection rates and reduce false
          alarm  rates.  We  continue  to work  with  Isaac  Yeffet,  a  special
          consultant to the Company and a leading expert on airline security due
          to his years of service as director of security  operations for El Al,
          Israel's national airline. We believe that Mr. Yeffet will continue to
          be instrumental in  communicating  the advantages of our technology to
          government   officials   and  the  public.   Developing   a  strategic
          relationship with a current supplier of screening  products could also
          help us to penetrate the market more quickly.

     o    Confirmation Sensor for Demining:  We have identified  governments and
          organizations  dedicated to destroying  landmines throughout the world
          as candidates  for  purchasing  landmine  detection  systems.  Current
          landmine  detection  systems succeed at identifying only metal casings
          and tend to yield a very  high  false  alarm  rate.  In  contrast,  we
          believe our  SuperSenzor  will detect mines in both metal  casings and
          plastic  casings and reduce the false alarm rate. In August 2002,  our
          project to develop the SuperSenzor was  competitively  selected by the
          Department  of Defense Small  Business  Innovation  Research  ("SBIR")
          program to receive up to $780,000 in funding  over two years for Phase
          II testing and development of an anti-tank  landmine detection system.
          On January 15, 2003,  the contract with the  Department of Defense was
          executed by the parties.  We have commenced work under year one of the
          contract,  valued at $415,000. The second year of the contract, valued
          at approximately $364,000, is under an option that can be exercised by
          the Department of Defense at the end of the first year.



                                       12
<PAGE>

     o    Customs Screening  Systems:  We plan to position ourselves as a direct
          supplier  to  major  governmental  agencies  responsible  for  customs
          screening.  We have completed tests on behalf of the U.S. Customs, and
          believe we are well-positioned with the only stoichiometric technology
          that can scan sealed shipping containers for the chemical  composition
          of concealed contraband.

     o    Carbomb  Detection:  We plan to offer our new CarBomb  Finder(tm) as a
          police-vehicle-borne   SuperSenzor   (`303'),   MiniSenzor(`302')   or
          MicroSenzor  (`301') which will decipher the chemical  composition  of
          the  contents  of other cars  through the  metallic  walls of both the
          police car and the target  vehicle.  The  CarBomb  Finder  will detect
          bombs in trunks,  seats and engines of parked or moving cars. They are
          priced at $500,000,  $250,000 and $175,000 respectively.  They provide
          clandestine,   non-obtrusive,  effective  searching  inside  cars.  We
          believe we can,  under  appropriate  circumstances,  capture  both the
          European and Middle East-African markets in this area.

We intend to pursue other markets as well.  During this fiscal year,  which ends
April 30, 2003, we plan to devote resources to exploiting the following markets:

     o    Bio-Defense:  We have  identified  agencies such as the  Department of
          Defense, the U.S. Postal Service, Federal Bureau of Investigation, the
          National  Institutes of Health and their foreign equivalents that have
          responsibility  for detecting  biological warfare agents as candidates
          for our SuperSenzor technology.

     o    Bomb  Squad:  Because  police  departments  and the Bureau of Alcohol,
          Tobacco  and  Firearms  have no certain  method for  determining  if a
          suspicious  object  contains  explosives,  we  have  identified  these
          agencies as our market for the MicroSenzor or MiniSenzor technology.

     o    Industrial  Quality  Control:  We have  identified  a wide  variety of
          potential industrial applications for our SuperSenzor,  MiniSenzor and
          MicroSenzor technologies,  including detecting impurities in oil, gas,
          and gemstones,  and providing  qualitative  elemental  information for
          food products.

SALES AND GOVERNMENT GRANTS

We have not made any  product  sales to date.  Any future  sales will  depend on
negotiating  contracts  with our customers and modifying our  technology to meet
the  specifications  of  our  customers.  Because  our  targeted  customers  are
primarily  governmental agencies, we cannot predict the time frame on which they
may  obtain  approval  to enter  into  contracts  to adopt a new  generation  of
security  technology.  We also cannot  predict the extent to which  governmental
agencies may require a commercial  prototype specific to their application to be
developed  in  advance  of  entering  into  a  contract  to  purchase   products
incorporating  our  technology.  We hope to ship product based on our technology
within 24 months.

We have  several  government  contracts/grants  which  have been  awarded or are
pending, including:

          o    SBIR Phase I

               We have completed work on a Phase I SBIR Contract for $70,000 for
               testing of our MiniSenzor technology for landmine detection.

          o    SBIR Phase II

               In August  2002,  our  project to  develop  the  SuperSenzor  was
               competitively   selected  by  the  Department  of  Defense  Small
               Business  Innovation  Research  ("SBIR") program to receive up to
               $780,000  in  funding  over two years for  Phase II  testing  and
               development  of  an  anti-tank  landmine  detection  system.   On
               January 15, 2003, the contract with the Department of Defense was
               executed by the parties. We have commenced work under year one of
               the  contract,  valued  at  $415,000.  The  second  year  of  the
               contract,  valued at approximately  $364,000,  is under an option
               that can be exercised by the  Department of Defense at the end of
               the first year.

          o    CalTIP



                                       13
<PAGE>

               We have submitted a proposal for up to $250,000 in matching funds
               to the California  Technology  Investment  Partnership  (CalTIP),
               which is designated  for marketing  and markets  development.  We
               were placed on a waiting  list for  possible  award of the CalTIP
               grant, dependent upon available funding for the program. Based on
               budget  shortfalls  in  the  State  of  California,   we  do  not
               anticipate award of this grant.

          o    Transportation Security Administration ("TSA")

               In November  2002, we submitted a funding  application to the TSA
               for $3.2  million,  which would be matched by a  contribution  of
               approximately  $1 million  from us. The funding  would be used to
               build a prototype SuperSenzor for the airline industry.
PRODUCTION

Taking our technology  into  commercial  production  involves  refinement of our
bench-top  prototypes  into commercial  products.  The commercial unit must take
into  account  all  relevant  commercial  standards  for  durability,  usage and
shielding, as well as specific customer requirements for detection, and physical
unit packaging and installation.  We intend to conduct this work both internally
and with the assistance of outside partners.  This work will include  developing
commercial blueprints,  deciding upon final hardware configurations,  developing
testing  standards,  designing control units to manipulate targets or manipulate
the unit  itself  around the target,  and  integrating  shielding  requirements.
Funding  requirements  include  internal time as well as the cost of contracting
with outside firms. Where appropriate, we intend to ally ourselves with existing
participants in the security field to minimize our technology's  time to market.
See "Risk Factors" concerning risks relating to our primary vendor.

COMPETITION

Our fast neutron  scanning is the only  technology  we know of that provides the
chemical formula for identification of the target substance. We are not aware of
any other functional stoichiometric confirmation detector in the world today. We
have not identified any such detector being sold in the various  markets we seek
to  exploit.  We are not aware of any other  supplier or  potential  supplier of
detection   systems   that  are  intended  to  perform   remote,   non-intrusive
confirmation deciphering of the chemical formulas of concealed substances.

From a market  perspective,  as opposed to a  technical  perspective,  there are
several other detection  technologies being offered within our market niche. The
following  is a  partial  list  of  companies  that  market  high-end  explosive
detection  and  cargo  screening  systems,   principally  for  airport  security
screening.  While none of these systems can confirm the identity of a substance,
they are  recognized  currently  as the only  systems  that can provide  anomaly
detection.

<TABLE>
<CAPTION>
Company Name                        Products                    Comment
-----------------------------------------------------------------------------------------
<S>                                 <C>                         <C>
InVision Technologies               CT Explosive detection      75% of Airports
-----------------------------------------------------------------------------------------
L-3 Communications                  CT Explosive detection      25% of Airports
-----------------------------------------------------------------------------------------
OSI Systems, Inc.                   Portable, vehicle, Cargo    Subcontractor to InVision
                                    X-Ray
-----------------------------------------------------------------------------------------
PerkinElmer                         X-Ray baggage screening     Not CT certified
-----------------------------------------------------------------------------------------
American Science & Engineering      Backscatter X-ray Systems
-----------------------------------------------------------------------------------------
</TABLE>

Quantum  Magnetics,  recently  acquired by InVision,  has a pattern  recognition
confirmation  detector for  explosives  based on magnetic  pattern  recognition,
which is being tested for deployment in airport security screening.  To the best
of our  knowledge,  the  detector  cannot "see  through"  metal,  has no imaging
capability and must be within two inches of the explosive to recognize it.



                                       14
<PAGE>

Our  competitors are established  companies with operating  histories.  They are
well financed and have many contacts and  connections in the industries in which
they operate.  We must  effectively  promote our technology in order to overcome
these  obstacles.  With  respect  to these  detection  systems,  we see the real
competition  as  being  the  challenge  of  educating  the  consumer  either  to
incorporate or to substitute our stoichiometric confirmation detector system for
the existing detection system.

In addition to the above companies which currently  operate X-ray based systems,
we have competitors that use gamma ray analysis,  although their technologies do
not have the same  capabilities as ours. We believe that these  competitors will
seek to compete with us in cargo screening and landmine  detection.  We have two
principal competitors whose technology is based on gamma ray analysis:

Company Name                       Products
--------------------------------------------------------------------------------
Ancore                             Pulsed Fast Neutron Analysis
--------------------------------------------------------------------------------
Thermo Gammametrics                Coal, Cement, Mineral Analysis systems
--------------------------------------------------------------------------------

As we understand its current  configuration,  Ancore's  system cannot  determine
chemical  formulas,  and it is heavy  (weighing up to 12 tons) and expensive ($8
million  per  system).  As  we  understand  its  current  configuration,  Thermo
Gammametrics's systems use thermal neutrons produced by radioactive Californium,
and they cannot detect oxygen or carbon, only metallic impurities.

Science Applications  International  Corporation currently sells systems to U.S.
Customs  that scan  trucks,  railroad  cars and sea  containers  using gamma ray
technology to generate images. Science Applications International  Corporation's
systems "see through" metal but do not return a chemical analysis.

In addition to these  companies  using gamma ray  analysis  techniques,  several
research  groups exist which are pursuing gamma ray based  technologies.  We are
not aware of any that are nearing commercial production. A partial list of these
companies  includes the Special  Technologies Lab of the DOE, the National Labs,
and the Western Kentucky University consortium.

In  addition,  a  company  named  Dynamics  Technology,  Inc.,  headquartered in
Torrance,  California,  has developed a computer simulation of a technology that
it  calls  Associated  Particle  Imaging technology. Dynamic Technologies claims
that  its  technology  is  a  unique imaging technology that offers standoff 3-D
imaging and material identification through walls, metal barriers and structures
or  containers.  However,  we  believe  that Dynamics Technology's technology is
based  on  a  scintillation  detector  of  gamma rays that is significantly less
sensitive  than  our  solid-state  gamma  ray  detector and that will not return
specific  chemical formulae in its result, and therefore is not a stoichiometric
detector.  Dynamics  Technology  was  a competitive bidder for the Department of
Defense  Small  Business Innovation Research ("SBIR") program to receive funding
for  testing  and  development  of  an  anti-tank  landmine  detection  system.

We  will encounter barriers to entry in the advanced technology security market.
We  must  obtain access to high-level governmental decision makers. Although our
technology  may  be  an  improvement  over  existing  technology,  political
considerations  and  strong  lobbying  by  competitors must be overcome. We must
conduct  a  vigorous  public  relations  and  marketing  campaign  to  convince
governmental decision makers of the important technical innovations that we have
made.  We  must  achieve a number of certifications in order to be successful in
the  sales of our products, including FAA (now TSA) certification of our systems
for use in airports, DoD approval for use in military applications, U.S. Customs
approval  for use at ports of entry, and other licenses and approvals concerning
export  controls,  radiation and public safety. Additionally, we must be granted
certifications  for  use  of  high-energy  neutrons  in  public  settings.

INTELLECTUAL PROPERTY

We have filed patent applications that are currently in the approval process. We
expect the  examination  period to begin shortly and that patents may be granted
in  2003.  We  have  filed  a  total  of  six  patent  applications  in  various
jurisdictions:

     o    United States  Patent  Office - "Method and  Apparatus for  Detecting,
          Locating and Analyzing  Chemical  Compounds Using  Subatomic  Particle
          Activation" (filed on February 20, 2001);



                                       15
<PAGE>

     o    United  States  Patent  Office - "Method  and  Apparatus  for  Neutron
          Microscopy with Stoichiometric Imaging" (filed on June 18, 2001);

     o    Patent   Cooperation  Treaty  -  "Method  and  Apparatus  for  Neutron
          Microscopy with Stoichiometric Imaging" (filed on June 18, 2002);

     o    Canada - "Method and Apparatus for  Detecting,  Locating and Analyzing
          Chemical  Compounds Using  Subatomic  Particle  Activation"  (filed on
          August 14, 2000);

     o    Japan - "Method and  Apparatus for  Detecting,  Locating and Analyzing
          Chemical  Compounds Using  Subatomic  Particle  Activation"  (filed on
          August 18, 2000); and

     o    Europe - "Method and Apparatus for  Detecting,  Locating and Analyzing
          Chemical  Compounds Using  Subatomic  Particle  Activation"  (filed on
          September 14, 2000).

To date, we have not received any notification that our technology infringes the
proprietary  rights of third  parties.  Third  parties  could  however make such
claims of infringement in the future. Any future claims that do occur may have a
material adverse affect on us and our prospects.

GOVERNMENT REGULATION

Our  operations  are  subject to  compliance  with  regulatory  requirements  of
federal,   state  and  local  authorities.   While  compliance  with  applicable
regulations has not adversely  affected our operations in the past, there can be
no assurance  that we will  continue to be in  compliance  in the future or that
these  regulations  will not change.  Current costs of compliance  have not been
material to us, but we anticipate that they will be material as we commercialize
our  technology  into  products.  We expect to incur some  nonmaterial  costs in
connection with complying with environmental regulations related to our products
under development, but we are not aware of the exact amount of the costs at this
time. Because our technology and its applications are so new, we are not certain
of all of the  potential  government  regulation  that may affect us. We believe
that certain  applications of our technology will require approvals from various
government  organizations.  Examples of  government  agencies  that may regulate
applications of our technology include the Federal Aviation  Administration (now
the Transportation Security Administration), the Department of Defense, the U.S.
Customs Service,  and the Food and Drug  Administration in the case of potential
quality assurance applications for food and drugs. We expect that our technology
will require various potential  environmental use approvals,  particularly as it
relates  to using fast  neutrons  in public  settings.  The  Nuclear  Regulatory
Commission  may also  regulate our use of fast  neutrons.  Where  regulation  is
coordinated  between federal,  state and local authorities,  we expect the state
and local  equivalents  of these  federal  agencies to regulate us as well.  The
approvals from government organizations may take longer and be more difficult to
obtain than expected.  There is no assurance that any governmental approval that
might be  required  will ever be  obtained,  which  could  affect our ability to
commercialize and sell our technology.

We plan to have government agencies as customers for the products we develop. At
the federal level, this will subject our contracting to the Federal  Acquisition
Regulations,  a  comprehensive  set of  regulations  governing  how  vendors  do
business  with the  federal  government.  We also  apply for  grants,  which are
subject to regulation by the granting agencies.  Here again, where our customers
or grantors are state or local governments,  we will be subject to similar state
and local  contracting  and grant  regulations.  See "Risk Factors"  relating to
burdens and risks of government regulation and government contracting.

EMPLOYEES

As  of  July  22,  2003,  we  had 10 full-time employees as follows: 2 full-time
executive  officers;  1  full-time  managerial personnel; 5 full-time research &
development  personnel;  and 2 full-time administrative personnel. We also had 4
consultants  as  follows:  1  of  the consultants assists with aviation security
matters; 1 assists with sales and marketing, 1 assists with information systems;
and  1  assists  with  the  accounting and finance of the Company and government
contracting.

We believe that our ability to attract, hire, and retain qualified personnel now
and in the future is  important to our success.  While  sourcing and  recruiting
appropriate  technical  personnel is often difficult and competitive,  we expect
that our need to recruit additional  personnel in the future will not negatively
affect our operations.  We believe that our employee relations are good. None of
our employees are represented by a collective bargaining unit.



                                       16
<PAGE>

RESEARCH AND DEVELOPMENT


Our future  success  will  depend on our  research  and  development  efforts to
enhance our existing  technologies  and on development of  applications  for our
detection  technology.  For the fiscal  years ended April 30, 2003 and 2002,  we
spent  approximately  $839,629  and  $558,184,  respectively,  on  research  and
development of our technology.



ITEM 2.  DESCRIPTION OF PROPERTY

On  September  30, 2002, we relocated our offices to 1601 Alton Parkway, Unit B,
Irvine,  California 92606. Our new offices consist of approximately 6,600 square
feet.  The  Company  entered into a three-year operating lease agreement with an
affiliate  of  Bruce Del Mar, one of its Directors, for its corporate offices in
Irvine,  California.  The  lease provides for monthly rent of $8,000, for months
one  through  18  and  $8,320  per  month  for  months  19  through  36.


We also leased a new test site adjoining our offices in Irvine, California which
will  be  used  for  certain  developmental  work. The new test site consists of
approximately  2,400  square feet. The term of the contract to use the test site
is  from  July 1, 2003 to December 1, 2003, with payments due at a monthly lease
rate  of  $1,200 under an agreement with the same Landlord. We do not anticipate
that  while  we  are  in  the  development  stage  we  will  require significant
facilities  over and above those that are currently leased or available. When we
successfully  move  beyond  the  development  phase,  we could require an entire
manufacturing  facility  or  two,  although  that  is  very  speculative.

ITEM 3.  LEGAL PROCEEDINGS

In  March,   2002,   Keith  Cowan,  a  former  CEO  and  President  of  HiEnergy
Microdevices,  filed a lawsuit against HiEnergy  Microdevices,  Dr. Maglich, and
Mr. Richard Alden in the Superior  Court of the State of  California,  County of
Orange, Central Justice Center. The plaintiff served as the CEO and President of
HiEnergy  Microdevices from December,  2001 through March 9, 2002. The plaintiff
had an employment agreement with HiEnergy  Microdevices.  The Complaint contains
the  following  claims:  (A) failure to pay wages due in  violation of the Labor
Code  against  HiEnergy  Microdevices  and Dr.  Maglich;  (B) breach of contract
against  HiEnergy   Microdevices  and  Dr.  Maglich;  (C)  false  representation
regarding the kind and character of the work against all three  defendants;  and
(D) fraud  against all three  defendants.  In the prayer for relief,  Mr.  Cowan
sought damages in the amount of $873,455, plus interest,  penalties,  attorney's
fees, and costs. The parties to the lawsuit  executed a settlement  agreement on
January 15, 2003. The settlement  agreement provided that HiEnergy  Technologies
would pay Mr. Cowan $50,000:  $25,000 in the form of wages that would be subject
to payroll taxes and $25,000 in the form of a reimbursement  for moving expenses
and legal fees.  In addition,  Mr. Cowan  received  80,000  shares of restricted
common stock of HiEnergy Technologies with registration rights providing that if
the 80,000  shares were not sold through a registered  offering  before April 1,
2003,  then Mr.  Cowan  has the  option of  tendering  the  shares  to  HiEnergy
Technologies  and demanding  payment of $125,000 held in escrow.  As of April 1,
2003,  the shares were not registered  and Mr. Cowan  subsequently  tendered the
80,000 shares and received a payment of $125,000.

We  received  a  letter  dated  December  5, 2002, from an attorney representing
Richard  T.  Eckhouse,  a  consultant, demanding payment for accounting services
allegedly  performed  by  Mr.  Eckhouse  pursuant  to  a  Letter Agreement dated
November  7,  2001,  between  Mr.  Eckhouse  and HiEnergy Microdevices, Inc. The
Letter  Agreement provides that Mr. Eckhouse was to be paid $350 per hour, which
was to be paid as follows: (i) one-third or $117 in cash; (ii) one-third or $117
paid  by  a  Promissory  Note  at  10%  annual  interest, maturing when HiEnergy
Technologies  receives  government funding of $900,000 or an investment totaling
$300,000  or more; and (iii) one-third or $117 paid by Class A (common stock) of
HiEnergy  Microdevices  at $5.00 per share. Mr. Eckhouse filed a lawsuit against
the  Company, Microdevices and Dr. Bogdan Maglich on May 2, 2003 in the Superior
Court  of the State of California, County of Orange, Central Justice Center, and
an  amended  complaint  on  June  20,  2003, alleging that Microdevices owes Mr.
Eckhouse  a  total  of $313,580 for services rendered, plus interest, attorney's
fees  and  costs.  We  deny  these allegations and are vigorously defending this
lawsuit.

After reading news reports that  connected our reverse  acquisition  of HiEnergy
Microdevices with known stock manipulators,  our Board of Directors directed our
President to hire a team of independent investigators to investigate whether the
company or any of its officers and directors had engaged in any wrongdoing.  The
core  team  of  independent   investigators  consisted  of  two  former  federal
prosecutors, a former Assistant United States Attorney in the civil division who
has been in private practice since 1981 with experience in securities litigation
and regulatory and  investigative  proceedings,  and a former  supervisory agent
from the Federal Bureau of  Investigation.  The



                                       17
<PAGE>

independent investigators reviewed disclosures  we  have  made,  reviewed  other
publicly available information, and conducted a number of interviews,  including
interviews   with  the  person  who  had  previously   been  involved  in  stock
manipulation  schemes and two of our  directors  who know him.  The  independent
investigators  have completed  their  investigation.  Except as discussed in the
next paragraph, the independent investigators have concluded the following:

     1.   The  independent  investigators  have not identified any evidence that
          our current executive management team engaged in any wrongdoing.

     2.   The  independent  investigators  have not  identified  any evidence of
          wrongdoing  following  the April 2002 reverse  acquisition by   SLW
          Enterprises  of  HiEnergy  Microdevices.

     3.   The independent  investigators  believe there is insufficient evidence
          to fully  conclude  that there was no  wrongdoing  by SLW  Enterprises
          prior to the reverse merger.

     4.   Our current officers and directors  responded  promptly and cooperated
          fully with the investigation.

As  mentioned  in  item 3, above, the independent investigators believe there is
insufficient  evidence  to  fully  conclude  that there was no wrongdoing by SLW
Enterprises  prior  to  the  April  2002  reverse  acquisition.  The independent
investigators  obtained  evidence  that  some  of our stockholders who purchased
significant  amounts  of SLW Enterprises shares prior to the reverse acquisition
knew or had business dealings with Phil Gurian, a person who had previously been
involved in stock manipulation, and that one of these stockholders was a company
reportedly  owned  by Mr. Gurian's mother, which disposed of its shares in April
2002  at a profit believed to be between $500,000 and $600,000. Mr. Barry Alter,
a  person  who later served us as a director and for a short time as our interim
President,  was  aware  of  these  purchases  of  SLW  Enterprises  shares.  The
independent  investigators  believe  the  evidence  is inconclusive whether Phil
Gurian  had control over these SLW Enterprises shares and or whether, if so, our
former  President  and  director  had  any  knowledge  of  such  control.


On  May 27, 2003, Mr. Barry Alter brought a lawsuit against us in the New Castle
County  Court  of Chancery in Delaware to recover the advancement of expenses he
allegedly incurred in response to an SEC investigation that was exactly the same
SEC  investigation  that the company answered, but Mr. Barry Alter reacted to by
obtaining separate legal counsel to represent W.M. That action was identified as
Civil  Action  No.  20320NC.  On  June 17, 2003, Mr. Alter notified us that this
action  had  been  voluntarily  dismissed  without  prejudice.

From time to time, we may be subject to other routine litigation included in the
ordinary course of business.

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

No matters  were  submitted to the  stockholders  of the  Registrant  during the
fourth quarter of the fiscal year ended April 30, 2003.




                                       18
<PAGE>

                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Below  are the high and low  closing  bid  prices  of our  common  stock for the
periods  shown,  as  obtained  from Pink  Sheets  LLC, a research  service  that
compiles quote  information  reported on the National  Association of Securities
Dealers composite feed or other qualified  interdealer quotation medium, or from
other public sources.  The quotations listed below reflect  interdealer  prices,
without retail  mark-up,  mark-down or  commissions,  and may not reflect actual
transactions.  Our common stock commenced  trading on the OTC Bulletin  Board(R)
operated by the NASD under the symbol "SLWE" on February 22, 2002. In connection
with the change of SLW Enterprises' name to HiEnergy Technologies, Inc. on April
30, 2002, our ticker symbol was changed from "SLWE" to "HIET" on May 3, 2002.

                                                              HIGH      LOW
                                                              ----      ---
Fiscal Year - 2003:
-------------------
Fourth Quarter (February 1, 2003 to April 30, 2003)           $2.35    $0.30
Third Quarter (November 1, 2002 to January 31, 2003)          $3.10    $2.11
Second Quarter (August 1, 2002 to October 31, 2002)           $2.60    $1.41
First Quarter (May 1, 2002 to July 31, 2002)                  $2.09    $0.20

Fiscal Year - 2002:
-------------------
Fourth Quarter (February 27, 2002 to April 30, 2002)          $2.68    $1.42

As of July 21, 2003, our issued and outstanding  common stock totaled 28,819,464
shares, held by 197 shareholders of record.  Within the holders of record of our
common stock are depositories, such as Cede & Co., that hold shares of stock for
several  brokerage  firms which,  in turn,  hold shares of stock for one or more
beneficial owners.

DIVIDENDS

We  have  not  paid  dividends  on our common stock and do not anticipate paying
dividends on our common stock in the foreseeable future. We currently anticipate
that  we  will  retain  any earnings for use in the continued development of our
business.  Investors  also  must evaluate an investment in our company solely on
the  basis  of  anticipated  capital  gains.  The  board  of  directors has sole
authority  to  declare  dividends  payable  to our stockholders. However, common
stock  dividends  could  from  time  to time be prohibited by credit agreements,
other  senior  securities,  or  otherwise.

                       CONVERTIBLE SECURITIES OUTSTANDING

As of April 30, 2003, we had 1,648,686  warrants  convertible  into common stock
outstanding  with a weighted  average exercise price of $1.66. At the same date,
we had  5,399,937  stock  options to purchase  common stock  outstanding  with a
weighted average exercise price of $0.81.


RECENT SALES OF UNREGISTERED SECURITIES

Set forth below is information regarding the issuance and sale of our securities
without registration during the past three years.

     o    In May,  June, & July 2003, we issued options to purchase an aggregate
          of 690,000  shares of common stock,  490,000 shares of common stock to
          employees and other service providers, with an exercise price of $0.75
          and a term of six years;  and 200,000  shares of common stock to other
          service  providers,  with an exercise price of $0.50 and a term of six
          years,  pursuant to the  HiEnergy  Technologies  2003 Stock  Incentive
          Plan. We believe the issuance of securities  was exempt under Rule 506
          of Regulation D and/or Section 4(2) under the Securities Act.



                                       19
<PAGE>

     o    In April 2003, we issued  warrants to purchase 50,000 shares of common
          stock,  with an exercise price of $0.50 and a term of three years,  to
          Dunwoody  Brokerage  Services as compensation for placement  services,
          and in May 2003,  we issued  warrants  to  purchase  an  aggregate  of
          150,000 shares of common stock,  with an exercise price of $0.45 and a
          term of two years,  to H.C.  Wainwright  & Co.,  Inc.  and  assigns as
          compensation  for  placement  services.  We believe  the  issuance  of
          securities  was exempt under Rule 506 of  Regulation D and/or  Section
          4(2) under the Securities Act.

     o    In February  2003,  we issued  warrants to purchase  40,000  shares of
          common  stock,  with an  exercise  price of $1.50  and a term of three
          years, to each of the two principals of Columbus Group/cFour Partners,
          an employment  placement agency, as compensation for services rendered
          to HiEnergy  Technologies.  We believe the issuance of securities  was
          exempt under Rule 506 of  Regulation  D and/or  Section 4(2) under the
          Securities Act.

     o    In February  2003, we issued stock options to purchase  416,717 shares
          of common stock, with an exercise price of $2.81 and a term of 5 years
          to our Chief  Scientist and Chairman of the Board in  connection  with
          his  employment  agreement.  An  additional  stock  option to purchase
          40,000 shares of common stock,  with an exercise  price of $2.81 and a
          term of 5 years was granted on June 26, 2003.  We believe the issuance
          was exempt under Rule 506 of  Regulation  D and/or  Section 4(2) under
          the Securities Act.

     o    In January  2003,  we issued  80,000  shares of common  stock to Keith
          Cowan,   a  former   director  and   executive   officer  of  HiEnergy
          Microdevices,  in connection with a settlement agreement. Mr. Cowan is
          an accredited  investor.  These shares were returned to the Company in
          April 2003.  We believe the  issuance of  securities  was exempt under
          Rule 506 of Regulation D and/or Section 4(2) under the Securities Act.

     o    As an  accommodation  to  adjust  amounts  owing  to  QED  Law  Group,
          P.L.L.C., on December 19, 2002, we issued stock options to Shea Wilson
          and Derek Woolston to purchase an aggregate of 27,272 shares of common
          stock at $2.24 per share.  December 19, 2002 was the third trading day
          following  our  filing of a report on Form  10-QSB  for the  quarterly
          period ended October 31, 2002. The closing sales price on December 19,
          2002 was $2.79. We believe the issuance of securities was exempt under
          Rule 506 of Regulation D and/or Section 4(2) under the Securities Act.

     o    In December  2002, we issued  warrants to purchase  250,000  shares of
          common stock,  with an exercise price of $2.12 and a termination  date
          of May 1, 2007, to Wolfe Axelrod  Weinberger  Associates in connection
          with  the   termination  of  a  consulting   agreement  with  HiEnergy
          Technologies.  We believe the issuance of securities  was exempt under
          Rule 506 of Regulation D and/or Section 4(2) under the Securities Act.

     o    In November  2002,  the Company  entered into a termination  agreement
          with its placement agent, whereby the Company agreed to issue warrants
          to  purchase  150,000  shares  of  common  stock.  The  warrants  vest
          immediately,  are  exercisable  at $2.48 per share and  expire 5 years
          from the date of grant.  We believe  the  issuance of  securities  was
          exempt under Rule 506 of  Regulation  D and/or  Section 4(2) under the
          Securities Act.

     o    In  October  2002,  we issued  1,349,934  shares  of common  stock and
          269,990  warrants in connection with a private  placement  offering of
          our common stock at $1.35 per unit for aggregate  gross  proceeds from
          the offering of  approximately  $1.8  million.  The  warrants  have an
          exercise price of $2.50 and a term of 3 years. An offering  memorandum
          was  distributed to each investor.  Fees  consisting of  approximately
          $146,000  and  warrants to purchase  approximately  162,000  shares of
          common stock,  with an exercise price of $1.35 per share and a term of
          five years,  were paid to H.C.  Wainwright & Co.,  Inc., our placement
          agents,  in connection  with this  offering.  All of the investors who
          purchased  shares of common stock through the private  placement  were
          accredited  investors.  We  believe  that  the  offer  and sale of the
          securities  through the private  placement  offering  were exempt from
          registration  under Rule 506 of Regulation D and/or Section 4(2) under
          the  Securities  Act.  In  addition,  for those  investors  who reside
          outside  the  United  States  and  are  not  United  States  citizens,
          comprising  $887,350 of the  offering,  we believe  that the offer and
          sale of  securities  was exempt  pursuant  to  Regulation  S under the
          Securities Act.

     o    In  October  2002,  we  issued  approximately  98  shares  of Series A
          Convertible  Preferred  Stock,  approximately  68,000 shares of common
          stock,  and  approximately  256,000  warrants in  connection  with the
          closing of a private  placement  offering of our Series A  Convertible
          Preferred Stock at a face value of



                                       20
<PAGE>

          $10,000  per share  for  aggregate  gross  proceeds  of  approximately
          $930,000.  The  shares of Series A  Preferred  were  convertible  into
          common  stock  at an  exchange  rate  based on $1.15  per  share.  The
          warrants  have an exercise  price of $1.50 per share and a term of two
          years. On December 9, 2002, an additional 110,620 warrants were issued
          to  Richard  Melnick,  one of the  Series A  Preferred  investors,  in
          connection with consulting services provided to HiEnergy  Technologies
          by Mr.  Melnick.  Those  warrants  have the same terms as the warrants
          previously issued to the Series A Preferred investors. Fees consisting
          of  approximately  $74,000  and  warrants  to  purchase  approximately
          118,000  shares of common stock,  with an exercise  price of $1.15 per
          share and a term of five years,  were paid to H.C.  Wainwright  & Co.,
          Inc., our placement agent, in connection with a private offering.  All
          of the investors who purchased  Series A Preferred shares and warrants
          through the private  placement were accredited  investors.  We believe
          that  the  offer  and  sale  of the  securities  through  the  private
          placement  offering  were exempt from  registration  under Rule 506 of
          Regulation  D  and/or  Section  4(2)  under  the  Securities  Act.  In
          addition, for those investors who reside outside the United States and
          are not United States' citizens,  comprising $190,000 of the offering,
          we believe that the offer and sale of securities  were exempt pursuant
          to Regulation S under the Securities Act.

     o    In  September  2002,  we  issued a stock  option  to Tom  Pascoe,  our
          President  and CEO and a  director,  to purchase  3,005,038  shares of
          common stock in connection with his employment  agreement with us. Mr.
          Pascoe  is  an  accredited  investor.   We  believe  the  issuance  of
          securities  was exempt under Rule 506 of  Regulation D and/or  Section
          4(2) under the Securities Act.

     o    As an  accommodation  to  adjust  amounts  owing  to  QED  Law  Group,
          P.L.L.C.,  on  September  25, 2002,  we issued  stock  options to Shea
          Wilson and Derek Woolston to purchase an aggregate of 45,454 shares of
          common  stock at $1.00 per  share.  September  25,  2002 was the third
          trading  day  following  our filing of a report on Form 10-QSB for the
          quarterly  period  ended July 31,  2002.  The  closing  sales price on
          September  25, 2002 was $2.10.  We believe the issuance of  securities
          was exempt under Rule 506 of  Regulation  D and/or  Section 4(2) under
          the Securities Act.

     o    In  September  2002,  we issued a stock  option to  Michal  Levy,  our
          Corporate  Secretary and Vice President,  to purchase 89,410 shares of
          common stock at $0.157 per share pursuant to her employment  agreement
          with us. In September  2002,  we also issued  11,178  shares of common
          stock to Ms. Levy  pursuant to her  employment  agreement  with us. In
          June 2003,  we issued an  additional  11,178 shares of common stock to
          Ms.  Levy  pursuant  to the  exercise  of the  option.  Ms. Levy is an
          accredited  investor.  We believe the  issuances  of  securities  were
          exempt under Rule 506 of  Regulation  D and/or  Section 4(2) under the
          Securities Act.

     o    In August  2002,  we issued  warrants  to purchase  100,000  shares of
          common stock,  with an exercise price of $0.01 per share and a term of
          five  years,  to H.C.  Wainwright  & Co.,  Inc.  as a retainer  fee in
          connection with a placement agent letter agreement.  In December 2002,
          we issued warrants to purchase 150,000 shares of common stock, with an
          exercise  price of $2.48 per share and a term of five  years,  to H.C.
          Wainwright & Co. in connection  with the  termination of the placement
          agent  letter  agreement.  We believe the issuance of  securities  was
          exempt under Rule 506 of  Regulation  D and/or  Section 4(2) under the
          Securities Act.

     o    In August  2002,  we issued a stock  option to Primoris  Group Inc. to
          purchase 400,000 shares of common stock at $2.00 per share with a term
          of 5 years in connection with a consulting  agreement.  Primoris Group
          Inc. provided investor  relations services to us. Since Primoris Group
          Inc. is an Ontario  corporation  and has its  headquarters in Toronto,
          Ontario,  we believe  the  issuance  of  securities  was  exempt  from
          registration under Regulation S under the Securities Act.

     o    In July  2002,  we issued  11,678  shares of common  stock,  par value
          $0.001  per  share,   to  Richard   Alden,   a  director  of  HiEnergy
          Technologies,  valued at $1.00 per share to retire the  principal  and
          interest owing to Mr. Alden on a note payable  totaling  $11,678.  The
          note is  considered  paid in full. In July 2002, we also issued 15,000
          shares  of  common  stock,  par  value  $0.001  per  share,  to  Rimar
          Investments, Inc., a California corporation, valued at $1.00 per share
          to retire the principal and interest owing to Rimar Investments,  Inc.
          on a note payable  totaling  $15,000.  The note is considered  paid in
          full.  Mr. Alden is one of three  stockholders  and directors of Rimar
          Investments,  Inc. We believe the  issuances of stock to Mr. Alden and
          to Rimar Investments,  Inc. were exempt from registration  pursuant to
          Rule 506 of Regulation D and/or Section 4(2) under the Securities Act.
          Mr. Alden and Rimar Investments, Inc. are accredited investors.



                                       21
<PAGE>

     o    In July 2002,  we issued and granted a  non-qualified  stock option to
          Isaac  Yeffet to purchase up to  1,000,000  shares of our common stock
          with an exercise price of $1.00 per share. The stock option was issued
          in connection  with a consulting  agreement  between  Yeffet  Security
          Consultant,  Inc.,  of which  Mr.  Yeffet is the sole  principal,  and
          HiEnergy  Technologies.   One  half  of  the  shares  are  exercisable
          immediately  and the other  half are  exercisable  beginning  one year
          after our Minisenzor  product is operational and ready to be shown for
          approval to appropriate  authorities.  The stock option  agreement was
          amended and  restated  in  September  2002 to add a cashless  exercise
          provision.  We believe the issuance of the stock option to Mr.  Yeffet
          was exempt  from  registration  pursuant to Rule 506 of  Regulation  D
          and/or  Section  4(2)  under  the  Securities  Act.  Mr.  Yeffet is an
          accredited investor.

     o    In July  2002,  we issued  11,218  shares of common  stock,  par value
          $0.001  per  share,   to  Mr.  Al  Zuhair,   a  director  of  HiEnergy
          Technologies,  valued at $1.00 per share to retire the  principal  and
          interest owing to Mr. Al Zuhair on two notes payable in the amounts of
          $5,780 and  $5,438,  respectively.  The notes are  considered  paid in
          full. We believe the issuance of the stock to Mr. Al Zuhair was exempt
          from registration  pursuant to Rule 506 of Regulation D and/or Section
          4(2) under the Securities  Act.  Alternatively,  the offer and sale of
          the stock may be exempt  pursuant to Regulation S under the Securities
          Act. Mr. Al Zuhair is an  accredited  investor and resides  outside of
          the United States.

     o    In May 2002, we issued a warrant to Rheal Cote, a former director,  to
          purchase  150,000 shares of common stock at an exercise price of $1.00
          and  with a term  of  three  (3)  years.  Mr.  Cote  is an  accredited
          investor.  We believe that the issuance of the warrant and  underlying
          common stock was exempt from registration under Rule 506 of Regulation
          D and/or  Section 4(2) under the  Securities  Act. Since Mr. Cote is a
          Canadian  citizen,  we believe  the  issuance of  securities  was also
          exempt from registration under Regulation S under the Securities Act.

     o    In  April  2002,  we  issued  1,225,000  shares  of  common  stock  in
          connection with the initial closing of a private placement offering of
          our  common  stock  at  $1.00  per  share.  The  initial  closing  was
          contingent   upon   closing  the  reverse   acquisition   of  HiEnergy
          Microdevices by SLW Enterprises  through the voluntary share exchange.
          In June 2002, we issued an additional  500,000  shares of common stock
          at $1.00 per share in connection with the final closing of the private
          placement  for aggregate  gross  proceeds of  $1,725,000.  An offering
          memorandum was distributed to each  prospective  investor.  All of the
          investors  who  purchased  shares of common stock  through the private
          placement  were  accredited  investors.  We believe  that the  private
          placement  offering was exempt  under Rule 506 of  Regulation D and/or
          Section  4(2)  under  the  Securities  Act.  In  addition,  for  those
          investors  who reside  outside  the  United  States and are not United
          States' citizens, comprising $750,000 of the offering, we believe that
          the offer and sale of common stock was exempt pursuant to Regulation S
          under the Securities Act.

     o    In April  2002,  we issued  14,380,200  shares of common  stock to the
          stockholders  of HiEnergy  Microdevices in connection with a voluntary
          share exchange  offering  between SLW Enterprises and the stockholders
          of HiEnergy  Microdevices.  An offering  memorandum was distributed to
          all of the HiEnergy Microdevices  stockholders 20 business days before
          the offering closed.  We believe that the private  placement  offering
          was exempt under Rule 506 of  Regulation  D and/or  Section 4(2) under
          the  Securities  Act. In  addition,  for those  HiEnergy  Microdevices
          stockholders  who reside  outside the United States and are not United
          States  citizens,  comprising  1,444,606  shares of the  offering,  we
          believe that the offer and sale of common stock was exempt pursuant to
          Regulation S under the Securities Act.


     o    In April 2002,  SLW  Enterprises'  board of directors  authorized  and
          approved  the  grant and  issuance  of a stock  option  to Dr.  Bogdan
          Maglich to purchase  2,482,011  shares of common  stock at an exercise
          price of $0.134 per share.  The option will  terminate on November 30,
          2008.  The stock  options  were granted and issued in exchange for Dr.
          Maglich's  agreement to cancel  111,040  HiEnergy  Microdevices  stock
          options   issued  to  him  prior  to  the   acquisition   of  HiEnergy
          Microdevices by HiEnergy Technologies. The 2,482,011 shares underlying
          the stock  option were  calculated  at the same rate as the  voluntary
          share exchange transaction, or 22.3524 per HiEnergy Microdevices share
          and the option price was adjusted  accordingly from $3.00 per share to
          $0.134  per  share.  We  believe  that the offer and sale of the stock
          options and underlying common stock was exempt from registration under
          Rule 506 of Regulation D and/or Section 4(2) under the Securities Act.
          Dr.  Maglich is an  executive  officer and  director of both  HiEnergy
          Microdevices and HiEnergy  Technologies.  The stockholders of HiEnergy
          Technologies, excluding Dr. Maglich and shares beneficially attributed
          to him,  ratified the grant of the stock option at our Annual  Meeting
          of Stockholders held on October 10, 2002.




                                       22
<PAGE>





ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The  following  discussion  should  be  read in  conjunction  with  our  audited
Consolidated  Financial Statements included herein. Certain statements contained
herein may constitute forward-looking  statements, as discussed at the beginning
of Part I of this Annual Report on Form 10-KSB.  Our actual results could differ
materially from the results anticipated in the  forward-looking  statements as a
result of a variety of factors,  including  those  discussed in our filings with
the Securities and Exchange  Commission and as discussed below in the subsection
of this Item 6 entitled "OUTLOOK: ISSUES AND UNCERTAINTIES".

OVERVIEW

The acquisition of HiEnergy  Microdevices  by the Company  occurred on April 25,
2002. The Company acquired HiEnergy  Microdevices  pursuant to a Voluntary Share
Exchange  Agreement  that provided the framework for the exchange of outstanding
common stock of HiEnergy Microdevices for shares of common stock of the Company.
Pursuant  to the  voluntary  share  exchange,  the  Company  offered to exchange
22.3524  shares of its  common  stock  for each  outstanding  share of  HiEnergy
Microdevices'  common  stock.  On the closing date of the  offering,  14,380,200
shares of our common  stock were issued in  exchange  for  approximately  92% of
HiEnergy Microdevices' outstanding shares of common stock in a reverse take-over
transaction.  As a result of this transaction,  former  stockholders of HiEnergy
Microdevices  came to own  approximately  65% of our outstanding  equity and the
five directors of HiEnergy Microdevices comprised five of our six directors. The
composition of our board of directors has subsequently evolved to consist of the
five directors discussed in the section entitled "Management".

On October 22, 2002,  we changed our domicile  from the State of  Washington  to
Delaware.  Our name remains HiEnergy  Technologies,  Inc., and our common shares
continue to trade on the NASD's  Over-the-Counter  Bulletin  Board(R)  under the
symbol "HIET".

We  plan  to  develop  three   detection   systems   based  on  our   innovative
stoichiometric  technology,  which has been proven in the laboratory to remotely
and non-intrusively  determine the chemical formulas of concealed substances and
"see through"  metals and other  materials.  Further,  the technology has proven
during  testing  to be  capable  of  determining  the  chemical  make-up  of the
concealed  substances  without  the need of being  in close  proximity  with the
target.

Prior to the reverse  take-over  transaction,  SLW's initial  efforts focused on
establishing a web-based  nutritional  supplement sales business. We still own a
license to pursue this  business,  but until recently the licensor had failed to
provide the web-based support  infrastructure  it promised.  We will continue to
evaluate the economic viability of this business as the licensor establishes its
promised  web-based   infrastructure  to  determine  whether  we  will  allocate
resources to pursuing this line of business. At the present time, we believe the
uncertainty  surrounding the licensor's ability to perform is too high for us to
allocate  resources  to exploit the  license.  If we decide  that future  events
warrant pursuing this business, we have retained a consultant who will lead this
effort.

BASIS OF PRESENTATION

For accounting  purposes,  the voluntary share exchange  transaction between the
Company and HiEnergy  Microdevices has been treated as a recapitalization of the
Company,   with  HiEnergy  Microdevices  as  the  accounting  acquiror  (reverse
acquisition),  and has been  accounted  for in a manner  similar to a pooling of
interests.


We have prepared our Consolidated  Financial Statements on a going concern basis
in accordance with accounting principles generally accepted in the United States
of  America.  This going  concern  basis of  presentation  assumes  that we will
continue  operations for the foreseeable  future and will be able to realize our
assets and discharge our  liabilities  and  commitments  in the normal course of
business.  As described  below under Liquidity and Capital  Resources,  there is
substantial  uncertainty  about our ability to continue as a going concern.  Our
financial  statements  do not  include  adjustments  that might  result from the
outcome of this uncertainty.


CRITICAL ACCOUNTING ESTIMATES


The discussion and analysis of our financial condition and results of operations
are based on our  audited  Consolidated  Financial  Statements,  which have been
prepared in accordance  with  accounting  principles  generally



                                       23
<PAGE>

accepted in the United States of America.  The  preparation  of these  financial
statements  requires us 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,  we  evaluate  our
estimates.  We base  our  estimates  on  assumptions  that  are  believed  to be
reasonable  under the  circumstances,  the  results  of which  form the basis of
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.


OPERATING RESULTS

For the year ended April 30, 2003 ("fiscal  year 2003"),  we incurred a net loss
available  to common  shareholders  of  $6,257,056,  as  compared  to a net loss
available to common shareholders of $1,389,530 for the year ended April 30, 2002
("fiscal year 2002").  We had negative cash flows from  operations of $2,942,480
in fiscal year 2003 compared to negative cash flows from  operations of $652,585
in fiscal year 2002. In addition,  we had an  accumulated  deficit of $8,961,620
and were in the  development  stage as of April 30, 2003.  These factors,  among
others,  raise  substantial  doubt  about our  ability  to  continue  as a going
concern. See Risk Factors.

REVENUE

We reported no  operating  revenue  during the fiscal years ended April 30, 2003
and 2002.  Our fiscal year 2003  revenue was  $144,587  compared to $148,166 for
fiscal year 2002.  During both years,  revenues  were  derived  from  government
grants for  development  and testing of our remote  detection  technology  under
separate grants. We have not commenced  selling our products.  Until we complete
development of one of our stoichiometric  detector systems, our revenues will be
limited to government grants or similar funding.  We cannot predict exactly when
we  will  complete  development  of our  planned  detection  systems  and  begin
production for specific  applications,  but expect to begin production and sales
of commercial products by the end of fiscal year 2004 and to become profitable
the first year thereafter.

OPERATING EXPENSES


Our operating  expenses  consist  primarily of salaries and benefits,  costs for
general corporate functions,  including finance, accounting and facilities, fees
for professional services and for research and development activities.


Our  general and administration expenses increased to $4,488,175 for fiscal year
2003  from $967,092 for fiscal year 2002. The increase in operating expenses was
primarily  due  to increases in administrative personnel, general office, legal,
accounting  and investor relations expenses. We became a public company on April
25,  2002  and during fiscal year 2003 we incurred greater legal, accounting and
administration  costs  than in prior years when we were a private company. These
costs  may continue to rise in the future. Our research and development expenses
increased  to  $839,629 for fiscal year 2003 from $558,184 for fiscal year 2002,
as  we  spent  more  funds to further the development of our detections systems.

DEPRECIATION

The  depreciation  expense for fiscal year 2003 and fiscal year 2002 was $91,993
and $5,469, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of April 30, 2003,  we had cash and cash  equivalents  of  $107,008.  We used
$2,942,480  for  operating  activities  and  approximately  $481,850  to acquire
equipment in fiscal year 2003.  During fiscal year 2003 we raised  approximately
$3,379,000  from sales of common  stock and  convertible,  redeemable  preferred
stock.  As of April  30,  2003,  we had  current  liabilities  of  approximately
$878,425,  which  exceeded our cash on hand. The Company has to continue to sell
equity in order to pay for on-going operations and pay its present  liabilities.
There can be no assurance that we will be able to continue as a going concern or
achieve material revenues or profitable operations. See Risk Factors.

 In May 2003,  the Company  received net  proceeds of $443,482  from the sale of
1,410,000  shares of its  common  stock,  which was  included  in  Subscriptions
Receivable at April 30, 2003.

Also  in  May  2003,  the  holders  all  of the Series A Convertible, Redeemable
Preferred Stock surrendered and exchanged their Series A Convertible, Redeemable
Preferred  Stock for 2,191,874 shares of the Company's common stock which valued
the common stock at $0.45 per share, thereby avoiding possible mandatory payment
of  $958,000  to  redeem  their  stock.



                                       24
<PAGE>

In June 2003,  in two private  sales,  the Company  sold  600,000  shares of its
common stock and raised $200,000.

In May and June 2003, the Company issued unsecured convertible  promissory notes
at 10%  interest  totaling  $244,000  to its legal  counsel  for legal  services
provided  to the  Company.  The  notes  are due on  September  15,  2003  unless
converted  into common  stock.  Also in June 2003,  the Company  issued  300,000
shares of common  stock to its legal  counsel to pay  $100,000  worth of service
fees.

The continued  development and testing of our technology to create  market-ready
products depends upon raising  additional funds. We believe that we will require
a total  of  approximately  $5,000,000  in order to  continue  implementing  our
business  plan during the fiscal  year ending  April 30,  2004,  and  anticipate
needing an additional  $5,000,000 for the year ending April 30, 2005. We believe
we have sufficient authorized capital to raise $10 million during the coming two
fiscal years, as our Certificate of Incorporation  authorizes 100,000,000 shares
of common stock and 20,000,000  shares of preferred  stock. As of July 22, 2003,
there were  28,819,464  shares of common stock and no shares of preferred  stock
outstanding.

We plan to continue to utilize a combination of equity financings and government
grants  to  fund  our short-term growth and are currently engaged in discussions
with  respect  to  raising  additional  capital. We on April 23, 2003 registered
shares  of  Common Stock for sale under the Securities Act of 1933 (Registration
No. 333-101055). We may make public offerings in certain states. From day to day
we  have  discussions  with  potential investors. However, we have no definitive
plans  or  arrangements  in  place with respect to additional capital sources at
this  time. We have no lines of credit available to us at this time. There is no
assurance  that  additional  capital  will be available when or if required. Our
planned  offering  and sale of our common stock will not be registered under the
Securities  Act  of  1933  and  may  not be offered or sold in the United States
absent  registration  or  an  applicable  exemption  from  the  registration
requirement.  This disclosure is not an offer of securities or a solicitation of
an  offer  to  buy  securities.  Placements  will be made only to investors with
preexisting  contacts  with  us  and  our  authorized  representatives.

The forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking  statement that involves
risks and uncertainties.  Our actual funding  requirements may differ materially
as a result of a number of factors,  including unknown expenses  associated with
the  development  and testing of our  products,  the cost of  production  of our
products  and the timing of bringing  our  products  to market.  There can be no
guarantee  that  financing  adequate  to carry  out our  business  plan  will be
available on terms acceptable to us, or at all.

We have  committed to make $400,000 in capital  expenditures  during fiscal year
2004 If we obtain adequate  financing,  however, we intend to make substantially
more capital expenditures in order to further the development and testing of our
technology and proposed products.

PLAN OF OPERATION

HiEnergy  intends  to  satisfy  its  cash  requirements  through  the  sales  of
securities. HiEnergy currently has 2,700,000 shares registered and available for
sale, which it intends to sell from time to time as necessary.  The Company will
need to continue  to raise  funds  during the next 12 months to fund its ongoing
operations.  (See Risk  Factors  for a  description  of  Financial  Risk  should
HiEnergy fail to do so)


HiEnergy  continues  to perform  extensive  research  and  development  which is
essential  to the  development  of its  technology  and  products.  The  Company
currently employs several Ph. D. scientists who perform this work, part of which
is currently  funded by an SBIR Phase II contract with the U.S.  Army.  HiEnergy
will purchase the necessary  equipment to build its  prototype  systems,  and it
intends to  purchase  the  necessary  equipment  to build an inside  testing and
development facility. The Company will consider the purchase of key suppliers if
the opportunity is available in order to insure the  consistency of supply.  SEE
"RISK FACTORS" BELOW.


HiEnergy plans to continue adding to its management,  scientific, technical, and
administrative  staff, and intends to hire the technical personnel necessary for
assembling its systems as the need arises.

RECENT ACCOUNTING PRONOUNCEMENTS

We continue to assess the effects of recently issued accounting  standards.  The
impact  of all  recently  adopted  and  issued  accounting  standards  has  been
disclosed in the  footnotes to our audited  Consolidated  Financial  Statements,
Note 3.


                                       25
<PAGE>


OUTLOOK: ISSUES AND UNCERTAINTIES

Shareholders  and  prospective  purchasers of our common stock should  carefully
consider  the  following  risk  factors  in  addition  to the other  information
appearing  in this Annual  Report on Form 10-KSB and our other  filings with the
Securities and Exchange Commission.




                                       26
<PAGE>




RISK FACTORS

AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO
THE OTHER INFORMATION IN THIS ANNUAL REPORT,  YOU SHOULD CAREFULLY  CONSIDER THE
FOLLOWING RISK FACTORS BEFORE  DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK.
ANY OF THE FOLLOWING RISKS COULD ACTUALLY HARM OUR BUSINESS, FINANCIAL CONDITION
AND OPERATING RESULTS TO A VERY MATERIAL EXTENT. AS A RESULT,  THE TRADING PRICE
OF OUR  COMMON  STOCK  COULD  DECLINE  RAPIDLY,  AND YOU COULD  LOSE ALL OF YOUR
INVESTMENT.


WE  UNDERSTAND  THERE  PRESENTLY  IS  AN  INFORMAL  SEC  INQUIRY THAT RELATES TO
INVESTORS  IN  OUR  PREDECESSOR  COMPANY  ABOUT THE TIME OF THE REVERSE TAKEOVER
TRANSACTION  BETWEEN  SLW  ENTERPRISES  INC.  AND  HIENERGY  MICRODEVICES,  INC.


We  were  first  made  aware  by a reporter with the Dow Jones News Service that
there  may  be an alleged relationship between an individual by the name of Phil
Gurian,  who  had previously been convicted and awaits sentencing for previously
alleged  stock  manipulation  schemes, and a former director and Chief Executive
Officer  of  each of SLW and HiEnergy Technologies, Barry Alter. We initiated an
independent  investigation into whether such relationship existed, and if so, to
determine  further whether we or any of our directors or officers engaged in any
wrongdoing.  The  investigation  concluded  that  Mr. Alter had contact with Mr.
Gurian  in  connection  with the reverse acquisition of HiEnergy Microdevices by
SLW  in  April  2002.  Mr.  Gurian  was  never  a record stockholder of HiEnergy
Technologies. However, we believe that Mr. Gurian introduced other investors who
did  own  our  stock  or  do own our stock. Our investigation revealed that some
stockholders  who  purchased  significant amounts of SLW shares shortly prior to
the reverse acquisition knew or had other business dealings with Mr. Gurian. One
of  these  stockholders  was  a company reportedly owned by Mr. Gurian's mother,
which  disposed  of its shares in April 2002 at a substantial profit. We believe
that, innocently or intentionally, Mr. Alter knew of these purchases. Please see
the  section  entitled  "Legal Proceedings." After our independent investigation
concluded,  the  Dow  Jones  News  Service has developed further its story about
various  connections  that  allegedly  may  have existed between these and other
investors  and Mr. Gurian himself and other connections including some between a
former  market  maker  and  Mr.  Gurian.  We  continue  the  development  of our
technology  and  products.  Thus  far our efforts are proceeding undisturbed and
without  interruption. Naturally, we have cooperated fully with the SEC. We feel
that  we  have  fully  complied with the request by the SEC for information. For
instance,  we have provided over 3,000 pages of documents. As to the conclusions
of  the independent committee, please see "Legal Proceedings." We will also rely
upon  the  SEC's  investigation  to  help  us determine whether and what kind of
corporate  legal  action  is  appropriate.  The  SEC  has  indicated  that  its
investigation  will  not  be swiftly concluded. The SEC Indicates that it cannot
conclude  its investigation until Mr. Barry Alter has a personal discussion with
The  SEC  about Phil Gurian. He has not been served with any compulsory order to
speak  with  the  SEC  and  he has never made any effort to volunteer himself to
them.


The price of our stock declined  precipitously in connection with the news story
and our  announcements  concerning  our  independent  investigation  and the SEC
investigation.  Also,  if Mr. Alter  committed any wrongful act while serving as
our  agent,  we could  have  liability  for any  resulting  damages.  Also,  our
shareholders  could lose  confidence  in us if they believe  this  incident is a
result of inadequate oversight and control by the Board of Directors.  There may
be material additional costs and expenses, such as legal expenses, that could be
involved in sorting out these issues and assisting the SEC with such work.  Much
worse yet, this incident could materially damage the public's  perception of us,
and adverse public sentiment can materially adversely affect the market price of
our common stock and our financial  results.  One of the possible  effects on us
could be a  continuing  depressed  stock price,  which may result in  difficulty
raising equity  capital or the sale of equity at prices that are  unfavorable to
us. Current management may also consider  instituting  litigation as a result of
any wrongdoing that is found.  Such litigation could also involve material costs
that could affect our financial position. These costs may include the cost of
indemnifying the defendants or advancing costs to the defendants pending the
outcome of the suit.

DUE TO OUR LOSSES AND  ACCUMULATED  DEFICIT,  OUR AUDITORS HAVE RAISED  CONCERNS
ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.


Our independent  certified public accountants qualify their opinion contained in
our  consolidated  financial  statements as of and for the years ended April 30,
2003, 2002 and 2001 to include an explanatory  paragraph  related to our ability
to continue as a going  concern,  stating  that "during the year ended April 30,
2003, the Company  incurred a net loss of  $5,411,265,  and it had negative cash
flows from operations of $2,942,480. In addition, the Company had an accumulated
deficit of  $8,981,620  and was in the  development  stage as of April 30, 2003.
These factors among others, as discussed in Note 2 to the financial  statements,
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern." Reports of independent auditors that mention substantial doubt about a
company's   ability  to  continue  as  a  going  concern  are  generally  viewed
unfavorably by analysts and  investors.  This  qualified  audit report,  and the
facts underlying the qualification, may make it challenging and difficult for us
to raise  additional  debt or equity  financing  to the  extent  needed  for our
continued operations or for planned increases,



                                       27
<PAGE>

particularly  if we are unable to attain and maintain  profitable  operations in
the future.  Consequently,  future losses may have a material  adverse effect on
our business,  prospects,  financial  condition,  results of operations and cash
flows.  We urge  potential  investors  to review the  report of our  independent
certified public  accountants and our consolidated  financial  statements before
making a decision to invest in HiEnergy  Technologies,  and not to invest in our
common stock unless they can afford the potential loss of their investment.


IF OUR LOSSES CONTINUE INTO THE FUTURE,  OUR BUSINESS AND OUR STOCKHOLDERS  WILL
BE ADVERSELY AFFECTED.


We have  incurred net losses since our  inception.  For the year ended April 30,
2003, we reported a net loss available to common  shareholders of  approximately
$6,257,000,  as  compared  to a net loss  available  to common  shareholders  of
approximately  $1,389,000  for the year ended April 30,  2002.  Our  accumulated
deficit through April 30, 2003 was  approximately  $8,982,000.  We have financed
operations  to date  through a  combination  of  government  funding  and equity
financing.  We expect that our losses will continue further into the future.  We
cannot assure you that we will attain profitable operations in the future.


ONE OF OUR FORMER DIRECTORS HAS DEMANDED THAT WE ADVANCE HIM EXPENSES OF DEALING
WITH THE SEC'S INVESTIGATION.

Our former  director Barry Alter has engaged his own separate legal counsel with
respect to the SEC  investigation and is a recipient of what we understand to be
an informal  request that was or will be followed by a formal  subpoena from the
SEC as to its investigation. Mr. Alter demanded that we advance him in excess of
$24,000 in connection with the informal investigation that the SEC has conducted
Mr. Alter brought an action against us in Delaware  seeking payment of his costs
and  expenses.,   then  subsequently  informed  us  that  the  action  had  been
voluntarily  dismissed without  prejudice.  Mr. Alter could make further demands
for advancement of expenses,  and the voluntary dismissal of his action does not
prevent him from  initiating a new action to recover  expenses  from us. We will
vigorously  contest any such action by Mr.  Alter and could also bring an action
against Mr.  Alter for  indemnity,  breach of  fiduciary  duty,  fraud and other
relief.  If it is determined that Mr. Alter's claim satisfies the conditions for
advancement of expenses incurred in the SEC  investigation,  we may be obligated
to advance any  expenses,  liabilities  or losses  incurred by him in connection
with the  investigation  prior to a final  determination  whether Mr.  Alter has
satisfied  the  standard  of  conduct to  justify  indemnification.  We could be
subject to indemnification demands by Mr. Alter until there is a final judgment,
which could be years away.  See  "Liquidity  and Capital  Resources"  and "Legal
Proceedings" for more information.

FORMER DIRECTOR FAILED TO DISCLOSE OUTSIDE LEGAL PROCEEDINGS.

If certain legal  proceedings  involve a director of ours, and do not involve us
whatsoever,  we  nevertheless  are  required  to  disclose  them in Form  10-KSB
pursuant to Item 401(d) of Regulation S-B. This Item relates specifically to any
involvement  of  directors  in  outside  legal  proceedings,  such as  being  an
executive  officer of any company  declaring  bankruptcy and being  subjected to
certain  kinds of  judgments  and  injunctions.  Gregory  F.  Gilbert,  a former
director or ours, had not disclosed to us, during the course of our  preparation
of our  annual  report on Form  10-KSB  for the year  ended  April 30,  2002 and
subsequent reports,  that he was involved in certain legal proceedings.  Because
the  information  had not been  disclosed  by Mr.  Gilbert  to us,  we could not
include the  information  in any filings with the SEC prior to filing,  on March
11, 2003,  an  amendment to our annual  report on Form 10-KSB for the year ended
April 30, 2002.  The amendment  disclosed  additional  biographical  information
about Mr. Gilbert.  Mr. Gilbert was involved in several legal  proceedings  that
were unknown to us at the times when we certified and filed various reports with
the SEC.  Afterward we were made aware of a judgment that permanently  restrains
and  enjoins  Mr.  Gilbert  from  violating  the  anti-fraud  provisions  of the
Securities  Exchange Act of 1934 and imposes a civil penalty of $100,000 on him.
Specifically,  we base  our  information  on a  "Final  Judgment  as to  Gregory
Gilbert"  from the United  States  District  Court for the  District of Columbia
dated May 7, 1999, in SEC v. Bio-Tech Industries, Inc., et al., Case No. 98 Civ.
2298; and based on a review of the civil docket for this case, we do not believe
this  judgment,  as  reinstated  on or about July 20, 1999,  has been  reversed,
suspended or vacated. We also determined, based on an SEC Litigation Release No.
16182 (June 9, 1999),  that a predecessor  to  Hamilton-Biophile  Companies,  of
which Mr. Gilbert is Chief Executive Officer, was affirmatively enjoined to file
its quarterly and annual reports due under the Securities  Exchange Act of 1934.
Additionally,  Hamilton-Biophile,  including its  predecessors,  reported in its
filings  with the SEC that it had filed or had filed  against it  petitions  for
voluntary and involuntary  bankruptcy  during Mr.  Gilbert's tenure as its Chief
Executive Officer.




                                       28
<PAGE>

Certain kinds of legal  proceedings may be considered  especially  relevant to a
person's suitability to serve as a director of any public company.  Shareholders
could  potentially  assert  that we acted  negligently  in failing to uncover an
involvement  of  a  director  personally  in  such  legal  proceedings.  We  did
unwittingly  fail  to  apprise   ourselves  of  the  existence  of  these  legal
proceedings,  but we feel we acted with a reasonable amount of caution,  in that
we circulated a standard  questionnaire  to directors and nominees and exercised
due care.  Nonetheless,  our shareholders could lose confidence in our corporate
governance  practices if they believe  this  incident is a result of  inadequate
screening of potential nominees for the Board of Directors. Much worse yet, this
incident  could  materially  damage the public's  perception  of us, and adverse
public sentiment can materially  adversely affect the market price of our common
stock and our financial results.  Finally,  the purchasers of common stock prior
to our disclosure of the legal  proceedings  could claim that we are responsible
for alleged  monetary  damages  related to a decline in the market  price of our
stock.


PREVIOUS  PURCHASERS OF OUR SECURITIES AND STOCKHOLDERS  COULD ATTEMPT TO ASSERT
CLAIMS AGAINST US FOR INADEQUATE DISCLOSURE.


In April,  June and October  2002, we sold  1,725,000  and  1,349,934  shares of
common stock,  in separate  private equity  offerings.  Facts related to Gregory
Gilbert and a separate  investigation by the SEC involving  persons suspected of
stock  manipulation,  which  are  described  under  "Former  Director  Failed to
Disclose  Court  Judgment,"  "We  understand  there is a formal SEC inquiry that
relates to investors in our  predecessor  company  about the time of the reverse
acquisition  transaction between SLW Enterprises Inc. and HiEnergy Microdevices,
Inc." and "Legal  Proceedings,"  were not known to us and were not  disclosed in
sales  materials or filings with the SEC. We do not believe that the information
was material, and we believe that we have valid defenses against liability under
the Securities Act of 1933 (the "Securities  Act"), the Securities  Exchange Act
of 1934 (the  "Exchange  Act") and other  state  and  federal  securities  laws.
However,  if a court  decides to the  contrary,  that could  result in liability
under the Securities Act to such purchasers or under the Securities Exchange Act
of 1934 to  stockholders,  or under other state  securities  laws that may apply
similar or different standards as the federal law. In such case, we would pursue
all of our  rights  and  remedies,  if any,  against  our  former  officers  and
directors to the extent, if any, they were culpable.


WE MAY BE ADVERSELY AFFECTED BY WEAKNESSES IN OUR INTERNAL CONTROLS.

A review by our management has determined that our internal controls suffer from
inadequate policies and procedures.  Deficiencies in the design and operation of
our internal  controls could  adversely  affect our ability to record,  process,
summarize and report  material  financial  information or to regulate and govern
misconduct.  New  management is committed to improving the state of our internal
controls and their effectiveness.

WE HAVE A SINGLE INDIVIDUAL  SERVING AS OUR CHAIRMAN,  CHIEF EXECUTIVE  OFFICER,
PRESIDENT  AND  TREASURER,  AND LACK OF BUSINESS  AND  FINANCIAL  EXPERIENCE  OF
MANAGEMENT MAY IMPAIR OUR FINANCIAL PERFORMANCE.

The success of our business depends to a great extent on Dr. Bogdan Maglich, the
Chairman  of  our  Board  of  Directors,  Chief  Executive  Officer,  President,
Treasurer,  and Chief Scientific Officer. We have not obtained key man insurance
with  respect to Dr.  Maglich or any of our  executive  officers.  Although  Dr.
Maglich has ample  experience in monitoring the research and  development of our
technology  as Chief  Scientific  Officer,  and  ample  previous  experience  in
managing large numbers of researchers in academia,  he has relatively  little or
no direct  experience  in the general  management  of the business and financial
operations of the Company. Dr. Maglich's lack of previous experience in the area
of management could adversely  affect the existing and future  operations of the
Company.  As a result,  our future  growth and success will depend in large part
upon our need and ability to attract additional qualified management  personnel.
The  competition  for  qualified  management  in the  technological  industry is
intense, and our inability to attract and retain additional key management could
adversely affect our business and financial operations.

WE MUST  PREDICT  THE AMOUNT OF  PHYSICAL  SHIELDING  REQUIRED IN OUR PRODUCT TO
SATISFY PRESENT AND FUTURE NATIONAL, STATE AND LOCAL REGULATIONS.

For the time being,  we will try to segregate the  deployment of our  technology
from the general public. We anticipate a possible adverse public reaction to the
concept of "neutron  bombardment." We anticipate the need for neutron  shielding
in certain applications,  such as airports, to shield personnel from anticipated
levels of radiation bombardment.  We have not determined the levels of shielding
that are required, which may vary depending on the



                                       29
<PAGE>

applicable regulations of the jurisdiction in which the system is installed.  We
believe that any public objections can ultimately be overcome through education.
Our Chief Scientific Officer,  Dr. Maglich,  believes that our anticipated level
of neutron radiation dose will result in 10 to 100 times less tissue damage than
the  level of  x-ray  radiation  dose  needed  to  accomplish  baggage  security
screening.  Fast neutrons, which are used in our technology,  do not produce the
same radioactive environment as thermal neutrons. Despite the relative safety of
our  technology,  we propose to use our technology  initially only for screening
procedures that are remote from the general public (such as checked  baggage) to
avoid this adverse public  reaction,  instead of proposing to use our technology
for high profile  procedures  (such as carry-on  baggage  screening).  As public
knowledge and awareness increase,  we believe that the broader array of uses for
our technology  will become  available.  Concerns about safety may challenge our
ability to generate revenues and adversely affect our financial  position,  cash
flows and results of operations.


WE MAY FACE  COMPETITION  AND SINCE WE ARE A DEVELOPMENT  STAGE COMPANY THAT HAS
NOT COMMENCED  COMMERCIAL  OPERATIONS,  WE ALSO DO NOT HAVE THOROUGHLY DEVELOPED
SALES AND MARKETING PLANS TO ACHIEVE POSITIVE CASH FLOWS.


We are a development stage company. As a result, we have limited resources.  Our
competitors and potential  competitors have greater financial resources.  Please
see  the  separate  section  entitled  "Competition"  under  the  major  heading
"Description  of  Business."  Also,  our business  model is still in an evolving
stage.  Since we have not commenced  commercial  operations,  we do not have the
benefit  of the many years of  experience  that some other  companies  have.  We
anticipate  responding  to the markets that present  themselves  at the time our
products are ready to be sold, and as such, our business and marketing  approach
may change from time to time. No assurances  can be made that the changes in the
marketing  of our  products  will meet with  success.  Our  business  plan might
benefit  from  modification  and  optimization  if we had more  past  experience
executing  our own  business  strategies.  Our ability to  generate  revenue and
income is unproven.

COMPETITION  MAY ARISE  BEFORE WE COMPLETE  THE  DEVELOPMENT  AND TESTING OF OUR
STOICHIOMETRIC  TECHNOLOGY AND OUR DETECTION  SYSTEMS IF NOT COMPLETED  WITHIN A
REASONABLE PERIOD OF TIME.

A delay in  development  or testing  of our  prototypes  may result in  foregone
potential sources of revenue. Laboratory experiments have demonstrated the basic
capability of the  stoichiometric  technology to remotely determine the chemical
formula of certain hidden  substances in controlled  situations.  Our technology
must now be  converted  into  saleable  products.  Experiments  to increase  the
efficacy  of our  technology  are  ongoing.  If we are  unable to  complete  the
development  of our  technology  and commence to manufacture at least one of our
models of detection  systems within a reasonable period of time, we may miss the
opportunity  to  capitalize  on our  lead-time  to market.  The  development  of
products based on the technology may take longer, cost more or be more difficult
than expected.  Other  enterprises are seeking to develop  products with similar
capabilities.  Please see the separate section entitled  "Competition" under the
major heading "Description of Business."


IF WE ARE UNABLE TO SECURE ANTICIPATED GOVERNMENTAL FUNDING, WE MAY BE FORCED TO
CURTAIL SPENDING FURTHER THAN ANTICIPATED.


We must secure enough funds to pay our current liabilities and fund the research
and development of our products.  We are currently in the process of negotiating
several proposals with various  government  agencies for the development and use
of our technology, which we believe will provide adequate sources of funding for
our operations for the foreseeable future. The government review and procurement
process can be slow and  unpredictable at times.  However,  management is highly
confident as our products have performed well in all tests and demonstrations to
date and been well received by these agencies.


We may instead raise capital funds through other sources. If equity financing is
used to  raise  additional  working  capital,  the  ownership  interests  of our
existing stockholders will be diluted.  There is no assurance that funds will be
available  from any source or, if available,  that they can be obtained on terms
acceptable to us. If unavailable,  our operations could be severely limited, and
we may not be able to implement our business plan in a timely manner or at all.



                                       30
<PAGE>

IF WE ARE  UNABLE TO RETAIN  KEY  TECHNICAL  AND  SCIENTIFIC  PERSONNEL,  IT MAY
PREVENT US FROM  IMPLEMENTING  OUR BUSINESS PLAN,  LIMIT OUR  PROFITABILITY  AND
DECREASE THE VALUE OF YOUR STOCK.

We are dependent on the talent and resources of our key managers and  employees.
In  particular,  the success of our  business  depends to a great  extent on Dr.
Bogdan Maglich, the Chairman of our Board of Directors,  Chief Executive Officer
and Chief Scientific Officer.  Dr. Maglich is the inventor of the stoichiometric
technology and the three detection system  prototypes being developed by us, and
his services are critical to our success. We have not obtained key man insurance
with respect to Dr.  Maglich or any of our executive  officers.  The loss of Dr.
Maglich may prevent us from  implementing our business plan, which may limit our
profitability and decrease the value of your stock.


WE MAY HAVE  INCREASING  DIFFICULTY  TO ATTRACT AND HOLD OUTSIDE  MEMBERS OF OUR
BOARD OF DIRECTORS.

The directors and management of publicly traded  corporations  are  increasingly
concerned with the extent of their personal exposure to lawsuits and shareholder
claims,  as well as  governmental  and creditor claims which may be made against
them in connection with their positions with  publicly-held  companies.  Outside
directors are becoming increasingly concerned with the availability of directors
and officer's liability insurance to pay on a timely basis the costs incurred in
defending  shareholder  claims.  Directors and officers liability  insurance has
recently become much more expensive and difficult to obtain than it had been. If
we are unable to obtain directors and officers liability insurance at affordable
rates, it may become increasingly more difficult to attract and retain qualified
outside directors to serve on our Board.

BECAUSE WE BELIEVE THAT  PROPRIETARY  RIGHTS ARE ONE OF THE MATERIAL  FACTORS TO
OUR SUCCESS, MISAPPROPRIATION OF THOSE RIGHTS OR CLAIMS OF INFRINGEMENT OR LEGAL
ACTIONS  RELATED TO INTELLECTUAL  PROPERTY COULD ADVERSELY  IMPACT OUR FINANCIAL
CONDITION, EXCEPT TO THE EXTENT WE OTHERWISE CAN PROTECT OUR INTERESTS.

We do not solely rely on contractual rights, patents,  copyrights or other legal
protection of intellectual  property for any aspect of our  technology.  Because
the combination of contractual  rights,  patents and copyrights may only provide
narrow  protection of our  proprietary  rights,  we also rely on the  protection
afforded by our trade secrets,  rapid  innovation and  advancement of technology
and scientific  expertise.  However, we believe that our products in development
could  benefit  from  patent  protection.  As a  result,  we have  filed  patent
applications  for various  products  with the United States Patent and Trademark
Office.  Although we rely to a great extent on trade secret  protection for much
of our technology and plan to rely in the future on patents to protect a portion
of our  technology,  we  cannot  assure  you that our  means of  protecting  our
proprietary   rights  will  be  adequate  or  that  our  competitors   will  not
independently develop comparable or superior technologies or obtain unauthorized
access to our proprietary technology. Furthermore, we have accepted SBIR grants;
and therefore the U.S. Federal Government has royalty-free rights for the use of
resulting  products  and  data.  We  nevertheless  own the data and title to the
resulting  products and are permitted to obtain patent  protection.  The Federal
Government  does  not  undertake  to  protect  data or  inventions  from  public
disclosure beyond four (4) years after the term of our contract.  The failure or
inability to protect these rights and to fully exploit these rights could have a
material  adverse effect on our  operations due to increased  competition or the
expense  of  prosecuting   infringements  of  our  intellectual   property.  Any
litigation  could result in  substantial  costs and diversion of management  and
other  resources  with no  assurance  of success  and could  seriously  harm our
business and operating results. Investors could lose their entire investment.


We may receive  infringement  claims from third parties relating to our products
under development and technologies. We intend to investigate the validity of any
infringement  claims  that may be made  against us and, if we believe the claims
have merit, to respond through  licensing or other appropriate  actions.  To the
extent claims relate to technology  included in components  purchased from third
party vendors for  incorporation  into the products we are developing,  we would
forward  those  claims  to  the  appropriate  vendor.  If  we or  our  component
manufacturers  were  unable  to  license  or  otherwise  provide  any  necessary
technology on a  cost-effective  basis,  we could be prohibited  from  marketing
products  containing that  technology,  incur  substantial  costs in redesigning
products incorporating that technology,  or incur substantial costs in defending
any legal action taken against us.

IF WE FAIL TO MANAGE EFFECTIVELY, IT COULD IMPAIR OUR BUSINESS.

Our strategy  envisions a period of increasing  operations that may put a strain
on our  administrative  and operational  resources.  To effectively  manage this
process  will  require  us  to  continue  to  expand  the  capabilities  of  our


                                       31
<PAGE>

operational  and  management  systems and to attract,  train,  manage and retain
qualified management, engineers,  technicians,  salespeople and other personnel.
We  cannot  assure  you that we will be able to do so. If we do not  succeed  in
this, our business,  prospects,  financial condition,  results of operations and
cash flows could be adversely affected.


WE ARE UNABLE TO PREDICT THE IMPACT THAT THE CONTINUING  THREAT OF TERRORISM AND
THE  RESPONSES TO THAT THREAT BY MILITARY,  GOVERNMENT,  BUSINESS AND THE PUBLIC
MAY HAVE ON OUR  FINANCIAL  CONDITION  AND ABILITY TO CONTINUE TO IMPLEMENT  OUR
BUSINESS PLAN.

The  terrorist  attacks in the United  States and other  countries  have brought
devastation to many people,  shaken consumer  confidence and disrupted  commerce
throughout the world.  The  continuing  threat of terrorism in the United States
and other countries and heightened security measures, as well as current and any
future  military  action in  response  to such  threat,  may  cause  significant
disruption to the global economy,  including widespread recession. We are unable
to predict  whether the continuing  threat of terrorism or the responses to such
threat will interfere with our efforts to raise  additional  capital to fund our
operations through the development stage. If we are unable to raise a sufficient
amount of capital  due to  economic  conditions,  we may not be able to finalize
development of our detection systems and bring them to market as planned.


INTERRUPTIONS,   DELAYS  OR  COST  INCREASES  AFFECTING  OUR  MATERIALS,  PARTS,
EQUIPMENT OR SUPPLIERS MAY ADVERSELY AFFECT OUR OPERATIONS,  AND RELIANCE UPON A
SINGLE SUPPLIER FOR NEUTRON ACCELERATORS INCREASES THIS RISK.

Our operations depend upon obtaining  adequate supplies of materials,  parts and
equipment,  including linear accelerators, on a timely basis from third parties.
Our reliance on third party suppliers  limits our control over product  delivery
schedules  or product  quality.  Our results of  operations  could be  adversely
affected if we are unable to obtain  adequate  supplies of materials,  parts and
equipment of adequate  quality in a timely  manner or if the costs of materials,
parts or equipment  increase  significantly.  From time to time,  suppliers  may
extend lead times, limit supplies or increase prices due to capacity constraints
or other  factors.  In the event that any of our  suppliers  were to  experience
financial,  operational,  production or quality assurance difficulties resulting
in a reduction or  interruption  in supply to us, our  operating  results  could
suffer until alternate suppliers, if any, were to become available.

Linear accelerators are a central component of our sensors. There are only three
suppliers of this component,  and we are currently using only one supplier. This
supplier has limited production capacity,  also supplies one of our competitors,
and has delayed delivery of components on three occasions. The unit we are using
has been  re-designed as requested by us, and this has led to delays recently in
delivery. While we believe that alternate suppliers for neutron accelerators are
available, further interruption could materially impair our operations.


LINEAR  ACCELERATORS  ARE SUBJECT TO REGULATION BY THE U.S.  NUCLEAR  REGULATORY
COMMISSION  AND OTHER  FEDERAL AND STATE  AGENCIES,  AND THE BURDEN OF COMPLYING
WITH  THESE  REGULATIONS  MAY IMPAIR OUR  ABILITY  TO TEST AND  DEMONSTRATE  OUR
PRODUCTS.

The detector systems incorporated within our products utilize linear accelerator
equipment.  Various governmental  agencies,  such as the U.S. Nuclear Regulatory
Commission,  the U.S. Department of Transportation and state health departments,
regulate  the sale  and use of  linear  accelerator  equipment.  There  are also
federal, state and local regulations covering the occupational safety and health
of our  employees.  We believe  that we are in  compliance  with all  applicable
governmental requirements.

The primary aspect of the equipment or protocol  associated with our products or
activities  that require  licensing is the use of linear  accelerator  radiation
sources.  Use of the systems in-house or at a customer facility or demonstration
location  requires the operating  party to obtain a license from the appropriate
state agency or federal agency (U.S. Nuclear Regulatory  Commission)  regulating
the use of radiation producing systems.  These licensing  requirements and other
regulatory  burdens  associated  with the use of  linear  accelerator  radiation
sources makes the testing and demonstration of our products  substantially  more
difficult,  and  may  from  time  to  time  delay  or  prevent  the  testing  or
demonstration of our products.





                                       32
<PAGE>

LIMITED  LIABILITY OF OUR CURRENT AND FORMER DIRECTORS MAY DISCOURAGE US AND THE
STOCKHOLDERS FROM BRINGING ANY LAWSUITS AGAINST THEM.

Our certificate of  incorporation  and bylaws contain  provisions that eliminate
the liability of directors for monetary  damages to the maximum extent permitted
by law. These  provisions may  discourage  stockholders  from bringing a lawsuit
against  directors  and officers  for  breaches of  fiduciary  duty and may also
reduce the likelihood of derivative  litigation  against  directors and officers
even though such action,  if  successful,  might  otherwise  have  benefited the
stockholders.


WE MAY OWE  INDEMNIFICATION  OBLIGATIONS TO OUR CURRENT AND FORMER DIRECTORS AND
OFFICERS.

Our certificate of incorporation and bylaws contain  provisions that provide for
indemnification  of  officers  and  directors,  in each  instance to the maximum
extent  permitted  by law. A  stockholder's  investment  in our  company  may be
adversely  affected to the extent  that costs of  settlement  and damage  awards
against  directors  or  officers  are  paid  by  us  under  the  indemnification
provisions  of the  certificate  of  incorporation  and bylaws.  The impact on a
stockholder's  investment in terms of the costs of defending a lawsuit on behalf
of a director or officer may also deter us from  bringing  suit  against  former
directors or officers.  To the extent  indemnification  for liabilities  arising
under the Securities Act may be permitted to directors, officers and controlling
persons of HiEnergy  Technologies under the above provisions,  or otherwise,  we
have been advised that in the opinion of the Securities and Exchange  Commission
such  indemnification  is against  public policy as expressed in the  Securities
Act, and is, therefore, unenforceable.

HOLDERS AND PURCHASERS OF OUR COMMON STOCK MAY EXPERIENCE  SUBSTANTIAL DILUTION,
WHICH COULD MAKE IT DIFFICULT FOR US TO RAISE ADDITIONAL CAPITAL.

The number of shares  available for sale is a multiple of more than 45 times the
average daily trading  volume of our shares  reported on the OTCBB.  Our current
public float as of May 28, 2003,  consisted  of a 6,607,047  shares.  Sales of a
substantial  number of shares of our common stock in the public  market,  or the
perception that offers and sales could occur,  could adversely affect the market
price for our common  stock.  Any  adverse  effect on the  market  price for our
common  stock  could  make it  difficult  in the  future  for us to sell  equity
securities at a time and at a price that we deem appropriate.

In addition,  there is a net deficit per share of our common  stock.  All of our
previously  outstanding  shares of our  common  stock will  dilute the  positive
effect on book value per share of any payments  that are actually made to us for
the sale of shares.  Essentially,  investors in our common stock should consider
that they shall absorb substantially complete immediate dilution.

WE ARE  INEXPERIENCED  IN DOING BUSINESS IN THE MIDDLE EAST,  EUROPEAN UNION AND
OTHER POTENTIAL  MARKETS FOR OUR PRODUCTS,  AND OUR PLANS MAY RELY ON LEVERAGING
THE SKILLS OF STRATEGIC PARTNERS.

Our management is  inexperienced  in doing business in many overseas  markets in
which we plan to sell our products. We may experience unexpected difficulties in
our  overseas  marketing  and sales  efforts,  and such  efforts may depend upon
leveraging the skills of strategic partners with experience in these markets. We
have entered  into an Exclusive  International  Distribution  Agreement  for our
beta-model CarBomb Finder with the Electronic Equipment Marketing Company, based
in London and Riyadh, for our marketing and sales efforts in the Middle East and
certain European Union nations.  Presently no other strategic partners have been
decided upon.

LARGE  LONG-TERM  PROJECTS ARE OFTEN UP FOR BIDDING AND WE MAY BE HAMPERED  FROM
PARTICIPATING IN THOSE PROJECTS IF OUR OWN FINANCIAL POSITION PROVES INADEQUATE.

Bidding for large long-term  government or private sector  production  contracts
may require a demonstration of adequate  financial  position for the term of the
contract, and we may be unable to satisfy such requirements without successfully
obtaining substantial  additional financing.  Our plan of operation for the next
twelve  months  calls for  additional  financing  in order to satisfy  stringent
requirements that would apply in obtaining a long-term full production contract.




                                       33
<PAGE>

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements,  which generally include
the plans and objectives of management for future  operations,  including  plans
and  objectives  relating  to our future  economic  performance  and our current
beliefs  regarding  revenues we might earn if we are successful in  implementing
our business strategies. The forward-looking statements and associated risks may
include,  relate  to or be  qualified  by other  important  factors,  including,
without limitation:

     o    our ability to finish developing our detection systems and produce and
          sell them;

     o    the  projected  growth  in  those  industries  that  may  utilize  our
          technology in the future;

     o    our  ability to fund the  continued  development,  including  securing
          government  grants,  and planned  commercialization  of our  detection
          systems; and

     o    our  ability to  distinguish  ourselves  from our  current  and future
          competitors.

You  can   identify   forward-looking   statements   generally  by  the  use  of
forward-looking  terminology  such  as  "believes,"  "expects,"  "may,"  "will,"
"intends,"  "plans,"  "should,"  "could,"  "seeks," "pro forma,"  "anticipates,"
"estimates,"  "continues," or other  variations of those terms,  including their
use in the negative,  or by discussions of strategies,  opportunities,  plans or
intentions.  You may find these  forward-looking  statements  under the captions
"Risk Factors," "Management's Discussion and Analysis or Plan of Operation," and
"Description of Business," as well as captions  elsewhere in this annual report.
A number of  factors  could  cause  results  to  differ  materially  from  those
anticipated by forward-looking statements, including those discussed under "Risk
Factors",  "Description of Business",  and "Management's Discussion and Analysis
or Plan of Operation."


These  forward-looking   statements  necessarily  depend  upon  assumptions  and
estimates  that  may  prove  to be  incorrect.  Although  we  believe  that  the
assumptions  and  estimates  reflected  in the  forward-looking  statements  are
reasonable,  we cannot  guarantee that we will achieve our plans,  intentions or
expectations.  The  forward-looking  statements involve known and unknown risks,
uncertainties  and other  factors  that may cause  actual  results  to differ in
significant   ways  from  any  future  results   expressed  or  implied  by  the
forward-looking   statements.   It  is  appropriate  for  you  to  evaluate  our
forward-looking  statements as you determine whether to buy shares of our common
stock  in  this  offering,  but we urge  you  not to  place  undue  reliance  on
forward-looking statements as you make your investment decision.


Any of the factors  described above or in the "Risk Factors" section above could
cause our  financial  results,  including our net income (loss) or growth in net
income  (loss) to differ  materially  from prior  results,  which in turn could,
among  other  things,   cause  the  price  of  our  common  stock  to  fluctuate
substantially.




                                       34
<PAGE>



ITEM 7.  FINANCIAL STATEMENTS


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                      Page
                                                                      ----

INDEPENDENT AUDITOR'S REPORT                                           36


CONSOLIDATED FINANCIAL STATEMENTS


     Consolidated Balance Sheet                                       37-38

     Consolidated Statements of Operations                            39-40

     Consolidated Statements of Shareholders' Equity (Deficit)        41-45

     Consolidated Statements of Cash Flows                            46-49

     Notes to Consolidated Financial Statements                       50-69




                                       35
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

Board of Directors and Shareholders
HiEnergy Technologies, Inc. and subsidiaries

We  have  audited  the  accompanying  consolidated  balance  sheet  of  HiEnergy
Technologies,  Inc. and subsidiaries  (development  stage companies) as of April
30, 2003, and the related consolidated  statements of operations,  shareholders'
equity  (deficit),  and cash flows for each of the two years in the period ended
April 30,  2003,  and the period from August 21, 1995  (inception)  to April 30,
2003.  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 of  America.  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 consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial   position  of  HiEnergy
Technologies,  Inc. and  subsidiaries  as of April 30, 2003,  and the results of
their  operations  and their  cash flows for each of the two years in the period
ended April 30, 2003,  and the period from August 21, 1995  (inception) to April
30, 2003 in conformity  with  accounting  principles  generally  accepted in the
United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements, during the year ended April 30, 2003, the Company incurred
a net loss of  $5,411,265,  and it had negative  cash flows from  operations  of
$2,942,480.  In addition,  the Company had an accumulated  deficit of $8,981,620
and was in the  development  stage as of April 30, 2003.  These  factors,  among
others,  as discussed in Note 2 to the financial  statements,  raise substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans in regard to these  matters are also  described  in Note 2. The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.



SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
July 8, 2003


                                       36

<PAGE>



                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                                      CONSOLIDATED BALANCE SHEET
                                                                  APRIL 30, 2003

================================================================================


                                     ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                          $107,008
     Accounts receivable                                                  34,583
     Subscriptions receivable                                            443,482
     Other current assets                                                723,598
                                                                      ----------

         Total current assets                                          1,308,671

PROPERTY AND EQUIPMENT, net                                              504,424
                                                                      ----------

              TOTAL ASSETS                                            $1,813,095
                                                                      ==========





    The accompanying notes are an integral part of these financial statements

                                       37
<PAGE>




                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                                      CONSOLIDATED BALANCE SHEET
                                                                  APRIL 30, 2003

================================================================================


<TABLE>
<CAPTION>
                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
<S>                                                                                      <C>
     Accounts payable                                                                    $670,895
     Accrued expenses                                                                       1,600
     Accrued payroll and payroll taxes                                                     28,525
     Accrued interest                                                                      35,288
     Notes payable - related parties                                                       85,000
     Convertible notes payable - related parties                                           57,117
                                                                                      -----------

         Total current liabilities                                                        878,425
                                                                                      -----------

MINORITY INTEREST IN SUBSIDIARY, 20,540 shares issued and outstanding                      18,923
                                                                                      -----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
     Series A  convertible,  redeemable  preferred  stock, $0.001  par value 8%
         dividends, voting rights, liquidation preference $10,000 per share, 345
         shares authorized
         95.82 shares issued and outstanding                                                    1
     Common stock, $0.001 par value
         100,000,000 shares authorized
         25,525,882 shares issued and outstanding                                          25,525
     Additional paid-in capital                                                         9,837,437
     Committed common stock, 76,937 shares outstanding                                     34,404
     Deficit accumulated during the development stage                                  (8,981,620)
                                                                                      -----------

              Total shareholders' equity                                                  915,747
                                                                                      -----------

                   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $1,813,095
                                                                                      ===========
</TABLE>


    The accompanying notes are an integral part of these financial statements


                                       38
<PAGE>


                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                               FOR THE YEARS  ENDED  APRIL 30, 2003 AND 2002 AND
               FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================

<TABLE>
<CAPTION>
                                                                                                       For the
                                                                                                    Period from
                                                                                                     August 21,
                                                                      For the Year Ended                 1995
                                                                            April 30,              (Inception) to
                                                                ---------------------------------     April 30,
                                                                      2003              2002             2003
                                                                ----------------  ---------------  ----------------
<S>                                                             <C>               <C>              <C>
CONTRACT REVENUES                                               $        144,587  $       148,166  $        470,503
                                                                ----------------  ---------------  ----------------

OPERATING EXPENSES
   General and administration                                          4,488,175          967,092         5,909,064
   Research and development                                              839,629          558,184         2,428,182
                                                                ----------------  ---------------  ----------------

     Total operating expenses                                          5,327,804        1,525,276         8,337,246
                                                                ----------------  ---------------  ----------------

LOSS FROM OPERATIONS                                                  (5,183,217)      (1,377,110)       (7,866,743)
                                                                ----------------  ---------------  ----------------

OTHER INCOME (EXPENSE)
   Interest income                                                         7,886                -             7,886
   Interest expense                                                      (10,855)         (10,486)          (40,910)
   Financing expense                                                    (223,710)               -          (223,710)
   Other income                                                              231                -               231
                                                                ----------------  ---------------  ----------------

     Total other income (expense)                                       (226,448)         (10,486)         (256,503)
                                                                ----------------  ---------------  ----------------

LOSS BEFORE PROVISION FOR INCOME TAXES                                (5,409,665)      (1,387,596)       (8,123,246)

PROVISION FOR INCOME TAXES                                                 1,600            1,934            12,583
                                                                ----------------  ---------------  ----------------

NET LOSS                                                              (5,411,265)      (1,389,530)       (8,135,829)

BENEFICIAL CONVERSION FEATURE GRANTED ON
   PREFERRED STOCK                                                      (767,431)               -          (767,431)

PREFERRED STOCK DIVIDENDS                                                (78,360)               -           (78,360)
                                                                ----------------  ---------------  ----------------

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS                       $     (6,257,056) $    (1,389,530) $     (8,981,620)
                                                                ================= ===============  =================
</TABLE>


    The accompanying notes are an integral part of these financial statements



                                       39
<PAGE>




                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                 FOR THE YEARS ENDED APRIL 30, 2003 AND 2002 AND
               FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================


<TABLE>
<CAPTION>
                                                                                                       For the
                                                                                                    Period from
                                                                                                     August 21,
                                                                      For the Year Ended                 1995
                                                                            April 30,              (Inception) to
                                                                ---------------------------------     April 30,
                                                                      2003              2002             2003
                                                                ----------------  ---------------  ----------------
BASIC AND DILUTED LOSS PER SHARE
<S>                                                             <C>               <C>              <C>
   Net loss per share                                           $          (0.23) $         (0.08) $          (0.63)
   Beneficial conversion feature granted on
     preferred stock per share                                             (0.03)               -             (0.06)
   Preferred stock dividends per share                                     (0.01)               -             (0.01)
                                                                ----------------  ---------------  ----------------

BASIC AND DILUTED LOSS AVAILABLE TO COMMON
   SHAREHOLDERS PER SHARE                                       $          (0.27) $         (0.08) $          (0.70)
                                                                ================  ================ =================

BASIC AND DILUTED WEIGHTED-AVERAGE COMMON
   SHARES OUTSTANDING                                                 23,386,403       17,783,760        12,817,339
                                                                ----------------  ---------------  ----------------
</TABLE>


    The accompanying notes are an integral part of these financial statements


                                       40
<PAGE>


                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
                               FOR THE YEARS  ENDED  APRIL 30, 2003 AND 2002 AND
               FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================


<TABLE>
<CAPTION>
                                   Series A                                                                 Deficit
                           Convertible, Redeemable                                                        Accumulated
                              Preferred Stock        Common Stock     Additional   Committed   Deferred    during the
                             -----------------  ---------------------   Paid-In     Common      Compen-   Development
                             Shares    Amount     Shares      Amount    Capital      Stock      sation       Stage        Total
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------
BALANCE, AUGUST 21, 1995
<S>                                   <C>                   <C>       <C>         <C>         <C>          <C>          <C>
   (INCEPTION)                    --  $     --           -- $      -- $       --  $        -- $        --  $        --  $        --
RECAPITALIZATION UPON
   REVERSE MERGER                 --        --    6,470,000     6,470     (6,456)          --          --           --           14
ISSUANCE OF COMMON STOCK
   FOR SERVICES RENDERED          --        --      734,771       735      7,495           --          --           --        8,230
NET LOSS                                                                                                       (39,387)    (39,387)
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------

BALANCE, APRIL 30, 1996           --        --    7,204,771     7,205      1,039           --          --      (39,387)    (31,143)
ISSUANCE OF COMMON STOCK
   FOR SERVICES RENDERED                              3,219         3         33                                                 36
NET LOSS                                                                                                      (110,004)   (110,004)
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------

BALANCE, APRIL 30, 1997           --        --    7,207,990     7,208      1,072           --          --     (149,391)   (141,111)
ISSUANCE OF COMMON STOCK
   FOR CASH                       --        --      596,589       597    143,955           --          --           --      144,552
ISSUANCE OF COMMON STOCK
   FOR SERVICES RENDERED          --        --    1,451,928     1,452     15,598           --          --           --       17,050
NET LOSS                          --        --           --        --         --           --          --     (293,019)   (293,019)
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------

BALANCE, APRIL 30, 1998           --        --    9,256,507     9,257    160,625           --          --     (442,410)   (272,528)
ISSUANCE OF COMMON STOCK
   FOR CASH                       --        --      264,852       265    150,965           --          --           --      151,230
ISSUANCE OF COMMON STOCK
   FOR SERVICES RENDERED          --        --    2,167,620     2,167     47,592           --          --           --       49,759
NET LOSS                          --        --           --        --         --           --          --     (272,426)   (272,426)
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       41
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
                               FOR THE YEARS  ENDED  APRIL 30, 2003 AND 2002 AND
               FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================

<TABLE>
<CAPTION>
                                   Series A                                                                 Deficit
                           Convertible, Redeemable                                                        Accumulated
                              Preferred Stock        Common Stock     Additional   Committed   Deferred    during the
                             -----------------  ---------------------   Paid-In     Common      Compen-   Development
                             Shares    Amount     Shares      Amount    Capital      Stock      sation       Stage       Total
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------
<S>                                             <C>         <C>       <C>         <C>         <C>          <C>          <C>
BALANCE, APRIL 30, 1999           --        --  $11,688,979 $  11,689 $  359,182  $        -- $        --  $  (714,836) $ (343,965)
ISSUANCE OF COMMON STOCK
   FOR CASH                       --        --      638,548       638    295,008           --          --           --      295,646
ISSUANCE OF COMMON STOCK
   FOR SERVICES RENDERED          --        --    1,914,570     1,915     83,322           --          --           --       85,237
NET LOSS                          --        --           --        --         --           --          --     (332,131)   (332,131)
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------

BALANCE, APRIL 30, 2000           --        --   14,242,097    14,242    737,512           --          --   (1,046,967)   (295,213)
ISSUANCE OF COMMON STOCK
   FOR CASH                       --        --      465,437       465    109,265           --          --           --      109,730
ISSUANCE OF COMMON STOCK
   FOR SERVICES RENDERED          --        --      371,035       371     36,097           --          --           --       36,468
NET LOSS                          --        --           --        --         --           --          --     (288,067)   (288,067)
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------

BALANCE, APRIL 30, 2001           --        --   15,078,569    15,078    882,874           --          --   (1,335,034)   (437,082)
ISSUANCE OF COMMON STOCK
   FOR CASH                       --        --      712,071       712    180,857           --          --           --      181,569
ISSUANCE OF COMMON STOCK
   FOR SERVICES RENDERED          --        --    5,059,560     5,060    227,110           --          --           --      232,170
ISSUANCE OF COMMON STOCK
   IN PRIVATE PLACEMENT
   FOR CASH                       --        --    1,225,000     1,225  1,223,775           --          --           --    1,225,000
NET LOSS                          --        --           --        --         --           --          --   (1,389,530) (1,389,530)
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------
</TABLE>

    The accompanying notes are an integral part of these financial statements


                                       42
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
                               FOR THE YEARS  ENDED  APRIL 30, 2003 AND 2002 AND
               FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================

<TABLE>
<CAPTION>
                                   Series A                                                                 Deficit
                           Convertible, Redeemable                                                        Accumulated
                              Preferred Stock        Common Stock     Additional   Committed   Deferred    during the
                             -----------------  ---------------------   Paid-In     Common      Compen-   Development
                             Shares    Amount     Shares      Amount    Capital      Stock      sation       Stage       Total
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------
<S>                                   <C>        <C>        <C>       <C>         <C>         <C>          <C>          <C>
BALANCE, APRIL 30, 2002           --  $     --   22,075,200 $  22,075 $2,514,616  $        -- $        --  $(2,724,564) $ (187,873)
ISSUANCE OF PREFERRED STOCK
   IN PRIVATE PLACEMENT
   FOR CASH                    97.93         1           --        --    800,399           --          --           --      800,400
ISSUANCE OF COMMON STOCK
   FOR SUBSCRIPTIONS
   RECEIVABLE                     --        --    1,410,000     1,410    452,072           --          --           --      453,482
ISSUANCE OF COMMON STOCK
   IN PRIVATE PLACEMENTS
   FOR CASH                       --        --    1,849,934     1,850  2,320,556           --          --           --    2,322,406
OFFERING COSTS                    --        --           --        --   (196,793)          --          --           --    (196,793)
ISSUANCE OF COMMON STOCK
   ON CASHLESS CONVERSION
   OF THE SERIES A PREFERRED
   STOCK                       (2.11)       --       18,336        18        (18)          --          --           --           --
ISSUANCE OF COMMON STOCK
   IN CASHLESS EXERCISE OF
   WARRANTS                       --        --       33,909        34        (34)          --          --           --           --
ISSUANCE OF COMMON STOCK
   AND COMMON STOCK
   COMMITTED TO AN EMPLOYEE
   AS A BONUS                     --        --       11,178        11     21,339       17,549          --           --       38,899
ISSUANCE OF COMMON STOCK
   AND COMMON STOCK
   COMMITTED FOR SERVICES
   RENDERED                       --        --       21,277        21     10,288        9,691          --           --       20,000
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                       43
<PAGE>


                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
                               FOR THE YEARS  ENDED  APRIL 30, 2003 AND 2002 AND
               FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================

<TABLE>
<CAPTION>
                                   Series A                                                                 Deficit
                           Convertible, Redeemable                                                        Accumulated
                              Preferred Stock        Common Stock     Additional   Committed   Deferred    during the
                             -----------------  ---------------------   Paid-In     Common      Compen-   Development
                             Shares    Amount     Shares      Amount    Capital      Stock      sation       Stage         Total
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------
DIVIDENDS ON PREFERRED
<S>                                   <C>            <C>    <C>       <C>         <C>         <C>          <C>           <C>
   STOCK                          --  $     --       68,150 $      68 $   78,292  $        -- $        --  $   (78,360) $        --
BENEFICIAL CONVERSION FEATURE
   GRANTED IN CONNECTION WITH
   ISSUANCE OF PREFERRED
   STOCK                          --        --           --        --    767,431           --          --     (767,431)          --
CONVERSION OF CONVERTIBLE
   NOTES PAYABLE - RELATED
   PARTIES INTO COMMON
   STOCK                          --        --       37,898        38     37,858           --          --           --       37,896
FINANCING EXPENSE IN
   CONNECTION WITH ISSUANCE
   OF WARRANTS                    --        --           --        --    223,710           --          --           --      223,710
STOCK OPTIONS ISSUED
   FOR SERVICES RENDERED
   AND TO BE RENDERED             --        --           --        --    948,170           --          --           --      948,170
STOCK OPTIONS ISSUED
   AS COMPENSATION                --        --           --        --  3,364,915           --  (3,305,542)          --       59,373
STOCK OPTIONS ISSUED
   IN EXCHANGE FOR
   SETTLEMENT OF ACCOUNTS
   PAYABLE WITH CONSULTANT        --        --           --        --     65,000           --          --           --       65,000
WARRANTS ISSUED FOR
   SERVICES RENDERED OR
   TO BE RENDERED                 --        --           --        --    311,788           --          --           --      311,788
WARRANTS ISSUED FOR
   TERMINATION OF CONTRACT        --        --           --        --    390,409           --          --           --      390,409
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                       44
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
                               FOR THE YEARS  ENDED  APRIL 30, 2003 AND 2002 AND
               FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================

<TABLE>
<CAPTION>
                                   Series A                                                                 Deficit
                           Convertible, Redeemable                                                        Accumulated
                              Preferred Stock        Common Stock     Additional   Committed   Deferred    during the
                             -----------------  ---------------------   Paid-In     Common      Compen-   Development
                             Shares    Amount     Shares      Amount    Capital      Stock      sation       Stage         Total
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------
AMORTIZATION OF DEFERRED
<S>                                   <C>                   <C>       <C>         <C>         <C>          <C>          <C>
   COMPENSATION                   --  $     --           -- $      -- $       --  $        -- $ 1,032,981           --  $ 1,032,981
REVERSAL OF DEFERRED
   COMPENSATION                   --        --           --        -- (2,272,561)          --   2,272,561           --           --
EXERCISE OF STOCK OPTIONS
   IN SUBSIDIARY                  --        --           --        --         --        7,164          --           --        7,164
NET LOSS                          --        --           --        --         --           --          --  $(5,411,265) (5,411,265)
                             -------  --------  ----------- --------- ----------  ----------- -----------  -----------  -----------

BALANCE, APRIL 30, 2003        95.82  $      1   25,525,882 $  25,525 $9,837,437    $34,404 $          --  $(8,981,620) $   915,747
                             =======  ========  =========== ========= ==========  =========== ===========  ===========  ===========
</TABLE>


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


                                       45
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                FOR THE YEARS  ENDED APRIL 30, 2003 AND 2002 AND
          FOR THE PERIOD FROM AUGUST      21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================

<TABLE>
<CAPTION>
                                                                                                       For the
                                                                                                    Period from
                                                                                                     August 21,
                                                                      For the Year Ended                 1995
                                                                            April 30,              (Inception) to
                                                                ---------------------------------     April 30,
                                                                      2003              2002             2003
                                                                ----------------  ---------------  ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                             <C>               <C>              <C>
   Net loss                                                     $     (5,411,265) $    (1,389,530) $     (8,135,829)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Depreciation                                                       91,993            5,469            99,425
       Issuance of common stock for services
         rendered                                                              -          232,170           428,950
       Issuance of common stock as compensation
         expense for services rendered from
         minority shareholders                                                 -            4,000            18,923
       Warrants issued for services rendered or to
         be rendered                                                     311,788                -           311,788
       Warrants issued for termination of contract                       390,409                -           390,409
       Issuance of common stock and common stock
         committed to an employee as a bonus                              38,899                -            38,899
       Issuance of common stock and common stock
         committed for services rendered                                  20,000                -            20,000
       Stock options issued for services rendered                        351,762                -           351,762
       Stock options issued as compensation                               59,373                -            59,373
       Additional compensation to officer                                      -           42,171            42,171
       Amortization of deferred compensation                           1,032,981                -         1,032,981
       Financing expense                                                 223,710                -           223,710
       (Increase) decrease in
         Accounts receivable                                              (5,417)         (29,166)          (34,583)
         Other current assets                                           (109,690)          (7,500)         (117,190)
       Increase (decrease) in
         Accounts payable                                                526,000          185,027           735,897
         Accrued expenses                                               (149,967)         119,579             1,616
         Accrued payroll and payroll taxes                              (321,475)         175,000            28,525
         Accrued interest                                                  8,419           10,195            38,186
                                                                ----------------  ---------------  ----------------

Net cash used in operating activities                                 (2,942,480)        (652,585)       (4,464,987)
                                                                ----------------  ---------------  ----------------
</TABLE>


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

                                       46
<PAGE>




                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                FOR THE YEARS  ENDED APRIL 30, 2003 AND 2002 AND
               FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================


<TABLE>
<CAPTION>
                                                                                            For the
                                                                                           Period from
                                                                                            August 21,
                                                            For the Year Ended                 1995
                                                                 April 30,               (Inception) to
                                                      ------------------------------       April 30,
                                                          2003              2002              2003
                                                      -----------       -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES
<S>                                                   <C>               <C>               <C>
   Purchase of property and equipment                 $  (481,850)      $  (118,510)      $  (603,850)
                                                      -----------       -----------       -----------

Net cash used in investing activities                    (481,850)         (118,510)         (603,850)
                                                      -----------       -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from notes payable - related parties           24,640           443,007           604,160
   Payments on notes payable - related parties           (546,331)               --          (546,331)
   Proceeds from convertible notes payable -
     related parties                                       51,717             5,400           107,117
   Payments on convertible notes payable -
     related parties                                      (10,000)           (9,280)          (30,000)
   Proceeds from issuance of preferred stock              979,301                --           979,301
   Offering costs on preferred stock                     (178,902)               --          (178,902)
   Proceeds from issuance of common stock                      --           181,569           882,723
   Proceeds from issuance of common stock in
     private placement                                  2,322,406         1,225,000         3,547,406
   Offering costs on common stock                        (196,793)               --          (196,793)
   Recapitalization of reverse merger                          --                14                --
   Exercise of stock options in subsidiary                  7,164                --             7,164
                                                      -----------       -----------       -----------

Net cash provided by financing activities               2,453,202         1,845,710         5,175,845
                                                      -----------       -----------       -----------

Net increase (decrease) in cash and cash
   equivalents                                           (971,128)        1,074,615           107,008

CASH AND CASH EQUIVALENTS, BEGINNING OF
   PERIOD                                               1,078,136             3,521                --
                                                      -----------       -----------       -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD              $   107,008       $ 1,078,136       $   107,008
                                                      ===========       ===========       ===========
</TABLE>

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


                                       47
<PAGE>



                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                FOR THE YEARS  ENDED APRIL 30, 2003 AND 2002 AND
               FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================


<TABLE>
<CAPTION>
                                                                                                       For the
                                                                                                    Period from
                                                                                                     August 21,
                                                                      For the Year Ended                 1995
                                                                            April 30,              (Inception) to
                                                                ---------------------------------     April 30,
                                                                      2003              2002             2003
                                                                ----------------  ---------------  ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
<S>                                                             <C>               <C>              <C>
     INTEREST PAID                                              $          2,888  $             -  $          2,888
                                                                ================  ===============  ================

     INCOME TAXES PAID                                          $            800  $         1,934  $         11,783
                                                                ================  ===============  ================
</TABLE>


SUPPLEMENT SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the years  ended  April 30,  2003 and 2002 and the period from August 21,
1995  (inception) to April 30, 2003,  the Company  issued 37,898,  0, and 37,898
shares,  respectively,   of  common  stock  for  the  outstanding  principal  on
convertible notes payable - related parties and accrued interest of $37,896, $0,
and $37,896, respectively.

During the years  ended  April 30,  2003 and 2002 and the period from August 21,
1995 (inception) to April 30, 2003, the Company  converted  accounts payable due
to  consultants  of $65,000,  $0, and  $65,000,  respectively,  into  options to
purchase 72,726, 0, and 72,726 shares,  respectively,  of common stock. Of these
options,  45,454 are exercisable at $1 per share,  vest over a one-year  period,
and expire in September 2012. The remaining options are exercisable at $2.24 per
share, vest over a one-year period, and expire in December 2012.

During the years  ended  April 30,  2003 and 2002 and the period from August 21,
1995  (inception) to April 30, 2003,  the Company  issued 68,150,  0, and 68,150
shares,   respectively,   of  common  stock  for   $78,360,   $0,  and  $78,360,
respectively,  of  dividends  accrued  on its Series A  convertible,  redeemable
preferred stock.

During the years  ended  April 30,  2003 and 2002 and the period from August 21,
1995  (inception)  to April 30, 2003,  the holders of 2.11,  0, and 2.11 shares,
respectively, of the Series A convertible,  redeemable preferred stock converted
their shares into 18,336,  0, and 18,336 shares,  respectively,  of common stock
totaling $17,246, $0, and $17,246, respectively.

During the years  ended  April 30,  2003 and 2002 and the period from August 21,
1995 (inception) to April 30, 2003,  warrants to purchase 47,000,  0, and 47,000
shares,  respectively,  of common stock were exercised via a cashless  exercise,
whereby the Company issued 33,909, 0, and 33,909 shares, respectively, of common
stock.

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


                                       48
<PAGE>




                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                FOR THE YEARS  ENDED APRIL 30, 2003 AND 2002 AND
               FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2003

================================================================================


SUPPLEMENT SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED)
During  the year  ended  April 30,  2002,  the  Company  recorded  a  beneficial
conversion  feature  granted in  connection  with the  issuance  of the Series A
convertible, redeemable preferred stock totaling $767,431.


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



                                       49
<PAGE>


NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

         GENERAL

         HiEnergy Technologies,  Inc. ("HiEnergy") was incorporated on March 22,
         2000  under  the laws of the  state of  Washington.  In  October  2002,
         HiEnergy reincorporated under the laws of the state of Delaware.

         HiEnergy  and  its  subsidiaries  (collectively,   the  "Company")  are
         development   stage  companies  that  were  organized  to  develop  the
         "Atometer,"   commercially  known  as  the   "SuperSenzor,"   which  is
         technology for numerous  governmental  and commercial  applications and
         markets,  including airport security screening;  border  patrol/customs
         control drug and contraband detection;  bomb, biological,  and chemical
         weapons  detection,  including landmine  clearance;  carbomb detection;
         detecting  of  impurities  in crude oil,  coal,  and natural  gas;  and
         "fingerprinting"  of diamonds  and other  gemstones.  This leading edge
         detection   technology  can  remotely  and   non-intrusively   decipher
         (including through metal) the chemical formulas of concealed biological
         agents, explosives, drugs, and other substances and their locations.

         MERGER

         On April 25, 2002, HiEnergy Technologies, Inc. entered into a voluntary
         share exchange  agreement,  whereby it acquired 92% of the  outstanding
         common  stock  of  HiEnergy  Microdevices,   Inc.  ("Microdevices")  in
         exchange  for  14,380,200  shares of newly  issued  common  stock.  For
         accounting   purposes,   the   transaction   has  been   treated  as  a
         recapitalization  of  HiEnergy,  with  Microdevices  as the  accounting
         acquirer (reverse acquisition),  and has been accounted for in a manner
         similar to a pooling of interests.


         Microdevices  was  incorporated  on  August  21,  1995 in the  state of
         Delaware.  HiEnergy had minimal  assets and  liabilities at the date of
         the acquisition and did not have  significant  operations  prior to the
         acquisition. Therefore, pro forma information is not presented.


NOTE 2 - GOING CONCERN

         The accompanying  financial statements have been prepared in conformity
         with accounting  principles  generally accepted in the United States of
         America  which  contemplate  continuation  of the  Company  as a  going
         concern.  However,  during the years  ended April 30, 2003 and 2002 and
         the period from  August 21, 1995  (inception)  to April 30,  2003,  the
         Company  incurred  net  losses  available  to  common  shareholders  of
         $6,257,056,  $1,389,530,  and  $8,981,620,  respectively,  and  it  had
         negative  cash flows  from  operations  of  $2,942,480,  $652,585,  and
         $4,464,987,  respectively.  In addition, the Company had an accumulated
         deficit of $8,981,620 and was in the development  stage as of April 30,
         2003. These factors raise substantial doubt about the Company's ability
         to continue as a going concern.

         Recovery of the Company's  assets is dependent upon future events,  the
         outcome  of  which  is  indeterminable.  Successful  completion  of the
         Company's  development  program and its transition to the attainment of
         profitable  operations is dependent upon the Company  achieving a level
         of sales adequate to support the Company's cost structure. In addition,
         realization  of a  major  portion  of the  assets  on the  accompanying
         balance  sheets is  dependent  upon the  Company's  ability to meet its
         financing requirements and the success of its plans to develop and sell
         its products.  The financial  statements do not include any adjustments
         relating to the  recoverability  and  classification  of recorded asset
         amounts or amounts  and  classification  of  liabilities  that might be
         necessary should the Company be unable to continue in existence.

         In addition to the capital raised as of April 30, 2003 through  private
         placements, the Company is currently negotiating with certain investors
         about raising additional  capital through private placement  offerings.
         Unless the Company raises  additional  funds,  either by debt or equity
         issuances,  management  believes  that its current cash on hand will be
         insufficient  to cover its working  capital  needs until the  Company's
         sales volume reaches a sufficient level to cover operating expenses.



                                       50
<PAGE>






NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION
         The consolidated  financial statements include the accounts of HiEnergy
         and its 92%  owned  subsidiary,  Microdevices,  and  its  wholly  owned
         subsidiary,  VWO II, Inc. All  significant  inter-company  accounts and
         transactions are eliminated in consolidation.

         DEVELOPMENT STAGE ENTERPRISE
         The Company is a  development  stage company as defined in Statement of
         Financial   Accounting   Standards  ("SFAS")  No.  7,  "Accounting  and
         Reporting by Development  Stage  Enterprises."  The Company is devoting
         all of its present efforts to its formation and to fundraising, and its
         planned  principal  operations  have  not  yet  commenced.  All  losses
         accumulated  since  inception  have  been  considered  as  part  of the
         Company's development stage activities.

         REVENUE RECOGNITION
         The Company recognizes contract revenue as services are performed.

         COMPREHENSIVE INCOME
         The Company presents  comprehensive  income in accordance with SFAS No.
         130,  "Reporting  Comprehensive  Income."  This  statement  establishes
         standards for reporting  comprehensive  income and its  components in a
         financial  statement.  Comprehensive  income as  defined  includes  all
         changes in equity (net assets) during a period from non-owner  sources.
         Examples  of items to be included in  comprehensive  income,  which are
         excluded  from  net  income,   include  foreign  currency   translation
         adjustments  and  unrealized  gains and  losses  on  available-for-sale
         securities.  Comprehensive  income is not  presented  in the  Company's
         financial statements since the Company did not have any of the items of
         comprehensive income in any period presented.

         CASH AND CASH EQUIVALENTS
         The  Company   maintains  its  cash  deposits  at  a  bank  located  in
         California.  Deposits at the bank are  insured by the  Federal  Deposit
         Insurance  Corporation up to $100,000.  As of April 30, 2002, uninsured
         portions of the balances at the bank aggregated to $25,511. The Company
         has not  experienced any losses in such accounts and believes it is not
         exposed to any significant risk on cash and cash equivalents.

         For the purpose of the statements of cash flows, the Company  considers
         all highly liquid  investments  purchased  with original  maturities of
         three months or less to be cash equivalents.

         As of April 30, 2003, the Company  maintained  restricted cash totaling
         $71,234.  These funds may only be used to pay for specific expenditures
         as allowed by a contract with the United States Department of Defense.

         ACCOUNTS RECEIVABLE
         Accounts  receivable at April 30, 2003 consisted of an amount due from
         a governmental contract.

         SUBSCRIPTIONS RECEIVABLE
         Subscriptions  receivable  at April 30, 2003  consisted  of amounts due
         from the sale of 1,410,000 shares of the Company's common stock.  These
         amounts were subsequently received in May 2003 (see Note 13).

         PROPERTY AND EQUIPMENT
         Property and equipment are recorded at cost and are  depreciated  using
         the straight-line method over an estimated useful life of five years.



                                       51
<PAGE>

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         PATENTS
         The Company has filed several  patent  applications  within and outside
         the United States. The outcome is indeterminable.

         FAIR VALUE OF FINANCIAL INSTRUMENTS
         The Company's financial  instruments include cash and cash equivalents,
         accounts  receivable,   subscriptions  receivable,   accounts  payable,
         accrued  expenses,  accrued  payroll  and  payroll  taxes,  and accrued
         interest.  The  book  value  of all  other  financial  instruments  are
         representative of their fair values.

         STOCK-BASED COMPENSATION
         The  Company  accounts  for  its  stock-based   compensation  plans  in
         accordance with the provisions of Accounting  Principles  Board ("APB")
         Opinion No. 25, "Accounting for Stock Issued to Employees," and related
         interpretations.  As such, compensation expense is recorded on the date
         of grant  only if the  current  market  price of the  underlying  stock
         exceeds  the  exercise  price.   The  Company  adopted  the  disclosure
         requirements   of   SFAS   No.   123,   "Accounting   for   Stock-Based
         Compensation."  Under SFAS No. 123, the Company must  disclose  certain
         pro forma information related to employee stock option grants as if the
         fair value-based method defined in SFAS No. 123 had been applied.

         INCOME TAXES
         The Company  accounts for income taxes in accordance with SFAS No. 109,
         "Accounting  for Income  Taxes,"  which  requires  the  recognition  of
         deferred  tax  assets  and  liabilities  for the  expected  future  tax
         consequences  of  events  that  have  been  included  in the  financial
         statements or tax returns. Under this method, deferred income taxes are
         recognized  for the tax  consequences  in future  years of  differences
         between  the tax bases of assets and  liabilities  and their  financial
         reporting  amounts  at each  year-end  based  on  enacted  tax laws and
         statutory tax rates  applicable to the periods in which the differences
         are  expected  to  affect  taxable  income.  Valuation  allowances  are
         established,  when  necessary,  to reduce  deferred  tax  assets to the
         amount  expected  to  be  realized.  The  provision  for  income  taxes
         represents  the tax  payable  for the period and the change  during the
         period in deferred tax assets and liabilities.

         NET LOSS PER SHARE
         The Company  calculates net loss per share in accordance  with SFAS No.
         128, "Earnings per Share." Basic loss per share is computed by dividing
         the net loss available to common  shareholders by the  weighted-average
         common shares  outstanding.  Diluted loss per share is computed similar
         to basic loss per share  except that the  denominator  is  increased to
         include  the number of  additional  common  shares that would have been
         outstanding  if the potential  common shares had been issued and if the
         additional  common  shares  were  dilutive.  Because  the  Company  has
         incurred net losses, basic and diluted loss per share are the same.

         The  following  potential  common  shares have been  excluded  from the
         computation  of diluted  net loss per share for the  periods  presented
         because the effect  would have been  anti-dilutive  for the years ended
         April 30, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                                      2003               2002
                                                                                ---------------    ----------------

<S>                                                                                   <C>
                  Stock options outstanding                                           5,399,937                   -
                  Warrants outstanding                                                1,648,686                   -
                  Series A convertible, redeemable preferred stock                    2,191,874                   -
                  Microdevices minority shareholders                                    459,222             459,222
                  Microdevices option and warrant holders                               951,513             952,557
                                                                                ---------------    ----------------

                      TOTAL                                                          10,651,232           1,411,779
                                                                                ===============    ================
</TABLE>


                                       52
<PAGE>



         ESTIMATES
         The  preparation of financial  statements  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
         revenue and expenses during the reporting period.  Actual results could
         differ from those estimates.

         RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
         In June 2002, the Financial  Accounting Standards Board ("FASB") issued
         SFAS No. 146,  "Accounting  for Costs  Associated with Exit or Disposal
         Activities."  This  statement   addresses   financial   accounting  and
         reporting for costs  associated  with exit or disposal  activities  and
         nullifies   Emerging   Issues  Task  Force  ("EITF")  Issue  No.  94-3,
         "Liability  Recognition for Certain Employee  Termination  Benefits and
         Other Costs to Exit an Activity  (including Certain Costs Incurred in a
         Restructuring)."  This  statement  requires that a liability for a cost
         associated  with an exit or disposal  activity be  recognized  when the
         liability is incurred.  Under EITF Issue 94-3, a liability  for an exit
         cost, as defined,  was recognized at the date of an entity's commitment
         to an exit plan.  The  provisions  of this  statement are effective for
         exit or disposal  activities that are initiated after December 31, 2002
         with earlier application  encouraged.  This statement is not applicable
         to the Company.

         In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
         Financial  Institutions."  SFAS No. 147 removes the requirement in SFAS
         No. 72 and  Interpretation  9 thereto,  to  recognize  and amortize any
         excess of the fair value of liabilities  assumed over the fair value of
         tangible   and   identifiable   intangible   assets   acquired   as  an
         unidentifiable  intangible  asset.  This statement  requires that those
         transactions  be  accounted  for  in  accordance  with  SFAS  No.  141,
         "Business   Combinations,"  and  SFAS  No.  142,  "Goodwill  and  Other
         Intangible  Assets." In addition,  this statement  amends SFAS No. 144,
         "Accounting  for the  Impairment or Disposal of Long-Lived  Assets," to
         include certain financial  institution-related  intangible assets. This
         statement is not applicable to the Company.

         In  December  2002,  the FASB  issued  SFAS No.  148,  "Accounting  for
         Stock-Based  Compensation - Transition and Disclosure," an amendment of
         SFAS No. 123. SFAS No. 148 provides  alternative  methods of transition
         for a voluntary change to the fair value based method of accounting for
         stock-based employee compensation. In addition, SFAS No. 148 amends the
         disclosure  requirements  of SFAS No. 123 to require more prominent and
         more frequent  disclosures in financial statements about the effects of
         stock-based  compensation.  This  statement is effective  for financial
         statements  for fiscal years ending after  December 15, 2002.  SFAS No.
         148 will not have any impact on the Company's  financial  statements as
         management  does not have any  intention  to change  to the fair  value
         method.

         In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of Statement
         133 on Derivative  Instruments  and Hedging  Activities."  SFAS No. 149
         amends  and  clarifies   accounting   and   reporting  for   derivative
         instruments and hedging activities under SFAS No. 133,  "Accounting for
         Derivative  Instruments  and  Hedging  Activities."  SFAS  No.  149  is
         effective for derivative  instruments  and hedging  activities  entered
         into or  modified  after  June 30,  2003,  except for  certain  forward
         purchase  and sale  securities.  For these  forward  purchase  and sale
         securities,  SFAS  No.  149 is  effective  for  both  new and  existing
         securities after June 30, 2003.  Management does not expect adoption of
         SFAS No. 149 to have a material  impact on the Company's  statements of
         earnings, financial position, or cash flows.

         In May 2003,  the FASB  issued SFAS No.  150,  "Accounting  for Certain
         Financial  Instruments  with  Characteristics  of both  Liabilities and
         Equity."  SFAS  No.  150  establishes   standards  for  how  an  issuer
         classifies and measures in its statement of financial  position certain
         financial  instruments  with  characteristics  of both  liabilities and
         equity.  In accordance with the standard,  financial  instruments  that
         embody  obligations  for the issuer are  required to be  classified  as
         liabilities.  SFAS No. 150 will be effective for financial  instruments
         entered  into or  modified  after May 31,  2003 and  otherwise  will be
         effective at the beginning of the first interim period  beginning after
         June 15, 2003.




                                       53
<PAGE>




NOTE 4 - OTHER CURRENT ASSETS

<TABLE>
<CAPTION>
         Other current assets at April 30, 2003 consisted of the following:

<S>                                                                                                <C>
                  Prepaid consulting                                                               $        609,198
                  Deposits on equipment                                                                     100,000
                  Other                                                                                      14,400
                                                                                                   ----------------

                      TOTAL                                                                        $        723,598
                                                                                                   ================


NOTE 5 - PROPERTY AND EQUIPMENT

         Property and equipment at April 30, 2003 consisted of the following:

                  Micro sensor                                                                     $         53,114
                  Laboratory equipment                                                                       58,000
                  Web site development                                                                      436,340
                  Furniture and equipment                                                                    14,400
                  Neutron generator                                                                          41,995
                                                                                                   ----------------

                                                                                                            603,849
                  Less accumulated depreciation                                                              99,425
                                                                                                   ----------------

                      TOTAL                                                                        $        504,424
                                                                                                   ================
</TABLE>

         Depreciation  expense  for the years  ended April 30, 2003 and 2002 and
         the period  from  August 21,  1995  (inception)  to April 30,  2003 was
         $91,993, $5,469, and $99,425, respectively.


NOTE 6 - NOTES PAYABLE - RELATED PARTIES

         Notes  payable - related  parties at April 30,  2003  consisted  of the
following:

<TABLE>
<CAPTION>
<S>                                                                                                <C>
                  Unsecured  notes  payable  to a  shareholder  of the  Company,
                      interest  payable at 10.5% per annum,  or 15% per annum if
                      in  default,  and due in  November  1997.  As of April 30,
                      2003, the notes payable were in default.                                     $         40,000

                  Unsecured notes payable to a shareholder, non-interest-bearing,
                      and payable on demand.                                                       $         45,000
                                                                                                   ----------------

                                                                                                             85,000
                  Less current portion                                                                       85,000
                                                                                                   ----------------

                           LONG-TERM PORTION                                                       $              -
                                                                                                   ================
</TABLE>




                                       54
<PAGE>




NOTE 7 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

         Convertible notes payable - related parties at April 30, 2003 consisted
         of the following:

<TABLE>
<CAPTION>
<S>                                                                                                 <C>
                  Secured notes payable to a shareholder/former  director of the
                      Company,  interest payable at 8% per annum,  $5,000 due in
                      July 2001 and $5,400 due in July 2002.  The notes  payable
                      are secured by the patent application for Europe,  Canada,
                      and Japan.  The holder of the notes payable has the option
                      to convert  the  principal  and  interest  into  shares of
                      common stock. As of
                      April 30, 2003, the notes were in default.                                   $         10,400

                  Unsecured note  payable to the legal  counsel of the  Company,
                      interest  payable  at 10% per annum  and due in  September
                      2003.  The  holder of the note  payable  has the option to
                      convert the
                      principal and interest into shares of common stock.                                    46,717
                                                                                                   ----------------

                                                                                                             57,117
                  Less current portion                                                                       57,117
                                                                                                   ----------------

                           LONG-TERM PORTION                                                       $              -
                                                                                                   ================
</TABLE>



NOTE 8 - COMMITMENTS AND CONTINGENCIES

         EMPLOYMENT AGREEMENTS
         In March 2002,  the Company  entered into an employment  agreement with
         its Chief Scientist/Chairman of the Board. Major terms of the agreement
         are as follows:

         o        The Company must pay a signing  bonus of  $100,000,  which was
                  paid during the year ended April 30, 2003.

         o        The Company must pay an annual  bonus,  which must not be less
                  than 20% of the total  amount of bonuses  paid to  officers of
                  the Company.  If the pretax  profit in any fiscal year exceeds
                  $0.20 per share,  then his bonus in that year must not be less
                  than $50,000.

         o        The Company  granted options to purchase  2,482,011  shares of
                  common stock at an exercise price of $0.134 per share, vesting
                  immediately,  and  which  are  exercisable  from  time to time
                  within the period ending November 30, 2008.

         o        The  Company  will grant its Chief  Scientist/Chairman  of the
                  Board  annually  during the term of five years 1% per annum of
                  the Company's  stock issued and  outstanding  with an exercise
                  price of the average  price for the preceding 30 days. He must
                  not  receive  less  than 10% of the total  number  of  options
                  granted by the Company for services in that year.  As of April
                  30, 2003, the Company is required to grant options to purchase
                  456,717  shares of common stock at an exercise  price of $2.81
                  per share.

         o        The Company will provide its Chief  Scientist/Chairman  of the
                  Board  a car,  pay  his and  his  family's  health  insurance,
                  provide life and  disability  insurance and will reimburse him
                  for reasonable  out-of-pocket  expenses, not to exceed $20,000
                  in any one  year,  and  reimburse  him for  any  personal  tax
                  liabilities arising up to $75,000. During the year ended April
                  30, 2003,  the Company paid $17,500 for an automobile  deposit
                  on behalf of its Chief  Scientist/Chairman  of the  Board.  In
                  addition, the Company reimbursed the Chief  Scientist/Chairman
                  of the Board for $29,900 in other  expenses  covered under the
                  terms of the employment agreement.



                                       55
<PAGE>




NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

        EMPLOYMENT AGREEMENTS (Continued)

        o   The Company must pay a base salary payable in cash as follows:

            o   January 1, 2002 to December 31, 2002    $125,000 per year
            o   January 1, 2003 to December 31, 2003    $175,000 per year
            o   January 1, 2004 to December 31, 2004    $175,000 per year
            o   January 1, 2005 to December 31, 2005    $175,000 per year
            o   January 1, 2006 to December 31, 2006    $283,013 per year

        o   In December 2002, the Company increased its Chief Scientist/Chairman
            of the Board's base salary to $175,000 per year,  effective November
            2002.

        o   If the  agreement is terminated by the Company  without  cause,  the
            Company must pay its  Chief/Scientist/Chairman  of the Board, on the
            termination date, an amount equal to two years of the minimum annual
            base salary.

        In February 2003,  the Company paid $50,000 due on a promissory  note to
        its Chief  Scientist/Chairman  of the Board.  The  Company  also  issued
        options to purchase  416,712  shares of common stock in connection  with
        his employment agreement. In addition, the Company is committed to issue
        additional  options to purchase  40,000  shares of common  stock to this
        executive in connection  with his employment  agreement.  In relation to
        this  transaction,  the Company recorded  compensation  expense totaling
        $59,373.

        In September  2002,  the Company  entered  into a three-year  employment
        agreement      with     its     then      President/Chief      Executive
        Officer/Treasurer/Director,  who resigned in March 2003.  Major terms of
        the agreement are as follows:

        o   The Company had to pay a base salary as follows:

            o   $135,000 per year

            o   $175,000 per year when the Company  received new revenue  and/or
                new financing in excess of $2,000,000

            o   $250,000 per year when the Company  received new revenue  and/or
                new financing in excess of $4,000,000

        o   The  officer was  entitled  to a bonus  equal to  $250,000  once the
            Company  achieved two  consecutive  quarters of positive  cash flows
            from operations.

        o   The Company granted options to purchase  3,005,038  shares of common
            stock,  which  represents  an amount  equal to 10% of the  Company's
            outstanding  common stock on a fully  diluted  basis as of September
            30, 2002. Of these options,  75% vest 1/12 on a quarterly basis over
            the next 36 months.  The remaining 25% vest on the earlier of a) the
            date  when the  Company's  closing  price of its  common  stock  has
            equaled or exceeded $1.75 for 90  consecutive  calendar days, b) the
            date immediately preceding a sale of the Company for $1.75 per share
            of common stock or more, or c) if the Company's  common stock ceased
            to be  publicly  traded  on the date  following  the  closing  of an
            offering  at a deemed  price per  share of common  stock of $1.75 or
            more.




                                       56
<PAGE>




NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         EMPLOYMENT AGREEMENTS (Continued)
              The exercise  price would be fixed six months after  September 25,
              2002 at the  lesser of a) $1 per share or b) for any  offering  of
              preferred  or common  stock that  closes  within  six months  from
              September 25, 2002,  the  following  percentage of price per unit:
              (i) for preferred with warrants - 70%, (ii) for preferred  without
              warrants - 80%,  (iii) for common  with  warrants - 90%,  (iv) for
              common  without  warrants - 100%.  The  Company  granted the stock
              options below the fair market on the date of grant; therefore, the
              Company recorded deferred compensation of $3,305,542.

              As of April 30, 2003, options to purchase 939,073 shares of common
              stock had vested, and $1,032,981 of the deferred  compensation was
              expensed and is included in general and administration expenses on
              the    accompanying    statement   of   operations.    Since   the
              President/Chief Executive  Officer/Treasurer/Director  resigned in
              March  2003,  the  unvested  portion of deferred  compensation  of
              $2,272,561 was reversed.

         In  February  2002,  Microdevices  entered  into a one-year  employment
         agreement with its Vice President/Corporate Secretary. In May 2002, the
         Company  assumed the employment  agreement.  Under the  agreement,  the
         Company paid a salary of $91,000 per year, a car  allowance of $100 per
         week, a quarterly bonus of 5,589 shares of the Company's  common stock,
         starting May 2002, and a non-qualified  stock option to purchase 89,410
         shares of common  stock at $0.157 per share,  vesting  immediately  and
         having a five-year term.  During the year ended April 30, 2003,  11,178
         shares of common stock were issued,  and 11,178  shares of common stock
         were committed.  The shares were valued at $38,899,  which approximates
         the   fair   value   of  the   shares.   In   March   2003,   the  Vice
         President/Corporate Secretary resigned her positions.

         CONSULTING AGREEMENTS
         In April 2003, the Company entered into a one-year consulting agreement
         with an investor relations firm. Under the terms of the agreement,  the
         Company agreed to pay $6,500 per month, plus approved expenses.

         In  July  2002,  the  Company  entered  into  a  three-year  consulting
         agreement, whereby the consultant will assist the Company with business
         development,  product and corporate  image  advertising,  and access to
         government  grants and  purchases.  The Company will pay the consultant
         $20,000 per month, plus 5% of any gross revenues collected in cash from
         government grants or business and other  third-party  business that the
         consultant  produces for the Company.  Furthermore,  the consultant was
         granted options to purchase  1,000,000 shares of common stock. Of these
         options, 500,000 vested immediately, and the remaining 500,000 vest one
         year after the Company's Minisenzor product is operational and ready to
         be shown.  The stock options have an exercise price of $1 per share and
         are exercisable for six years from the date of grant.

         The stock  options  were  valued at  $761,007,  of which  $211,390  was
         expensed and is included in general and administration  expenses on the
         accompanying statement of operations. The remaining balance of $549,617
         is included in prepaid  consulting in other current assets,  which will
         be amortized over the remaining term of the consulting agreement.

         In  August  2002,  the  Company  entered  into  a  one-year  consulting
         agreement with an investor and media relations firm. Under the terms of
         the  agreement,  the Company will pay $10,000 per month,  plus approved
         expenses.  In addition,  upon execution of the  agreement,  the Company
         issued  options to purchase  400,000  shares of common  stock,  vesting
         immediately at an exercise price of $2 per share,  exercisable  for two
         years.  The options  were valued at  $187,163,  of which  $140,372  was
         expensed and is included in general and administration  expenses on the
         accompanying statement of operations.  The remaining balance of $46,791
         is included in prepaid  consulting in other current assets,  which will
         be amortized over the term of the consulting agreement.  This agreement
         was terminated after six months.



                                       57
<PAGE>




NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         CONSULTING AGREEMENTS (Continued)
         In  September  2002,  the Company  entered  into a one-year  consulting
         agreement with its former Chief Executive  Officer.  Under the terms of
         the   agreement,   the  Company   will  pay  $5,000  per  month,   plus
         out-of-pocket expenses. Effective February 2003, the Company terminated
         this consulting agreement by mutual written consent.

         In November  2002,  the Company  entered into a  four-month  consulting
         agreement  with  a  public  relations  firm.  Under  the  terms  of the
         agreement,   the  Company  agreed  to  pay  $12,500  per  month,   plus
         out-of-pocket expenses.

         LEASE AGREEMENT
         In September  2002,  the Company  entered  into a three-year  operating
         lease agreement with one of its directors for its corporate  offices in
         Irvine,  California.  The lease provides for monthly rent of $8,000 for
         the first 18 months  and $8,320  for the  remaining  term of the lease,
         expiring in October  2005.  Future  minimum  payments at April 30, 2003
         under this lease agreement were as follows:

                   Year Ending
                    APRIL 30,
                   -----------
                      2004           $       96,160
                      2005                   99,840
                      2006                   45,760
                                     --------------

                           TOTAL     $      241,760
                                     ==============

        PLACEMENT AGENT AGREEMENTS
        In August 2002, the Company entered into an exclusive one-year agreement
        with a  placement  agent  to  arrange  for the  sale  of debt or  equity
        securities. Major terms of the agreement are as follows:

        o   Upon  execution of the  agreement,  the Company  issued  warrants to
            purchase  100,000  shares of common stock,  exercisable at $0.01 per
            share. The warrants vest immediately and expire five years from date
            of grant.

        o   The Company paid a placement  fee equal to 8% of any gross  proceeds
            received by the Company.

        o   The  Company  issued  warrants  to  purchase  10% of the  amounts of
            securities  issued to investors.  The exercise price of the warrants
            will be equal to the price at which the  security  was  issued.  The
            warrants  vest  immediately  and expire  five years from the date of
            grant. Upon the closing of the preferred stock private placement and
            closing of the common stock private  placement,  the Company  issued
            warrants to purchase  117,546  and 161,994  shares of common  stock,
            respectively,  at an exercise price of $1.15 per share and $1.35 per
            share, respectively.

        o   In  November  2002,  to cancel  the  remainder  of the terms of this
            agreement, the Company issued warrants to purchase 150,000 shares of
            common stock. The warrants vest immediately,  with an exercise price
            of $2.48 per  share,  and  expire  five years from the date of grant
            (see Note 9).



                                       58
<PAGE>





NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         PLACEMENT AGENT AGREEMENTS (Continued)
         In  December  2002,  the Company  entered  into an  exclusive  one-year
         agreement  with a  placement  agent to arrange  for the sale of debt or
         equity securities. Major terms of the agreement are as follows:

          o    Upon execution of the agreement,  the Company paid a retainer fee
               of $25,000 and was to pay an additional $25,000 on March 1, 2003.
               As of April 30, 2003, the additional $25,000 was not yet paid.

          o    The  Company  will pay a  placement  fee equal to 8% of any gross
               proceeds received by the Company.

          o    The Company will issue warrants to purchase 10% of the amounts of
               securities  issued  to  investors.  The  exercise  price  of  the
               warrants  will be equal to the  price at which the  security  was
               issued. The warrants vest immediately, expire five years from the
               date of grant, and include piggyback registration rights.

          o    The placement  agent has the right to  participate  in any equity
               transaction  under  the  same  terms  as  other  investors.   Its
               investment will be limited to 10% of the total capital raised.

          o    The  placement  agent  will  act as a  financial  advisor  to the
               Company with respect to any potential business combinations. Upon
               the closing of such business combination,  the Company will pay a
               minimum transaction fee of $250,000.

         SEC INVESTIGATION
         In  February  2003,  the  Enforcement  Division  of the SEC  opened  an
         investigation  requesting  the  Company's  cooperation  on a  voluntary
         basis.  The Company has supplied the Enforcement  Division's  attorneys
         with the reports developed by the Company's independent  investigators.
         The Company has  cooperated  promptly and  continuously  and intends to
         continue to cooperate with the Enforcement Division's investigation. It
         has also agreed to voluntarily  provide the  Enforcement  Division with
         other documents they have requested in its informal  investigation.  In
         April 2003,  the  Enforcement  Division  of the SEC  commenced a formal
         investigation.

         In connection with the SEC investigation, the Company may be subject to
         a claim by a former  Chief  Executive  Officer/director  for an alleged
         right to  indemnification  from expenses  incurred by him in connection
         with the  investigation  under the  indemnification  provisions  of the
         Company's  Certificate of Incorporation  and Bylaws.  The Company is in
         the process of considering the request for  indemnification and has not
         made a determination that he is entitled to it.

         LITIGATION
         On or about May 2, 2003,  a former  consultant  to the Company  filed a
         complaint against the Company and its Chief  Scientist/Chairman  of the
         Board for breach of contract  and other  common  counts in the Superior
         Court of Orange County.  The plaintiff is suing the Company for alleged
         unpaid  services.  On June 20,  2003,  the  plaintiff  filed an amended
         complaint. The Company intends to file a demurrer to this complaint and
         propound  the  written   discovery   and  notice  of  the   plaintiff's
         deposition.  The Company  intends to  vigorously  defend itself in this
         matter.

         On or about May 22, 2003, a former  director and officer of the Company
         filed a complaint  against the Company for  advancement  of fees in the
         State Court of Delaware. The plaintiff was seeking the reimbursement of
         his legal fees  associated  with a pending SEC  investigation.  Through
         negotiations,  the Company  was  successful  in getting  the  complaint
         dismissed  without prejudice on or about June 17, 2003. If and when the
         plaintiff  re-files  his  lawsuit,  the Company  intends to  vigorously
         defend itself in this matter.

         In  addition,  the  Company is also  involved  in certain  other  legal
         proceedings  and claims  which arise in the normal  course of business.
         Management does not believe that the outcome of these matters will have
         a material  effect on the  Company's  financial  position or results of
         operations.



                                       59
<PAGE>


NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         MINORITY SHAREHOLDERS
         Microdevices  has 20,540  minority shares issued and  outstanding.  The
         Company   may  agree   that  in  the  event  of  any  merger  or  other
         consolidation   of   Microdevices   with   HiEnergy,   each   remaining
         Microdevices  shareholder  will receive the greater of the market value
         of  his/her  Microdevices  shares or shares in the  Company on the same
         terms as the voluntary share exchange. If shares of common stock in the
         Company are issuable in a merger or other  consolidation,  the minority
         shareholders  would  receive an aggregate  of 459,222  shares of common
         stock.

         WARRANT AND OPTION HOLDERS
         Microdevices  has granted stock options and warrants to purchase 12,365
         and 32,247 shares,  respectively,  of common stock. These stock options
         and warrants are  exercisable  at $3.50 per share.  If the stock option
         and warrant  holders  exercise  their stock options and  warrants,  the
         Company may agree to allow these  stock  option and warrant  holders to
         voluntarily  exchange  their  shares  in  Microdevices  for  shares  in
         HiEnergy  at an  exchange  rate of  22.3524  per share (or  $0.157  per
         share).  At April 30, 2003,  if these stock option and warrant  holders
         exercise  and convert  their  shares,  the Company  will be required to
         issue 951,513 additional shares of common stock to the stock option and
         warrant holders.

         WARRANT AND OPTION HOLDERS (Continued)
         During the year ended April 30, 2003,  stock options were exercised for
         the purchase of 2,047 shares of  Microdevices'  common stock via a cash
         payment  of  $7,164,  or $3.50 per  share.  The  Company  has agreed to
         exchange  these  shares in  Microdevices  for shares in  HiEnergy at an
         exchange rate of 22.3524 per share, or 45,759 shares of common stock.

         During the year ended April 30, 2003,  options to purchase 4,000 shares
         of  Microdevices'  common  stock  were  assumed  by the  Company  at an
         exchange  rate of 22.3524 per share (or $0.157 per  share).  Therefore,
         the  Company  issued  options to purchase  89,410  shares of its common
         stock at an exercise price of $0.157 per share.

         In  conjunction  with the  merger  (see Note 1),  options  to  purchase
         111,040  shares of  Microdevices'  common  stock  were  assumed  by the
         Company at an exchange  rate of 22.3524  per share  ($0.134 per share).
         Therefore,  the Company issued options to purchase  2,482,011 shares of
         its common stock at an exercise price of $0.134 per share.


NOTE 9 - SHAREHOLDERS' EQUITY

         SERIES A CONVERTIBLE, REDEEMABLE PREFERRED STOCK
         In August  2002,  the Board of  Directors  approved an amendment to the
         Company's  Articles of Incorporation to establish Series A convertible,
         redeemable  preferred  stock (the  "Series  A"),  par value  $0.001 per
         share.  The Company is  authorized to issue 345 shares of the Series A.
         Each share is  convertible on either of these events a) any time at the
         option of the holder at $1.15 per share or b)  mandatorily  convertible
         two years following the issuance date at $1.15 per share. Under certain
         circumstances   the   conversion   price  is  subject  to   adjustment.
         Furthermore,  upon a certain major transaction or triggering event, the
         holder of the Series A has the right to require  the  Company to redeem
         all or a portion  of the  Series A at a price  per  share  equal to the
         liquidation  preference,  plus any  accrued  but unpaid  dividends  and
         liquidated damages.

         The  liquidation  preference  is $10,000 per share.  The holders of the
         Series A are entitled to receive,  when and as declared by the Board of
         Directors,  dividends at a rate of 8%, or $800 per share in advance for
         each of the  first  two  years.  The  dividends  may be paid in cash or
         common  stock at the election of the Board of  Directors.  The Series A
         has certain class voting rights and general voting rights.



                                       60
<PAGE>




NOTE 9 - SHAREHOLDERS' EQUITY (CONTINUED)

         SERIES A CONVERTIBLE, REDEEMABLE PREFERRED STOCK (Continued)
         In October 2002,  the Company sold 97.93 shares of the Series A for net
         cash  proceeds of  $800,400.  At the time of issuance,  the  conversion
         price of the preferred stock was less than the fair market value of the
         common  stock.  Since the  Series A was  convertible  immediately,  the
         Company  recorded a  beneficial  conversion  feature  upon  issuance of
         $767,431.

         In January 2003, 2.11 shares of the Series A were converted into 18,336
         shares of the Company's common stock totaling $17,246.

         In May  2003,  all of the  holders  of the  Series  A  surrendered  and
         exchanged  their shares for 2,191,874  shares of the  Company's  common
         stock valued at $0.45 per share.

         COMMON STOCK ISSUED FOR CASH
         During the years  ended  April 30,  2003 and 2002 and the  period  from
         August 21, 1995  (inception)  to April 30, 2003,  the Company issued 0,
         712,071,  and  2,677,497,  shares,  respectively,  of  common  stock in
         exchange for cash of $0, $181,569, and $882,727, respectively.

         COMMON STOCK ISSUED FOR SUBSCRIPTIONS RECEIVABLE
         During the year ended  April 30,  2003,  the Company  issued  1,410,000
         shares of common stock for subscriptions receivable totaling $453,482.

         COMMON STOCK ISSUED FOR SERVICES RENDERED
         During the years  ended  April 30,  2003 and 2002 and the  period  from
         August 21, 1995  (inception)  to April 30,  2003,  the  Company  issued
         21,277, 5,059,560, and 11,723,980 shares, respectively, of common stock
         in exchange  for services  rendered  valued at the fair market value of
         the stock given of $10,309, $232,170, and $439,259, respectively.

         During the year ended April 30,  2003,  the Company  was  committed  to
         issue 20,000  shares of common stock in exchange for services  rendered
         valued at the fair  market  value of the stock  given of $9,691.  These
         shares were issued subsequent to April 30, 2003.

         CONVERTIBLE NOTES PAYABLE - RELATED PARTIES CONVERTED INTO COMMON STOCK
         During the years  ended  April 30,  2003 and 2002 and the  period  from
         August 21, 1995  (inception)  to April 30,  2003,  the  Company  issued
         37,898,  0, and 37,898  shares,  respectively,  of common stock for the
         outstanding  principal on convertible  notes payable - related  parties
         and accrued interest of $37,896, $0, and $37,896, respectively.


         COMMON STOCK ISSUED IN PRIVATE PLACEMENTS FOR CASH
         In April 2002,  the Company  completed  its first  closing of its first
         private placement, whereby 1,225,000 shares of common stock were issued
         in exchange for cash of $1,225,000.  The private placement offering was
         originally  slated  to close at the same  time as the  voluntary  share
         exchange.  HiEnergy extended the term of the offering and increased the
         size to a maximum of 2,000,000 shares of common stock at $1 per share.

         In June 2002,  the Company  completed  its second  closing of its first
         private  placement,  whereby 500,000 shares of common stock were issued
         in exchange  for cash of  $500,000.  This  private  placement  has been
         closed.

         In October 2002, the Company  completed its second  private  placement,
         issuing  1,349,934  shares of  common  stock in  exchange  for net cash
         proceeds of $1,625,613.



                                       61
<PAGE>




NOTE 9 - SHAREHOLDERS' EQUITY (CONTINUED)

         COMMON STOCK ISSUED AS DIVIDENDS
         In October 2002,  the Company  issued 68,150 shares of common stock for
         $78,360 of dividends accrued on the Series A.

         COMMON STOCK ISSUED AS EMPLOYEE BONUS
         During the year ended April 30, 2003,  the Company issued 11,178 shares
         of common stock and committed to issue 11,178 shares of common stock to
         an employee  of the  Company in lieu of a cash  bonus.  The shares were
         valued at $38,899, which approximates the fair value of the shares.

         COMMON STOCK ISSUED IN CASHLESS EXERCISE OF WARRANTS
         In December  2002,  warrants to purchase  47,000 shares of common stock
         were  exercised  via a cashless  exercise,  whereby the Company  issued
         33,909 shares of common stock.

         STOCK SPLITS
         In September 1998 and May 1999, the Company  effectuated  2-for-1 stock
         splits. All share and per share data have been  retroactively  restated
         to reflect these stock splits.

         WARRANTS ISSUED AS FINANCING EXPENSE
         In May 2002, the Company issued warrants to purchase  150,000 shares of
         common stock to a shareholder/former officer/director (see Note 11).

         WARRANTS ISSUED AS OFFERING COSTS
         In October 2002, the Company issued warrants to purchase 255,536 shares
         of common stock as offering costs. The warrants vest immediately,  have
         an exercise price of $1.50 per share, and expire in October 2004.

         WARRANTS ISSUED AS OFFERING COSTS
         In October 2002, the Company issued warrants to purchase 269,990 shares
         of common stock as offering costs. The warrants vest immediately,  have
         an exercise price of $2.50 per share, and expire in October 2005.

         In August 2002, the Company issued warrants to purchase  100,000 shares
         of common stock as offering costs. The warrants vest immediately,  have
         an  exercise  price of $0.01,  and expire in August  2007.  In December
         2002, warrants to purchase 16,000 shares of common stock were exercised
         via a cashless exercise.

         In October 2002, the Company issued warrants to purchase 117,546 shares
         of common stock as offering costs. The warrants vest immediately,  have
         an exercise  price of $1.15 per share,  and expire in October  2007. In
         December 2002,  warrants to purchase 15,000 shares of common stock were
         exercised via a cashless exercise.

         In October 2002, the Company issued warrants to purchase 161,994 shares
         of common stock as offering costs. The warrants vest immediately,  have
         an exercise  price of $1.35 per share,  and expire in October  2007. In
         December 2002,  warrants to purchase 16,000 shares of common stock were
         exercised via a cashless exercise.

         In December  2002,  the  Company  issued  warrants to purchase  110,620
         shares  of  common  stock  as  offering   costs.   The  warrants   vest
         immediately,  have an exercise price of $1.50 per share,  and expire in
         December 2004.



                                       62
<PAGE>




NOTE 9 - SHAREHOLDERS' EQUITY (CONTINUED)

         WARRANTS ISSUED FOR SERVICES RENDERED
         In November 2002, the Company entered into a termination agreement with
         one of its placement  agents,  whereby the Company  issued  warrants to
         purchase 150,000 shares of common stock. The warrants vest immediately,
         are  exercisable  at $2.48 per share,  and expire on November 26, 2007.
         Any  liabilities  arising under the original  placement agent agreement
         have been  released.  In  relation  to this  transaction,  the  Company
         recorded consulting expense totaling $390,409 as of April 30, 2003.

         In February 2003, the Company issued warrants to purchase 80,000 shares
         of common stock to a placement  agent.  The warrants vest  immediately,
         have an exercise price of $1.50 per share, and expire in February 2006.
         In  relation  to this  transaction,  the  Company  recorded  consulting
         expense totaling $130,712 as of April 30, 2003.

         In April 2003, the Company issued warrants to purchase 50,000 shares of
         common stock for services rendered. The warrants vest immediately, have
         an  exercise  price of $0.60 per share,  and expire in April  2006.  In
         relation to this transaction,  the Company recorded  consulting expense
         totaling $18,284 as of April 30, 2003.

         In December  2002,  the  Company  issued  warrants to purchase  250,000
         shares of  common  stock  for  services  rendered.  The  warrants  vest
         immediately,  have an exercise price of $2.12 per share,  and expire in
         December 2007. In relation to this  transaction,  the Company  recorded
         consulting expense totaling $162,792 as of April 30, 2003.

         STOCK OPTIONS ISSUED IN EXCHANGE FOR ACCOUNTS PAYABLE
         During the years  ended  April 30,  2003 and 2002 and the  period  from
         August 21, 1995  (inception) to April 30, 2003,  the Company  converted
         accounts  payable  due to  consultants  of  $65,000,  $0, and  $65,000,
         respectively,  into options to purchase  72,726,  0, and 72,726 shares,
         respectively, of common stock. Of these options, 45,454 are exercisable
         at $1 per share,  vest over a one-year period,  and expire in September
         2012. The remaining  options are  exercisable at $2.24 per share,  vest
         over a one-year period, and expire in December 2012.

         STOCK OPTIONS ISSUED FOR SERVICES RENDERED
         In July 2002, the Company issued options to purchase  1,000,000  shares
         of common stock for services rendered. As of April 30, 2003, options to
         purchase  500,000 shares of common stock were vested.  The options have
         an exercise  price of $1 per share and expire in July 2008. In relation
         to this transaction,  the Company recorded  consulting expense totaling
         $211,390 and prepaid consulting totaling $549,617 as of April 30, 2003.

         In August 2002, the Company  issued options to purchase  400,000 shares
         of common stock for services  rendered.  The options vest  immediately,
         have an exercise  price of $2 per share,  and expire in August 2004. In
         relation to this transaction,  the Company recorded  consulting expense
         totaling $140,372 and prepaid  consulting  totaling $46,791 as of April
         30, 2003.

         STOCK OPTIONS ISSUED AS COMPENSATION EXPENSE
         In September  2002, the Company  issued  options to purchase  3,005,038
         shares   of   common   stock   to   the    President/Chief    Executive
         Officer/Treasurer/Director  in accordance with an employment  agreement
         (see Note 8).

         In February 2003, the Company issued options to purchase 416,717 shares
         of common stock and was committed to issue  options to purchase  40,000
         shares of common stock to the Chief  Scientist/Chairman of the Board in
         accordance  with an employment  agreement  (see Note 8). In relation to
         this transaction,  the Company recorded  compensation  expense totaling
         $59,373 as of April 30, 2003.



                                       63
<PAGE>




NOTE 9 - SHAREHOLDERS' EQUITY (CONTINUED)

         STOCK OPTIONS - GENERAL
         The Company has adopted only the disclosure provisions of SFAS No. 123.
         It applies APB Opinion No. 25 and related interpretations in accounting
         for its  plans  and does not  recognize  compensation  expense  for its
         stock-based  compensation  plans  other than for  restricted  stock and
         options issued to outside third parties.

         If the Company had elected to recognize compensation expense based upon
         the fair value at the grant date for awards under this plan  consistent
         with the methodology prescribed by SFAS No. 123, the Company's net loss
         and loss per share would be reduced to the pro forma amounts  indicated
         below for the years ended April 30, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                                      2003               2002
                                                                                ---------------    ----------------
                  Net loss
<S>                                                                             <C>                <C>
                      As reported                                               $    (5,411,265)   $     (1,389,530)
                      Pro forma                                                 $    (6,602,619)   $     (1,389,530)
                  Basic and diluted loss per common share
                      As reported                                               $         (0.23)   $          (0.08)
                      Pro forma                                                 $         (0.26)   $          (0.08)
</TABLE>


         For purposes of computing  the pro forma  disclosures  required by SFAS
         No.  123,  the fair  value of each  option  granted  to  employees  and
         directors is estimated  using the  Black-Scholes  option-pricing  model
         with the  following  weighted-average  assumptions  for the year  ended
         April 30, 2003.  The Company did not grant any options  during the year
         ended April 30, 2002:  dividend  yield of 0%,  expected  volatility  of
         125%,  risk-free interest rate of 2.2%, and expected life of two years.
         All options  granted to employees  during the year ended April 30, 2003
         had an exercise  price less than the stock price on the grant date. The
         weighted-average  fair  value  of  these  options  was  $1.63,  and the
         weighted-average exercise price was $1.19.

         The  Black-Scholes  option  valuation  model was  developed  for use in
         estimating the fair value of traded options,  which do not have vesting
         restrictions and are fully transferable.  In addition, option valuation
         models require the input of highly  subjective  assumptions,  including
         the expected  stock price  volatility.  Because the Company's  employee
         stock options have characteristics  significantly  different from those
         of  traded  options,  and  because  changes  in  the  subjective  input
         assumptions  can  materially   affect  the  fair  value  estimate,   in
         management's  opinion, the existing models do not necessarily provide a
         reliable  single  measure  of the  fair  value  of its  employee  stock
         options.

         A summary of the  Company's  outstanding  options  and  activity  is as
         follows:



                                       64
<PAGE>




NOTE 9 - SHAREHOLDERS' EQUITY (CONTINUED)

         STOCK OPTIONS - GENERAL (Continued) The following  summarizes the stock
         option transactions:

<TABLE>
<CAPTION>
                                       Weighted-               Weighted-                 Weighted-
                                       Average     Stock        Average                   Average
                        Stock          Granted    Options       Granted                   Granted
                       Options          Price       Non-         Price       Total          Price
                       EMPLOYEE       PER SHARE   EMPLOYEE      PER SHARE   OPTIONS       PER SHARE
                       --------       ---------   --------      ---------   -------       ---------
<S>                    <C>            <C>         <C>           <C>         <C>           <C>
Outstanding,
  August 21, 1995
  (inception) to
  April 30, 2001              --      $     --          --      $                 --      $     --
Granted                2,482,011      $   0.13          --      $     --   2,482,011      $   0.13
                       ---------                 ---------            --   ---------

Outstanding,
  April 30, 2002       2,482,011      $   0.13          --      $     --   2,482,011      $   0.13
Granted                3,421,755      $   1.22   1,472,726      $   1.29   4,894,481      $   1.24
Transferred
  from subsidiary         89,410      $   0.16          --      $     --      89,410      $   0.16
Canceled              (2,065,965)     $   1.00          --      $     --   (2,065,965)    $   1.00
                       ---------                 ---------                 ---------

OUTSTANDING,
  APRIL 30, 2003       3,927,211      $   0.63   1,472,726      $   1.29   5,399,937      $   0.81
                       =========                 =========                 =========

EXERCISABLE,
  APRIL 30, 2003       3,927,211      $   0.63     929,546      $   1.44   4,856,757      $   0.78
                       =========                 =========                 =========
</TABLE>



                                       65
<PAGE>



NOTE 9 - SHAREHOLDERS' EQUITY (CONTINUED)

         STOCK OPTIONS - GENERAL (Continued)
         The  weighted-average   remaining   contractual  life  of  the  options
         outstanding  at April 30, 2003 was 5.96 years.  The exercise  prices of
         the  options  outstanding  at  December  31,  2002 ranged from $0.13 to
         $2.81, and information relating to these options is as follows:

<TABLE>
<CAPTION>
                                                                                    Weighted-        Weighted-
                                                                  Weighted-          Average          Average
                                                                   Average           Exercise         Exercise
             Range of              Stock             Stock       Remaining           Price of         Price of
             Exercise            Options           Options       Contractual         Options           Options
               PRICES        OUTSTANDING        EXERCISABLE         LIFE          OUTSTANDING       EXERCISABLE
         ------------------  -----------       ---------------  ----------------  -----------      ----------------
<S>      <C>                       <C>               <C>              <C>         <C>              <C>
         $      0.13 - 0.99        2,571,421         2,571,421        5.52 years  $    0.13        $       0.13
         $      1.00 - 2.81        2,828,516         2,285,336        6.36 years  $    1.42        $       1.53
                             ---------------   ---------------
                                   5,399,937         4,856,757
                             ===============   ===============
</TABLE>


         WARRANTS - GENERAL
         The following summarizes the warrant transactions:

<TABLE>
<CAPTION>
                                                                                                           Weighted-
                                                                                                            Average
                                                                                                            Granted
                                                                                    Warrants                 Price
                                                                                  NON-EMPLOYEE            PER SHARE
                                                                                  ------------            ---------
<S>                                                                                   <C>                    <C>
                  Outstanding, August 21, 1995 (inception) to April
                  30, 2002                                                                    -           $       -
                  Granted                                                             1,695,686              $ 1.64
                  Exercised                                                             (47,000)             $ 0.83
                                                                                ---------------

                           OUTSTANDING, APRIL 30, 2003                                1,648,686              $ 1.66
                                                                                ===============

                           EXERCISABLE, APRIL 30, 2003                                1,648,686              $ 1.66
                                                                                ===============
</TABLE>





                                       66
<PAGE>


NOTE 10 - INCOME TAXES

          The  components  of the deferred  income tax assets  (liabilities)  at
          April 30, 2003 were as follows:

                  Deferred tax assets
                      Compensation                            $      1,018,665
                      Net operating loss carryforwards               2,440,171
                      Interest                                          15,117
                      Other                                                195
                                                              ----------------

                                                                     3,474,148
                  Deferred tax liability
                      State taxes                                     (243,160)
                                                              ----------------

                                                                     3,230,988
                  Valuation allowance                               (3,250,988)
                                                              ----------------

                           TOTAL                              $              -
                                                              ================

         The  following  table  presents  the  current and  deferred  income tax
         provision  for federal and state income taxes for the years ended April
         30, 2003 and 2002:

                                              2003               2002
                                        ---------------    ----------------
                  Current
                      Federal           $             -    $              -
                      State                       1,600               1,934
                                        ---------------    ----------------

                                                  1,600               1,934
                                        ---------------    ----------------

                  Deferred
                      Federal                         -                   -
                      State                           -                   -
                                        ---------------    ----------------

                                                      -                   -
                                        ---------------    ----------------

                           TOTAL        $         1,600    $          1,934
                                        ===============    ================

         The provision  for (benefit  from) income taxes differs from the amount
         that would  result from  applying  the federal  statutory  rate for the
         years ended April 30, 2003 and 2002 as follows:

<TABLE>
<CAPTION>
                                                                   2003               2002
                                                             ---------------    ----------------
<S>                                                          <C>                 <C>
                  Statutory regular federal income tax rate          34.00%              34.00%
                  State taxes                                         5.80                5.74
                  Change in valuation allowance                     (39.09)             (39.77)
                  Other                                              (0.68)              (0.09)
                                                             -------------      --------------

                      TOTAL                                           0.03%              (0.12)%
                                                             ==============     ================
</TABLE>


         As of April 30, 2003, the Company had net operating loss  carryforwards
         for federal and state income tax purposes of approximately  $4,661,000,
         which begin  expiring in 2023.  The  utilization  of net operating loss
         carryforwards  may be limited  due to the  ownership  change  under the
         provisions  of Internal  Revenue  Code  Section  382 and similar  state
         provisions.



                                       67
<PAGE>





NOTE 11 - FINANCING EXPENSE - RELATED PARTY

         In May 2002, the Company issued warrants to purchase  150,000 shares of
         common stock to a  shareholder/former  officer/director of the Company.
         The warrants vest  immediately,  are  exercisable at $1 per share,  and
         expire on May 31,  2005.  Since the  Company was in default on the note
         payable for $150,000 to this shareholder/former officer/director of the
         Company,  the Company granted these warrants (see Note 6). Accordingly,
         the Company  recorded  financing  expense of  $223,710  during the year
         ended April 30, 2002.


NOTE 12 - RELATED PARTY TRANSACTIONS

         During the years  ended  April 30,  2003 and 2002 and the  period  from
         August 21, 1995  (inception) to April 30, 2003,  the Company  purchased
         $4,767, $0, and $4,767, respectively,  of property and equipment from a
         Board member.

         See Notes 6, 7, 8, and 11 for additional related party transactions.

NOTE 13 - SUBSEQUENT EVENTS

         In May 2003,  the  Board of  Directors  approved  the  liquidation  and
         termination of the Company's subsidiary,  VWO, Inc., which did not have
         any assets or transactions during the year ended April 30, 2003.

         In May 2003, the Company received proceeds of $443,482,  net of $10,000
         in legal fees,  from the sale of 1,410,000  shares of its common stock,
         which was included in subscriptions receivable at April 30, 2003.

         In May  2003,  the  holders  of all of the  Series  A  surrendered  and
         exchanged  their shares for 2,191,874  shares of the  Company's  common
         stock valued at $0.45 per share. The number of shares received included
         62,562  penalty  shares of common  stock for late  registration  of the
         common stock.  In addition,  the Company issued 91,526 shares of common
         stock to certain  shareholders  who  invested  in a private  placement,
         dated October 29, 2002, to compensate them for the late registration of
         the common stock.

         In May 2003, the Board of Directors  approved the formation of the 2003
         Stock  Incentive Plan and reserved  2,000,000  shares of authorized and
         unissued  shares of common  stock for such  plan.  Under the plan,  the
         Board of  Directors  also  approved the issuance of options to purchase
         490,000  shares of common stock to various  directors  and employees of
         the  Company  at an  exercise  price of $0.75 per share and  options to
         purchase  200,000  shares of common stock to consultants of the Company
         at an  exercise  price of $0.50 per share.  The plan and the grants are
         subject to approval by the  Company's  shareholders  at the next annual
         meeting in October 2003.

         In May 2003, the Company issued warrants to purchase  150,000 shares of
         common stock at $0.45 per share to consultants for services rendered.

         In May 2003,  the Company  issued  45,000  shares of common  stock to a
         consultant for services rendered totaling $15,000.

         In May and June 2003, the Company entered into notes payable agreements
         for $244,000 with its legal counsel in exchange for services  rendered.
         The notes payable are  unsecured,  bear interest at 10% per annum,  are
         convertible  into  shares  of  common  stock  at $1  for  every  dollar
         outstanding,  subject to certain  adjustments,  and mature in September
         2003 unless converted.  In June 2003, the Company issued 300,000 shares
         of common  stock to its legal  counsel as payment for $100,000 of these
         notes payable.

         In two private sales in June 2003,  the Company sold 600,000  shares of
         its common stock and raised $200,000.



                                       68
<PAGE>


NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)

         In July 2003, the Company  entered into a new lease  agreement with one
         of the Company's directors for a test site in Irvine, California. Under
         the terms of the contract,  the Company may use the test site from July
         1, 2003 to December 31, 2003 for monthly payments of $1,200.







                                       69
<PAGE>

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

The dismissal of Manning Elliot, Chartered Accountants, and the hiring of Singer
Lewak  Greenbaum  and  Goldstein  LLP by the Board of  HiEnergy  was  previously
reported in a Form 8-K,  as  amended,  dated April 25, 2002 and filed on May 10,
2002.



                                       70
<PAGE>

                                    PART III

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

The directors and executive  officers of HiEnergy  Technologies  and their ages,
positions,  business experience and education as of the date of this Form 10-KSB
are as follows:

           NAME             AGE                            POSITION
--------------------------------------------------------------------------------
Dr. Bogdan C.  Maglich     75   Chairman  of the  Board,
                                Chief Executive  Officer,  President,  Treasurer
                                and Chief Scientific Officer
--------------------------------------------------------------------------------
David R. Baker             71   Director
--------------------------------------------------------------------------------
Robert Drysdale            58   Director
--------------------------------------------------------------------------------
Bruce Del Mar              90   Director
--------------------------------------------------------------------------------
Harb S. Al Zuhair          65   Director
--------------------------------------------------------------------------------

Dr.  Bogdan  Maglich,  and Mr.  Harb Al Zuhair  were  appointed  to the board of
directors on April 25, 2002. In February  2003, Mr. David Baker was appointed to
the board of directors.  In March 2003 Mr. Robert Drysdale and Mr. Bruce Del Mar
were appointed to the board of directors.


All of the above  named  directors  are divided  into three  classes as follows:
Class I consists of David Baker,  Robert  Drysdale  and Bruce Del Mar;  Class II
consists of Harb Al Zuhair;  and Class III consists of Dr. Bogdan  Maglich.  The
three classes have  staggered  terms of one, two and three years,  respectively.
All directors hold office until their respective successors are elected or until
their  earlier  death,   resignation  or  removal.   Each  officer  of  HiEnergy
Technologies  serves at the  discretion of the board of directors.  There are no
family  relationships  between  or  among  any of  our  directors  or  executive
officers.


The  following   information  with  respect  to  the  principal   occupation  or
employment,  other  affiliations  and business  experience  during the last five
years of our directors and executive  officers has been  furnished to us by each
director and executive officer.


DR. BOGDAN C. MAGLICH. As HiEnergy  Technologies'  Chairman and Chief Scientific
Officer,  Dr.  Maglich  has  primary  responsibility  for  technology  strategy,
technology  development  and technical  proposal  development.  Dr. Maglich is a
respected  scientist  in his field.  He received the White House  Citation  from
President  John F. Kennedy and was named an honorary  citizen in  Switzerland by
the President of the Swiss  Confederation  for his discovery of the omega meson.
In addition to his research  discoveries  and  inventions  in particle  physics,
instrumentation,  and  detection  devices,  Dr.  Maglich  has  played  a role in
reducing  weapons in areas such as  Yugoslavia  and Russia and working on safety
measures for Soviet  reactors in Europe.  Currently,  Dr. Maglich is involved in
the  development  and  testing of three  detectors  based on his  stoichiometric
technology.


Dr.  Maglich has served as a professor of physics at University of  Pennsylvania
and  has  also  worked  at  Rutgers  and at the  Joint  Faculty,  Princeton-Penn
Accelerator Laboratory. Dr. Maglich also worked in various leadership capacities
on a variety of projects,  including the following: the CERN European Center for
High  Energy  (nuclear)  Physics  in  Geneva,  Switzerland;  the  U.S.  National
Laboratories,  the Air  Force  Weapons  Laboratory  (now  known as the Air Force
Phillips Laboratory); and the British-Swedish-American Consortium for the design
of the King  Abdulaziz  Energy  Research  Center in Saudi  Arabia.  Dr.  Maglich
received  a Ph.D.  in  high-energy  physics  and  nuclear  engineering  from the
Massachusetts  Institute of Technology (MIT), a Master of Science from Britain's
University  of  Liverpool,  and a Bachelor  of Science  from the  University  of
Belgrade.


DAVID R.  BAKER.  Mr.  Baker  has  been an  attorney  for  over 45 years  and is
currently  Of Counsel to the firm  Haskell  Slaughter  Young & Rediker,  LLC, of
Birmingham,  Alabama and New York City, and from October, 1993 a Retired



                                       71
<PAGE>

Partner of Jones,  Day,  Reavis & Pogue from its New York City office.  Prior to
joining Haskell Slaughter Young & Rediker, LLC Mr. Baker was a partner in Baker,
Johnston & Wilson LLP,  Birmingham and New York City,  from October 1998 and had
been a sole  practitioner in New York from February through  September 1998. Mr.
Baker is a graduate of Harvard Law School. He is a member of the Alabama and New
York State Bar Associations, and the American and Alabama Law Institutes, serves
on the Liaison  Committee  of the  American  Bar  Association  to the  Financial
Accounting Standards Board and is the International Bar Association's  principal
representative  in New York to the United  Nations.  In  addition,  he serves as
Chairman  of  the  New  York  Legislative  Service,  and is a  Life  Trustee  of
Birmingham-Southern College.


ROBERT H. DRYSDALE. Mr. Drysdale is an experienced financial executive with over
30 years of experience in the financial  markets.  He currently serves as Senior
Vice President and Branch Manager of Gilford  Securities  Incorporated,  a full-
service, national investment firm. Previously,  Mr. Drysdale served as President
and Chief Executive  Officer of PNC Securities Inc.,  Pittsburg,  PA, as well as
President of Tucker  Anthony Inc.,  New York, and First Vice President of Blyth,
Eastman,  Dillion,  New  York.  He is  the  former  Chairman  of  the  Municipal
Securities  Rulemaking  Board.  Mr. Drysdale holds a B.S. from the University of
Southern California.


BRUCE E. DEL MAR. Mr. Del Mar is a prominent inventor and entrepreneur who holds
more than 35 patents for a diverse range of aerospace weapons training,  medical
instrumentation and compact disc products.  Among his many accomplishments,  Mr.
Del Mar was a major  inventor  of  airplane  pressure  cabin  systems as Head of
Special Projects for Douglas Aircraft.  He subsequently  formed his own company,
Del Mar  Engineering  Laboratories,  now Del Mar  Avionics,  and Del Mar Medical
Systems. Del Mar Avionics designs, develops,  manufactures and markets precision
load-positioning   systems,   multi-media  presentation  systems  and  aerospace
electronics.  Del  Mar  Medical  specializes  in  the  design,  manufacture  and
distribution  of Holter  monitoring  devices,  which  collect  ambulatory  heart
electrocardiograph  data. Mr. Del Mar holds a B.S.,  Mechanical and Aeronautical
Engineering, from the University of California, Berkeley.


HARB S. AL ZUHAIR.  Born on July 4, 1938,  Mr. Al Zuhair  received  his  primary
education  in  Beirut  and  obtained  a  degree  in civil  engineering  from the
Portsmouth  College  of  Technology,  U.K.  in  1961.  In 1971,  he  established
Electronics Equipment Marketing Co. as a division of SADCO, a company run by his
family.  Electronics  Equipment  Marketing  Co. is one of the leading  high-tech
companies  in  Saudi  Arabia.  Presently  Mr.  Al  Zuhair  wholly  owns  or  has
investments in a variety of businesses,  among them:  construction,  industrial,
banking,  mining, aviation and trading companies.  Mr. Al Zuhair is also serving
as  chairman,  member of the board of directors  and founding  member of various
companies in the Saudi Kingdom and abroad.


The following person is a key administrative employee of ours:


IOANA C. NICODIN. As HiEnergy Technologies' Corporate Secretary,  Ms. Nicodin is
responsible for maintaining the company's  corporate records as well as managing
investor  relations and public relations for the company.  Ms. Nicodin graduated
with a Bachelor of Arts from the University of California, Irvine. She worked in
public  relations  for  Brice  &  Associates,   Marketing  Communications,   and
thereafter  in  marketing  for  Solomon  Smith  Barney.  Ms.  Nicodin  served as
Assistant  Corporate  Secretary of HiEnergy  Technologies  from November of 2001
until March of 2003, when she was appointed HiEnergy's Corporate Secretary.  Ms.
Nicodin  is fluent in both  English  and  Romanian  and is a  proficient  French
speaker.




                                       72
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities  Exchange Act of 1934, as amended,  requires our
directors,  executive  officers and persons who own more than ten percent of our
common  stock to file  with the  Securities  Exchange  Commission  and  HiEnergy
Technologies  reports on Forms 4 and Forms 5 reflecting  transactions  affecting
beneficial  ownership.  Based solely upon our review of the copies of such forms
received by us, we believe that,  during  fiscal year ended April 30, 2003,  all
persons complied with such filing  requirements  except that Dr. Bogdan Maglich,
Mr. Gregory Gilbert, Mr. Harb Al Zuhair, Mr. Richard Alden, Mr. Edward Finch and
Ms. Levy each did not timely file a Form 3 reporting  their  initial  beneficial
ownership.  We have received a written representation from each of our directors
and  executive  officers  that no Forms 5 are required for the fiscal year ended
April 30, 2003.

ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth the  compensation  that we have paid to our Named
Executive  Officers for the three  fiscal  years ended April 30, 2003,  2002 and
2001. With the exception of Dr.  Maglich,  no executive  officers  received more
than  $100,000 in annual salary and bonus during the fiscal year ended April 30,
2003. We do not currently  have a long-term  compensation  plan and do not grant
any long-term  compensation to our executive officers. No other compensation was
granted for the periods covered.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------

                                                      SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------------------------------------
                                     Annual Compensation                                      Long-Term Compensation
                           --------------------------------------                -------------------------------------------------
                                                                Other                           Securities                All
                                                                Annual           Restricted     Under-                    Other
Name and                Fiscal                                  Compen-          Stock          lying            LTIP     Compen-
Principal               Year     Salary         Bonus           sation           Award(s)       Options/         Payouts  sation
Position                Ended    ($)            ($)             ($)              ($)            SARs (#)         ($)      ($)
----------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>      <C>            <C>             <C>               <C>           <C>               <C>      <C>
BOGDAN                  2003     $157,713       $50,000         $47,401          -0-            456,717          -0-      -0-
MAGLICH                 2002     $80,734        $50,000         $24,952          $196,148       2,482,011        -0-      -0-
CHAIRMAN, CHIEF         2001     $20,140        -0-             $26,666          $25,000        -0-              -0-      -0-
EXECUTIVE OFFICER,
PRESIDENT, TREASURER
AND CHIEF SCIENTIFIC
OFFICER (1)
----------------------------------------------------------------------------------------------------------------------------------
THOMAS                  2003     $79,350        -0-             -0-              -0-            939,073
PASCOE                  2002     -0-            -0-             -0-              -0-            -0-              -0-      -0-
FORMER CEO
and President
----------------------------------------------------------------------------------------------------------------------------------
BARRY                   2003     -0-            -0-             $25,000          -0-            -0-              -0-      -0-
ALTER                   2002     -0-            -0-             -0-              -0-            -0-              -0-      -0-
Former CEO
and President
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       73
<PAGE>




(1)  Dr.  Maglich  served as Chairman and Chief  Scientific  Officer of HiEnergy
     Microdevices  during  the three  fiscal  years  covered.  He was  appointed
     Chairman and Chief Scientific Officer of HiEnergy Technologies on April 25,
     2002.  Dr. Maglich was appointed  Chief  Executive  Officer,  President and
     Treasurer of HiEnergy  Technologies  effective as of March 2003.  The Other
     Annual Compensation  amounts paid to Dr. Maglich consisted of the following
     personal expense reimbursements:

<TABLE>
<CAPTION>
EXPENSE CATEGORY:            FISCAL YEAR ENDED 2003       FISCAL YEAR ENDED 2002     FISCAL YEAR ENDED 2001
-----------------            ----------------------       ----------------------     ----------------------
<S>                                    <C>                         <C>                        <C>
Auto Lease                             $17,500                     $6,705                     $15,745
Auto Insurance                         $1,144                      $1,438                      $2,017
Auto Expenses (other)                     -                         $500                        $471
Home Rent                                 -                       $13,750                      $6,500
Medical Insurance                      $28,757                     $2,559                      $1,933
TOTAL                                  $47,401                    $24,952                     $26.666
</TABLE>


Dr.  Maglich  also  received  compensation  in the form of shares of  restricted
common  stock of  HiEnergy  Microdevices  as  follows:  196,149  shares  with an
estimated value of $196,149 during the fiscal year ended April 30, 2002;  35,000
shares with an estimated value of $25,000 during the fiscal year ended April 30,
2001;  and 51,500  shares with an estimated  value of $41,300  during the fiscal
year ended April 30,  2000.  These  shares were  subsequently  converted  by Dr.
Maglich into shares of HiEnergy  Technologies common stock through participation
in the voluntary  share  exchange  transaction  with HiEnergy  Technologies.  In
connection with the  renegotiation  of Dr. Maglich's  employment  agreement with
HiEnergy  Microdevices,  he  received a signing  bonus in the form of a $100,000
promissory  note subject to HiEnergy  Technologies  meeting  specific  financing
goals.  Dr.  Maglich  received  $50,000 of the  signing  bonus  upon  receipt by
HiEnergy  Technologies  of $1,000,000  raised  through equity  financing  during
April,  2002.  Since we have raised over $1,000,000  through  private  placement
offerings  that closed in October  2002,  we paid him the  remaining  $50,000 in
February 2003.

                                  OPTION GRANTS

The following table sets forth information with respect to stock options granted
to each Named  Executive  Officer during our most recent fiscal year ended April
30, 2003. We have never granted any stock appreciation rights.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                        Number of        Percent of Total
                                        Securities       Options/SARs           Exercise or Base
                                        Underlying       Granted to             Price
                                        Options/SARs     Employees in           ($/Share)
Name                                    Granted          Fiscal Year                            Expiration Date
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>     <C>      <C>                    <C>                      <C> <C>
BOGDAN                                  456,717 (1)      31%                    $2.81           February 11, 2008
MAGLICH
Chairman, Chief
Executive Officer, President,
Treasurer and Chief
Scientific Officer
-----------------------------------------------------------------------------------------------------------------------
THOMAS
PASCOE
Former CEO
and President                           939,073 (2)      63%                    $1.00            June 6, 2003
</TABLE>


(1)  Option  was  granted  on  February  11,  2003  and  was   fully-vested  and
     exercisable on the date of grant.

(2)  All of these options have expired unexercised as of the date of this annual
     report.



                                       74
<PAGE>

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

The following  table sets forth  information  with respect to fiscal  year-ended
April 30, 2003 option  values.  No stock  options  were  exercised  by our Named
Executive Officers during the fiscal year ended April 30, 2003.


<TABLE>
<CAPTION>
                                                                                                                Value of
                                                                                   Number of                    Unexercised
                                                                                   Unexercised                  in-the-money
                                                                                   options/SARs at              options/SARs at
                                        Shares                                     fiscal year-end (#)          fiscal year-end ($)
                                        acquired on             Value Realized     exercisable /                exercisable /
Name                                    on exercise (#)         ($)                unexercisable                unexercisable (1)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                          <C>
BOGDAN                                  --                      --                 2,898,728                    $481,188
MAGLICH
Chairman, Chief
Executive Officer, President
Treasurer and Chief
Scientific Officer
-----------------------------------------------------------------------------------------------------------------------------------
THOMAS
PASCOE
Former CEO
and President                           -0-                     -0-                939,073/0                    $0
-----------------------------------------------------------------------------------------------------------------------------------
BARRY ALTER
Former CEO
and President                           -0-                     -0-                0/0                          $0
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) The  value  of Dr.  Maglich's  options  has  been  calculated  based  on the
difference  between the closing price of our stock on the OTC Bulletin  Board(R)
on April 30, 2003 ($0.30 per share) and the exercise prices of his stock options
($0.134 per share and $2.81 per share).

COMPENSATION OF DIRECTORS

The Board recently approved a plan to grant each Director 2,000 shares of common
stock or stock  options for each meeting  attended and the  Directors  were each
granted stock options in varying amounts for their  services.  All directors are
reimbursed  for any  reasonable  expenses  incurred in the course of  fulfilling
their duties as a director of HiEnergy Technologies.

HiEnergy Microdevices  compensated its directors with shares of its common stock
for their  service  as  directors  prior to the  reverse  takeover  by  HiEnergy
Technologies.  During  the fiscal  year  ended  April 30,  2002,  the  following
HiEnergy Microdevices  directors received shares of HiEnergy Microdevices common
stock for their service as directors:  Mr.  Richard Alden  received 3,500 shares
with an estimated value of $3,500;  Mr. Gregory  Gilbert  received 1,000 with an
estimated  value of $1,000;  and Mr. Edward Finch  received 1,000 shares with an
estimated value of $1,000.  These shares were subsequently  converted by each of
the  directors  into  shares  of  HiEnergy  Technologies  common  stock  through
participation  in  the  voluntary  share  exchange   transaction  with  HiEnergy
Technologies.

EMPLOYMENT CONTRACTS

In March 2002, HiEnergy  Microdevices  entered into an employment agreement with
Dr. Maglich, its Chairman and Chief Scientist.  On July 16, 2002, the employment
agreement  was  assigned  by  HiEnergy  Microdevices  to  HiEnergy  Technologies
pursuant to an Assignment  and  Assumption  Agreement  approved by the Boards of
Directors of HiEnergy Technologies and HiEnergy Microdevices at meetings held on
July 16, 2002 and executed by HiEnergy  Microdevices,  HiEnergy Technologies and
Dr.  Maglich.  The material terms of the employment  agreement are summarized in
the footnotes to our Consolidated Financial Statements, Note 8.



                                       75
<PAGE>

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED SHAREHOLDER MATTERS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                                                                  PERCENT OF
NAME OF BENEFICIAL OWNER                                                         NUMBER OF SHARES OUTSTANDING
---------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                <C>
Dr. Bogdan C. Maglich, Chairman of the Board, Chief Executive                      11,216,772(1)      35.4%
Officer, President, Treasurer and Chief Scientific Officer
---------------------------------------------------------------------------------------------------------------
Harb S. Al Zuhair, Director                                                           930,422(2)       3.2%
---------------------------------------------------------------------------------------------------------------
Robert H. Drysdale, Director                                                           32,000(4)          *
---------------------------------------------------------------------------------------------------------------
David R. Baker, Director                                                              514,967(3)       1.8%
---------------------------------------------------------------------------------------------------------------
Bruce E. Del Mar, Director                                                             32,000(5)         *
---------------------------------------------------------------------------------------------------------------
ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP
(5 Persons)                                                                        12,726,161(6)      39.8%
---------------------------------------------------------------------------------------------------------------
</TABLE>


* Less than 1%.


(1) Includes  2,245,708  shares owned directly by Dr. Maglich,  1,236,735 shares
owned by Advanced  Projects Group,  Inc., a Delaware  corporation,  of which Dr.
Maglich  is a  director,  officer  and  greater  than ten  percent  stockholder,
3,295,601 shares owned by Maglich Family Holdings, Inc., a Delaware corporation,
of which Dr.  Maglich  is a  director,  officer  and  greater  than ten  percent
stockholder,  and  1,500,000  shares owned by Maglich  Innovations  Fund Inc., a
Delaware corporation,  of which Dr. Maglich is sole director, officer and direct
or indirect stockholder. Dr. Maglich disclaims beneficial ownership of the stock
held by Maglich Family Holdings,  Inc. and Advanced  Projects Group, Inc. beyond
his pecuniary interest.  Also includes 2,898,728 shares of common stock issuable
upon the exercise of currently exercisable stock options.

(2) Includes  17,882  shares of common stock  issuable  upon the exchange of 800
shares of  HiEnergy  Microdevices  common  stock held by Mr. Al Zuhair.  The 800
shares of  HiEnergy  Microdevices  common  stock are  subject  to  payment  of a
promissory note in the amount of $3.50 per share, or a total of $2,800. Includes
100,000  shares  of  common  stock  issuable  upon  the  exercise  of  currently
exercisable  stock options.  Also includes 2,000 shares of common stock or stock
options as Director's compensation as approved by the Board.

(3) Includes 205,307 shares of common stock owned directly by Mr. Baker,  60,710
shares of  common  stock  owned by BJW  Investments,  LLC,  an  Alabama  limited
liability company,  of which Mr. Baker is a member,  152,245 of the shares owned
by Advanced Projects Group, a Delaware corporation, attributable to Mr. Baker as
a  stockholder,   shares  of  HiEnergy   Microdevices   common  stock  that  are
exchangeable into 44,705 shares of our common stock, and 50,000 shares of common
stock issuable upon the exercise of currently  exercisable  stock options.  Also
includes   2,000  shares  of  common  stock  or  stock   options  as  Director's
compensation as approved by the Board. Mr. Baker disclaims  beneficial ownership
of the stock held by BJW Investments,  LLC or Advanced Projects Group beyond his
pecuniary interest.

(4)  Includes  30,000  shares of common  stock  issuable  upon the  exercise  of
currently  exercisable stock options. Also includes 2,000 shares of common stock
or stock options as Director's compensation as approved by the Board.

(5)  Includes  30,000  shares of common  stock  issuable  upon the  exercise  of
currently  exercisable stock options. Also includes 2,000 shares of common stock
or stock options as Director's compensation as approved by the Board.


(6) The number of shares  beneficially  owned takes into account the details set
forth in the preceding footnotes.




                                       76
<PAGE>

The  number of  shares  of common  stock  outstanding  used in  calculating  the
percentages  was 28,819,464, the number of shares of common stock outstanding as
of July 22, 2003. The beneficial ownership for each listed person includes those
shares of common  stock  underlying  options held by such persons on the date of
this annual report that are exercisable within 60 days.  Beneficial ownership is
determined  in  accordance  with  the  rules  of  the  Securities  and  Exchange
Commission  and  includes  voting  or  investment  power  with  respect  to  the
securities.


The amounts  reflected  above are based upon  information  provided to us and in
filings with the Securities and Exchange Commission. To our knowledge, the table
sets forth  information  about  beneficial  ownership  information  for (i) each
person known by us to beneficially own more than 5% of our outstanding shares of
common stock; (ii) each of our executive officers;  (iii) each of our directors;
and (iv) all of our executive officers and directors as a group.


Unless otherwise  indicated,  the address for those listed above is c/o HiEnergy
Technologies, Inc., 1601 Alton Parkway, Unit B, Irvine, California 92606. Except
as indicated by footnote, and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them.

CHANGE IN CONTROL

We are not aware of any  arrangement  that would  upset the  control  mechanisms
currently in place over HiEnergy Technologies. Although it is conceivable that a
third party could attempt a hostile takeover of HiEnergy  Technologies,  we have
not received notice of any such effort.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth  information as of April 30, 2003 with respect to
compensation  plans under which we are  authorized to issue shares of our common
stock, aggregated as follows:

     o    all compensation plans previously approved by security holders; and

     o    all compensation plans not previously approved by security holders.

<TABLE>
<CAPTION>
--------------------------------------------------------- ---------------------------- --------------------------------------
                             (a)                          (b)                       (c)
------------------------------- ---------------------------- ---------------------------- -----------------------------------
Plan Category                Number of securities to be   Weighted-average exercise  Number of securities
                             issued upon exercise of      price of outstanding       remaining available for
                             outstanding options,         options, warrants and      future issuance under
                             warrants and rights          rights                     equity compensation plans
                                                                                     (excluding securities
                                                                                     reflected in column (a))
------------------------------- ---------------------------- ---------------------------- -----------------------------------
Equity compensation plans
<S>                           <C>                         <C>                        <C>
approved by security holders   2,482,011                   $0.134                               0 (1)
------------------------------- ---------------------------- ---------------------------- -----------------------------------
Total equity compensation
plans not approved by          2,708,853                   $1.01                        1,310,000 (2), (3), (4), (5), (6)
security holders
------------------------------- ---------------------------- ---------------------------- -----------------------------------
Total                          5,190,864                   $0.59                        1,310,000 (7)
------------------------------- ---------------------------- ---------------------------- -----------------------------------
</TABLE>


(1) On April 24, 2002, the Board of Directors of HiEnergy  Technologies approved
the  issuance  and  grant of a  non-qualified  stock  option to Dr.  Maglich  to
purchase 2,482,011 shares of HiEnergy Technologies common stock with an exercise
price of $0.134 and a term that ends on November 30, 2008.  The stock option was
granted pursuant to the reverse takeover of HiEnergy Microdevices by SLW and Dr.
Maglich's agreement to cancel a HiEnergy  Microdevices' stock option to purchase
111,040 shares of HiEnergy  Microdevices  common stock with an exercise price of
$3.00 and a term that would  have  ended on  November  30,  2008.  The number of
shares  and  exercise  price for the  HiEnergy  Technologies  stock  option  was
determined by using the same  exchange rate as that used in the voluntary  share
exchange  transaction,  or 22.3524 shares of HiEnergy  Technologies common stock
for  each  share  of  HiEnergy   Microdevices.   The  shareholders  of  HiEnergy
Technologies  ratified  and approved the grant of the stock option at the Annual
Meeting of Stockholders which took place on October 10, 2002.


                                       77
<PAGE>


(2) The  employment  agreement  between Dr.  Maglich and  HiEnergy  Technologies
contemplates the issuance of the following stock options to Dr. Maglich annually
through  the term of the  employment  agreement,  or until  December  31,  2006:
options to purchase one percent per year of HiEnergy  Technologies' common stock
issued and  outstanding  at the end of each year with an exercise price equal to
the average  trading price for the preceding  thirty days and with terms of five
years. In no case, without permission of Dr. Maglich,  may the number of options
granted  him in a given  year be less than ten  percent  of the total  number of
options granted by HiEnergy  Technologies  for services in that year. That could
result for  instance in annual  issuances  of options to acquire  about  300,000
shares,  at today's  capitalization,  or more if the  Company  grants  more than
3,000,000  options in one year. That number of shares may increase  dramatically
year to year or over the course of the next three years.

(3) Pursuant to the foregoing (see footnote (2)), on February 11, 2003 the Board
of Directors of HiEnergy Technologies, Inc. approved the issuance and grant of a
non-qualified stock option to Dr. Maglich to purchase 416,717 shares of HiEnergy
Technologies  common stock with an exercise  price of $2.81 and a term that ends
on February 11, 2008, pursuant to his employment  agreement with the Company. On
June 26, 2003 the Board of Directors  of HiEnergy  Technologies,  Inc.  approved
(due to an  error in the  calculation  of the  grant  approved  by the  Board on
February 11, 2003) the issuance and grant of an incidental  non-qualified  stock
option to Dr.  Maglich to  purchase  an  additional  40,000  shares of  HiEnergy
Technologies  common stock with an exercise  price of $2.81 and a term that ends
on June 26, 2008.

(4) On May 5,  2003 the  Board  of  Directors  of  HiEnergy  Technologies,  Inc.
approved a qualified  stock  option  plan to  incentivize  employees,  officers,
directors and service  providers of the Corporation.  The HiEnergy  Technologies
2003 Stock Incentive Plan (the "Plan") was approved the Board decided to reserve
700,000 shares of its authorized and unissued  Common Stock for future  issuance
under the Plan. On May 28, 2003 the Board of Directors of HiEnergy Technologies,
Inc.  approved  an  increase in the amount of the reserve of shares to be issued
under the Plan to 2,000,000  shares of authorized and unissued Common Stock. The
Board has recommended that the shareholders of HiEnergy  Technologies  adopt the
Plan at the next annual meeting of stockholders.

(5) On May 16,  2003 the  Board of  Directors  of  HiEnergy  Technologies,  Inc.
approved the issuance and grant of  incentive  stock  options and  non-qualified
stock options under the Plan to employees and  consultants of the Corporation to
purchase 400,000 shares of HiEnergy  Technologies  common stock with an exercise
price of $0.75 and a term that ends on May 16, 2009.  On June 26, 2003 the Board
of Directors of HiEnergy  Technologies,  Inc. approved the issuance and grant of
incentive  stock  options to employees  of the  Corporation  to purchase  90,000
shares of HiEnergy Technologies common stock with an exercise price of $0.75 and
a term  that ends on June 26,  2009.  On July 16,  2003  Board of  Directors  of
HiEnergy  Technologies,  Inc.  approved the issuance and grant of  non-qualified
stock options to  consultants of the  Corporation to purchase  200,000 shares of
HiEnergy  Technologies  common stock with an exercise  price of $0.50 and a term
that ends on July 16, 2009.

(6) In July 2002,  we issued and granted a  non-qualified  stock option to Isaac
Yeffet to purchase up to  1,000,000  shares of our common stock with an exercise
price of $1.00 per  share.  The stock  option was  issued in  connection  with a
consulting  agreement  between Yeffet  Security  Consultant,  Inc., of which Mr.
Yeffet is the sole principal, and HiEnergy Technologies.  One half of the shares
are exercisable  immediately  and the other half are  exercisable  beginning one
year  after our  MiniSenzor  product  is  operational  and ready to be shown for
approval to appropriate authorities.  The stock option agreement was amended and
restated in September 2002 to add a cashless exercise provision. In August 2002,
we issued a stock option to Primoris  Group Inc. to purchase  400,000  shares of
common  stock at $2.00 per  share  with a term of 5 years in  connection  with a
consulting  agreement.  Primoris Group Inc. provided investor relations services
to us. In September 2002, as an accommodation to adjust amounts owing to QED Law
Group,  P.L.L.C.,  we issued stock options to Shea Wilson and Derek  Woolston to
purchase  an  aggregate  of 45,454  shares of common  stock at $1.00 per  share.
September 25, 2002 was the third trading day following our filing of a report on
Form 10-QSB for the quarterly period ended July 31, 2002.

(7) The preceding footnotes all affect this total.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

It is our current  policy that all  transactions  with officers,  directors,  5%
stockholders and their affiliates be entered into only if they are approved by a
majority  of the  disinterested  directors,  are on terms no less  favorable  to
HiEnergy  Technologies than could be obtained from unaffiliated  parties and are
reasonably expected to benefit HiEnergy Technologies.



                                       78
<PAGE>

On February 7, 2003, we repaid to Dr. Bogdan C. Maglich approximately $50,000 of
the  approximately  $145,000 of our notes  payable to related  parties that were
outstanding on January 31, 2003. The remaining  unpaid balance of  approximately
$45,000 owed to James Fail and $40,000 is owed to Stone Capital Inc.. Both notes
are in default and due on demand.  Mr. Fail is a shareholder  in HiEnergy and is
President of Stone Capital Inc.

As discussed in the section entitled "Legal  Proceedings",  on January 15, 2003,
we executed a settlement  agreement with Keith Cowan, a former executive officer
of HiEnergy Microdevices,  that gave us a maximum cash exposure of $175,000. The
settlement  agreement  provided  that we  would  pay Mr.  Cowan  $50,000  in the
beginning.  In addition, Mr. Cowan received 80,000 shares of restricted HiEnergy
Technologies common stock, with registration rights that provided Mr. Cowan with
the  option of  tendering  the 80,000  shares to  HiEnergy  Technologies  for an
additional  payment of $125,000 in cash if the shares were not  registered on or
before April 1, 2003.  As of April 1, 2003,  the shares had not been  registered
and Mr.  Cowan  subsequently  tendered  the  80,000  shares to the  Company  and
received a payment of $125,000.

On  September  30, 2002, we relocated our offices to 1601 Alton Parkway, Unit B,
Irvine,  California, 92606 and entered into a 3 year lease with Del Mar Avionics
for  approximately  6,600  square  feet  at  a  monthly  lease  rate  of $8,000.
Thereafter,  in  March  2003, Mr. Bruce Del Mar was appointed as a member of our
Board  of  Directors.  Mr.  Del  Mar  is  the controlling shareholder of Del Mar
Avionics.  We  also  lease  an adjacent out door test site from Del Mar Avionics
for $1,200  per  month.

LOANS FROM EXECUTIVE OFFICERS AND DIRECTORS

During the fiscal  years ended April 30,  2003 and 2002,  HiEnergy  Technologies
incurred the following material notes payable to current and former officers and
directors that involved amounts in excess of $60,000:

     o    HiEnergy  Microdevices had unsecured notes totaling $59,083 payable to
          Dr. Maglich for past due employment compensation with interest payable
          at 6% per annum,  maturing  in December  2002.  During the fiscal year
          ended April 30, 2003, the notes were paid in full.

     o    HiEnergy  Technologies had an unsecured note totaling $100,000 payable
          to  Dr.  Maglich  as  a  signing  bonus  pursuant  to  his  employment
          agreement.  The amount is  non-interest-bearing,  $50,000 payable upon
          receipt of  $1,000,000  or more from any source,  and $50,000  payable
          upon revenue in excess of $500,000 or $1,000,000  of additional  funds
          from any source. During the fiscal year ended April 30, 2003, $100,000
          was paid to Dr. Maglich by HiEnergy Technologies..

     o    During  March and  April,  2002,  Rheal  Cote,  a former  director  of
          HiEnergy  Technologies,  made  several  non-interest-bearing  loans to
          HiEnergy Microdevices totaling $150,000.  During the fiscal year ended
          April 30,  2003,  the notes were paid in full.  In  consideration  for
          paying the notes late, in May 2002, we issued to Mr. Cote a warrant to
          purchase  150,000  shares of our common stock at an exercise  price of
          $1.00 with a three year term.

     o    HiEnergy  Microdevices  had an  unsecured  note  payable  to a  former
          officer for $150,000  payable  upon demand as of April 30,  2002.  The
          full amount was paid in January 2003.

We are or have been a party to various  employment,  consulting and compensation
arrangements with related parties,  as more  particularly  described above under
the heading "Executive Compensation."


                                       79
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

THE  EXHIBIT  INDEX  IMMEDIATELY  FOLLOWING THE SIGNATURE PAGE OF THIS REPORT IS
HEREBY  INCORPORATED  HEREIN  BY  REFERENCE.

REPORTS ON FORM 8-K

On June 20, 2003, we filed a report on Form 8-K dated June 20, 2003.  The report
disclosed  under Item 9 that we had engaged a German-based  business & financial
consultant,  that we had engaged a German investor  relations firm, and that our
stock was listed on the Berlin Stock Exchange.

On June 11, 2003, we filed a report on Form 8-K dated June 10, 2003.  The report
disclosed under Item 5 that HiEnergy's  $200,000  contract with the Navy had not
been granted on financial  grounds,  that HiEnergy's device scored 100% in tests
of explosive  detection  through steel,  and that we were  initiating a 'carbomb
finder' counter-terrorism product.

On May 19, 2003,  we filed a report on Form 8-K dated May 16,  2003.  The report
disclosed  under Item 5 the results of our exchange  offer to the holders of our
Series A Convertible Preferred Stock.

On May 12,  2003,  we filed a report on Form 8-K dated May 9,  2003.  The report
disclosed  under Item 5 that we had  initiated an exchange  offer on May 9, 2003
for the purpose of retiring our Series A Preferred Stock.

On April  25,  2003,  we filed a report on Form 8-K dated  April 23,  2003.  The
report  disclosed  under  Item  5  that  we  filed  an  amendment  no.  2 to our
Registration Statement on Form SB-2 on April 22, 2003, and that the Registration
Statement became effective at 10:00 a.m. Eastern Time on Wednesday, April 23.

On April 7, 2003,  we filed a report on Form 8-K/A  dated  March 28,  2003.  The
report  disclosed  under  Item 9 changes  in the terms of our  proposed  private
offering to qualified institutional buyers.

On March  28,  2003,  we filed a report on Form 8-K dated  March 28,  2003.  The
report disclosed under Item 9 that Dr. Bogdan Castle Maglich would give a speech
in which he would discuss our  technology at a private  luncheon at The New York
Yacht Club on March 28, and also  disclosing  our proposed  private  offering to
qualified institutional buyers.

On March 14, 2003,  we filed a report on Form 8-K dated  February 27, 2003.  The
report  disclosed under Item 5 that we had appointed David R. Baker to our Board
of Directors,  and that Dr. Maglich has been elected Chief Executive  Officer on
an  interim  basis.  The  report  also  disclosed  the  results  of an  internal
investigation   concerning  rumors  regarding  certain  stockholders  and  their
relationship to a person who has previously been involved in stock  manipulation
schemes.




                                       80
<PAGE>


ITEM 14. CONTROLS AND PROCEDURES.

We maintain  "disclosure  controls and  procedures,"  as such term is defined in
Rule 13a-14(c) under the Securities  Exchange Act of 1934 (the "Exchange  Act"),
that are designed to ensure that  information  required to be disclosed by us in
reports that we file or submit  under the  Exchange Act is recorded,  processed,
summarized,  and reported  within the time periods  specified in Securities  and
Exchange  Commission  rules and forms,  and that such information is accumulated
and  communicated to our management,  including our Chief Executive  Officer and
Treasurer,  as  appropriate,   to  allow  timely  decisions  regarding  required
disclosure.  In designing and evaluating our disclosure controls and procedures,
management  recognized  that disclosure  controls and procedures,  no matter how
well  conceived  and  operated,  can  provide  only  reasonable,  not  absolute,
assurance that the objectives of the disclosure controls and procedures are met.
Additionally,  in designing  disclosure controls and procedures,  our management
necessarily  was required to apply its judgment in evaluating  the  cost-benefit
relationship of possible disclosure  controls and procedures.  The design of any
disclosure   controls  and  procedures  also  is  based  in  part  upon  certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving  its stated goals under all  potential
future  conditions.  Based on their evaluation as of a date within 90 days prior
to the filing  date of this  Annual  Report,  our Chief  Executive  Officer  and
Treasurer  has  concluded  that,  subject to the  limitations  noted above,  our
disclosure  controls  and  procedures  were  effective  to ensure that  material
information relating to us, including our consolidated subsidiary, is made known
to them by others within those entities, particularly during the period in which
this Annual Report was being prepared.

There were no significant changes in our internal controls or, to our knowledge,
in  other  factors  that could significantly affect these controls subsequent to
the  date  of  their evaluation, including any corrective actions with regard to
significant  deficiencies  and  material  weaknesses.



ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

During the fiscal  year  ended  April 30,  2003,  we  incurred  audit and review
services of $116,110,  tax preparation services of $17,472 and other services of
$4,653.  All of the services were provided by Singer Lewak Greenbaum & Goldstein
LLP. Singer Lewak Greenbaum & Goldstein LLP has not performed any other services
for the  Company not  expressly  mentioned  above.  During the fiscal year ended
April 30, 2002, we were not a public  company until April 25, 2002 and all audit
and tax preparation services were incurred in the year ended April 30, 2003.




                                       81
<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.

                           HIENERGY TECHNOLOGIES, INC.



                           By: /S/  BOGDAN C. MAGLICH
                               ----------------------------------------
                               Dr. Bogdan C. Maglich
                               CEO, President and Director

                           Date: AUGUST 1, 2003


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.



   By: /S/  BOGDAN C. MAGLICH                              Date: 8/1/03
       -------------------------------------------------         ------
       Dr. Bogdan C. Maglich
       Chairman of the Board, CEO, President, Treasurer
       and Chief Scientific  Officer



   By: /S/  DAVID R. BAKER                                 Date: 8/1/03
       -------------------------------------------------         ------
       David R. Baker
       Director



   By: /S/  HARB S. AL ZUHAIR                              Date: 8/1/03
       ----------------------------------------                  ------
       Harb S. Al Zuhair
       Director



   By: /S/  ROBERT H. DRYSDALE                             Date: 8/1/03
       ----------------------------------------                  ------
       Robert Drysdale
       Director

   By: /S/  BRUCE E. DEL MAR                               Date: 8/1/03
       -------------------------------                           ------
       Bruce Del Mar
       Director




                                       82
<PAGE>

EXHIBIT
NUMBER        DESCRIPTION
--------------------------------------------------------------------------------
2.1(1)       Voluntary  Share  Exchange   Agreement  by  and  between   HiEnergy
             Technologies, Inc. and HiEnergy Microdevices, Inc. dated March 22,
             2002

2.2(5)       Agreement  and Plan of Merger dated October 18, 2002 by and between
             the   Registrant   and  its  wholly  owned   subsidiary,   HiEnergy
             Technologies, Inc., a Delaware corporation

3.1(2)       Articles of Incorporation filed on March 20, 2000

3.1(4)       Articles of Amendment (adding Series A Convertible Preferred Stock)
             filed on September 9, 2002

3.1(5)       Certificate of Incorporation filed on October 17, 2002

3.2(3)       Articles of Amendment  (Changing the name of the corporation) filed
             on April 30, 2002

3.2(5)       Bylaws adopted on October 18, 2002

3.3(3)       Amended and Restated Bylaws

4.1(1)       Specimen Common Stock Certificate of HiEnergy Technologies, Inc.

4.1(4)       Designation  of  Relative  Rights and  Preferences  of the Series A
             Convertible Preferred Stock (see Exhibit 3.1)

4.1(5)       Specimen Common Stock Certificate

4.2(1)       Form of Registration Rights Agreement

4.2(5)       Specimen Series A Convertible Preferred Stock Certificate

4.3(1)       Form of Amendment No. 1 to Registration Rights Agreement

4.4(3)       Warrant Certificate issued to Rheal Cote by HiEnergy  Technologies,
             Inc. dated June 3, 2002

4.4(5)       Form of Registration  Rights  Agreement  between the Registrant and
             each June 2002 Private Placement Common Stock investor

4.5(5)       Registration  Rights  Agreement  dated July 12, 2002 between the
             Registrant  and  Isaac  Yeffet

4.6(5)       Registration  Rights  Agreement  dated  August 19, 2002 between the
             Registrant and Primoris Group Inc.

4.7(5)       Form of Registration Rights Agreement dated October 7, 2002 between
             the  Registrant  and  the  Series  A  Convertible  Preferred  Stock
             investors

4.8(5)       Form of Warrant  Certificate  dated  October 7, 2002  issued by the
             Registrant to each Series A Convertible Preferred Stock investor

4.9(5)       Form of Registration  Rights  Agreement  between the Registrant and
             each October 2002 Private Placement Common Stock Investor

4.10(5)      Form  of  Warrant  Certificate  issued  by the  Registrant  to each
             October 2002 Private Placement Common Stock investor

10.1(2)      Vitamineralherb.com License Agreement

10.1(5)      Lease  Agreement  dated August 15, 2002 between the Registrant and
             Del Mar Avionics

10.2(2)      Assignment of Vitamineralherb.com License Agreement

10.3(3)      Lease Agreement  between  HiEnergy  Microdevices,  Inc. and TESLAco
             dated December 13, 1996

10.3(4)      Stock   Option   Agreement   between   Isaac  Yeffet  and  HiEnergy
             Technologies, Inc. dated July 12, 2002

10.4(4)      Letter Agreement  between H.C.  Wainwright & Co., Inc. and HiEnergy
             Technologies, Inc. dated August 8, 2002
<PAGE>

10.4(3)      Award Contract  between  HiEnergy  Microdevices,  Inc. and the U.S.
             Department of Defense dated February 12, 2002

10.5(3)      Employment  Agreement between HiEnergy  Microdevices,  Inc. and Dr.
             Bogdan C. Maglich dated March 6, 2002

10.6(3)      Assignment and Assumption of Employment  Agreement between HiEnergy
             Technologies, Inc., HiEnergy Microdevices, Inc. and Dr. Bogdan C.
             Maglich dated July 16, 2002.

10.7(3)      Stock Option  Agreement  between Dr. Bogdan C. Maglich and HiEnergy
             Technologies, Inc. effective April 24, 2002

10.8(3)      Consulting Agreement between Yeffet Security  Consultant,  Inc. and
             HiEnergy Technologies, Inc. dated July 12, 2002

10.9(5)      Amended and Restated  Nonqualified Stock Option dated July 12, 2002
             issued by the Registrant to Isaac Yeffet

10.11(5)     Consulting  Agreement  dated August 1, 2002 between the  Registrant
             and Primoris Group Inc.

10.12(5)     Amendment No. 1 to the Consulting  Agreement  dated August 19, 2002
             between the Registrant and Primoris Group Inc.

10.13(5)     Nonqualified  Stock Option (Warrant) dated August 1, 2002 issued by
             the Registrant to Primoris Group Inc.

10.15(5)     Letter  Employment   Agreement  dated  February  26,  2002  between
             HiEnergy Microdevices, Inc. and Michal Levy

10.16(5)     Assignment,  Assumption and Amendment of Employment Agreement dated
             September   17,  2002  by  and  among  the   Registrant,   HiEnergy
             Microdevices, Inc. and Michal Levy

10.17(5)     Nonqualified  Stock Option dated  September 17, 2002 issued by the
             Registrant to Michal Levy

10.17(6)     Form of Warrant  Certificate  dated  August 11,  2002 issued by the
             Registrant to H.C. Wainwright & Co., Inc. and Assigns

10.18(5)     Nonqualified  Stock Option dated  September 25, 2002 issued by the
             Registrant to Chapin E. Wilson

10.18(6)     Form of Warrant  Certificate  dated  October 7, 2002  issued by the
             Registrant to H.C. Wainwright & Co., Inc. and Assigns

10.19(6)     Form of Warrant  Certificate  dated  October 31, 2002 issued by the
             Registrant to H.C. Wainwright & Co., Inc. and Assigns

10.19(5)     Nonqualified  Stock Option dated  September 25, 2002 issued by the
             Registrant to Derek W. Woolston

10.20(5)     Employment   Agreement   dated   September  25,  2002  between  the
             Registrant and Tom Pascoe

10.21(5)     Nonqualified  Stock Option  effective  September 25, 2002 issued by
             the Registrant to Tom Pascoe

10.22(5)     Form of Series A Convertible  Preferred  Stock  Purchase  Agreement
             dated  October 7, 2002  between the  Registrant  and the  investors
             named therein

10.23(5)     Consulting   Agreement   dated   September  25,  2002  between  the
             Registrant and Barry Alter*

10.24(5)     Form of  Subscription  Agreement  between the  Registrant  and each
             April 2002 Private Placement Common Stock investor

10.25(5)     Form of  Subscription  Agreement  between the  Registrant  and each
             October 2002 Private Placement Common Stock investor

10.26(7)      Warrant  Certificate  dated December 9, 2002 issued by the
              Registrant to Wolfe Axelrod  Weinberger Associates LLC


<PAGE>
10.29(7)     Termination  Agreement  dated  November 27, 2002  between  HiEnergy
             Technologies, Inc. and H.C. Wainwright & Co., Inc.

10.30(7)     Termination  Agreement  dated  December  2, 2002  between  HiEnergy
             Technologies, Inc. and Wolfe Axelrod Weinberger Associates LLC

10.31(7)     Form of Warrant  Certificate dated December 9, 2002 issued by the
             Registrant to H.C.  Wainwright & Co., Inc. and Assigns

10.32(7)     Placement Agent Agreement dated December 16, 2002 between  HiEnergy
             Technologies, Inc. and Seabury Transportation Advisors LLC

10.33(7)     Nonqualified  Stock  Option  dated  December  19,  2002  issued  by
             HiEnergy Technologies, Inc. to Chapin E. Wilson

10.34(7)     Nonqualified  Stock  Option  dated  December  19,  2002  issued  by
             HiEnergy Technologies, Inc. to Derek W. Woolston

10.35(7)     Settlement  Agreement  dated  January  15,  2003  between  HiEnergy
             Technologies, Inc. and Keith Cowan

10.36(7)     Settlement   Agreement  dated  February  14,  2003  among  HiEnergy
             Technologies,   Inc.,  Columbus  Group/cFour  Partners,  Robert  W.
             Bellano and Shaun Corrales

10.37(7)     Form  of  Warrant  Certificate  dated  February  17,  2003  between
             HiEnergy   Technologies,   Inc.  and  the  principals  of  Columbus
             Group/cFour Partners

10.38(7)     Award  Contract  dated  January 15, 2003 by the U.S.  Department of
             Defense to HiEnergy Technologies, Inc. (Confidential Treatment
             Requested as to parts)

10.39(8)     Letter Agreement dated November 18, 2002 between HiEnergy
             Technologies, Inc. and HWH Enterprises, Inc

10.40.1      Client Fee Agreement between HiEnergy Technologies and Yocca Patch
             & Yocca, LLP

10.40.2      Form of Promissory Note between HiEnergy Technologies, Inc. and
             Yocca Patch & Yocca, LLP

10.41        Jenkins Capital  Management LLC Private Placement  Agreement dated
             April 22, 2003

10.42        Vertical Ventures  Investments LLC Stock Purchase  Agreement dated
             April 23, 2003

10.43        Greenwich Growth Fund Limited Stock Purchase Agreement dated April
              28, 2003

10.44        Consulting  Agreement  dated  April  15,  2003,  between  HiEnergy
             Technologies, Inc. and Charles Van Musscher

10.45        Letter  Agreement  between  HiEnergy  Technologies,  Inc. and Roth
             Investor Relations

10.46        Stock Option Agreement between Bogdan C. Maglich and HiEnergy
             Technologies, Inc. dated February 11, 2003

14.1         Code of Ethics

16.1(1)      Letter  of  Manning  Elliott

21.1         List of Subsidiaries

23.1         Consent of Singer  Lewak  Greenbaum & Goldstein  LLP,  independent
             accountants

24.1         Power of Attorney

31.1         Certification of Chief Executive Officer and Treasurer Pursuant to
             Rule 13a-14(a) (17 CFR 240.13a-14(a)).

32.1         Certification of Chief Executive Officer and Treasurer  Pursuant to
             18 U.S.C.  Section 1350, as Adopted  Pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002.

*Indicates a management compensatory plan or arrangement.

(1) Filed on May 10, 2002 as an exhibit to HiEnergy Technologies' report on Form
8-K dated April 25, 2002 and incorporated herein by reference.

(2) Filed on June 2, 2000 as an exhibit to HiEnergy  Technologies'  registration
statement  on  Form  SB-2  (File  No.  333-38536)  and  incorporated  herein  by
reference.
<PAGE>

(3) Filed on July 29, 2002 as an exhibit to HiEnergy Technologies' annual report
on Form 10-KSB for the fiscal year ended April 30, 2002, and incorporated herein
by reference.

(4)  Filed  on  September  20,  2002 as an  exhibit  to  HiEnergy  Technologies'
quarterly  report on Form 10-QSB for the fiscal quarter ended July 31, 2002, and
incorporated herein by reference.


(5)  Filed  on  November  6,  2002  as  an  exhibit  to  HiEnergy  Technologies'
registration statement on Form SB-2 and incorporated herein by reference.

(6) Filed on December 16, 2002 as an exhibit to HiEnergy Technologies' quarterly
report on Form  10-QSB  for the fiscal  quarter  ended  October  31,  2002,  and
incorporated herein by reference..

(7)  Filed  on  February  25,  2003  as an  exhibit  to  HiEnergy  Technologies`
registration  statement on Form SB-2/A (File No.  333-101055)  and  incorporated
herein by reference.

(8) Filed on March 24,  2003 as an exhibit to HiEnergy  Technologies'  quarterly
report on Form  10-QSB  for the fiscal  quarter  ended  January  31,  2003,  and
incorporated herein by reference.

<PAGE>